Lesson from the smartphone wars: Litigation is not a business plan

By Alison Frankel
May 19, 2014

After almost five years of suing each other in courts in the United States and Europe over patents on mobile devices, Apple and Google abruptly announced Friday night that they’ve called a ceasefire: They’re dropping all of the litigation. They’re not even making a deal to cross-license one another’s IP, just declaring a truce and walking away.

Apple has not yet settled with Samsung, the device manufacturer that most successfully employs Google’s Android operating system, so the two companies haven’t entirely resolved their dispute; evidence from the recently concluded patent infringement trial between Apple and Samsung in San Jose, Calif., revealed that Google is paying at least part of Samsung’s defense costs. (The Korea Times reported Monday that Apple and Samsung are in global settlement talks.) Until there’s a Samsung deal, two law professors, Brian Love of Santa Clara University and Michael Risch of Villanova told Bloomberg, the Google settlement is more important as a symbol than for any actual impact.

What is increasingly obvious is that the same can be said for the entire panoply of smart device patent cases. Apple and Samsung have now been through two long and expensive patent infringement trials before U.S. District Judge Lucy Koh in San Jose. Apple has won both, but the jury in the trial that concluded earlier this month awarded the company only $119.6 million in damages, less than a day’s sales for Samsung. Most importantly, Apple failed to win an injunction in the federal-court litigation. Samsung also tried and failed, in its case at the U.S. International Trade Commission, to win any prohibition on the importation of Apple products. Microsoft, meanwhile, established in separate litigation against Google that individual patents in high-tech devices are worth a pittance.

It has taken five years and untold tens of millions of dollars in legal fees to confirm that competition over high-tech products that make use of hundreds of patents will not — and should not — be decided by the courts. Despite Steve Jobs’ famous description of Android as “a stolen product” that he would destroy through “thermonuclear war,” it simply doesn’t make business sense to throw money into a litigation bonfire that will leave you with nothing more than a handful of cold ashes.

I’ve said this before, but the settlement between Apple and Google makes it manifestly clear: No one won the smartphone patent wars.

Technology develops too fast to stomp out infringing products through slow-moving litigation, and judges and juries just don’t seem to buy the idea that any one bit of intellectual property is worth much in a device with hundreds of features. If you judge them by their deeds, smartphone makers already seem to know this. When is the last time any of them filed a new smartphone patent infringement suit?

The fight-to-a-draw outcome of the litigation is a vindication of Judge Richard Posner of the 7th U.S. Circuit Court of Appeals, who said in a decision back in 2012 that neither Apple nor Google should win cases against one another. Posner, sitting as a trial judge in federal court in Chicago, held that neither side was entitled to an injunction or damages, using reasoning that suggested no reasonable economic actor would litigate over smart device IP instead of negotiating cross-licensing deals.

Last month the U.S. Court of Appeals for the Federal Circuit mostly reversed Posner. The appeals court ventured deep into the weeds to analyze the patents at issue, which isn’t particularly interesting for anyone other than possibly Apple and Google. Of broader note was the opinion’s gentle chiding of Judge Posner for refusing to admit expert testimony on damages because he didn’t like the methodology employed by either Google or Apple. The appeals court said he should have been more flexible.

We now know, however, that Posner’s macro analysis, and not the Federal Circuit’s micro reconsideration, was right. Apple and Google admitted as much when they agreed to their settlement, which, appropriately enough, including a joint filing dismissing future appeals at the Federal Circuit. Rationality and business sense have prevailed.

I’m sure the lawyers who have represented all sides in the smartphone patent wars — who are among the smartest and ablest lawyers in the country, no doubt about it — would argue that Apple and its opponents would never have reached global peace without determining whether they could win outright in the courtroom. It took all these years of litigation, they’d say, to convince both sides to enter settlement discussions.

That’s probably true, but here’s hoping the lessons of the smartphone wars don’t have to be relearned by the next generation of innovators. Patent litigation is not a strategy for market domination, no matter which side you’re on.

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