Thursday, December 6, 2012

Apple-HTC terms are consistent with what Steve Jobs told Eric Schmidt (but not with his biography)

The public filing of the Apple-HTC license agreement, with the exception of its financial terms and a few details, is the most important smartphone patent news in the build-up to the Apple-Samsung injunction hearing. I have just commented on the scope of the agreement, which is limited by an anti-cloning provision, and what it means for today's discussion of whether Apple should be granted a permanent injunction against Samsung.

The first license deal ever to have become known between Apple and an Android device maker certainly raises the question of whether Apple's current leadership has softened its stance compared to what the company's iconic co-founder and two-term CEO, Steve Jobs, had in mind when he sued HTC in March 2010 (and two other Android device makers, Motorola and Samsung, within 13 months). Time and time again Apple's adversaries have pointed courts to a passage in the biography authored by Walter Isaacson. Purportedly, Steve Jobs vowed to destroy Android because he considered it a stolen product, and said he was willing, if necessary, to spend all of Apple's cash reserves on the pursuit of this cause. According to the book, he even declared himself prepared to wage "thermonuclear war".

This reporting has led people to believe that Apple's patent enforcement against Android was an emotional crusade more so than a smart business choice, and has made Apple appear to be a ruthless, anticompetitive aggressor. I never believed any of that. In many interviews over the last 12 months I've urged reporters not to attribute to emotion what can be explained with strategic/competitive needs (differentiation vs. commoditization) and, especially, not to attach too much weight to what was, if authentic (which I obviously don't know but which I'll presume in the following for the sake of simplicity), merely a private comment and thus can't be compared to public statements. In particular, comparing a private remark by Steve Jobs to public statements by his successor, Tim Cook, would be completely flawed and unlikely to lead to accurate conclusions.

The different things Steve Jobs said must be weighted according to context. The logical starting point is not his biography but the press release with which Apple announced the HTC lawsuit in March 2010. It contains this Steve Jobs quote:

"We can sit by and watch competitors steal our patented inventions, or we can do something about it. We've decided to do something about it," said Steve Jobs, Apple's CEO. "We think competition is healthy, but competitors should create their own original technology, not steal ours."

There's no contradiction between that statement and the published terms of the deal. If one interprets the verb "to steal" narrowly, the anti-cloning provision definitely prevents such theft. Even if a moderately broad interpretation would arguably lead to the same result.

In my opinion, even a broad interpretation of "to steal" makes the March 2010 statement consistent with the November 2011 license deal. In the broadest sense, a patent holder can claim that technology is "stolen" even if a patent is interpreted so broadly that it is inevitably infringed by any reasonable implementation of a feature. But HTC is now paying for, not stealing, those basic technological concepts. Think of this as two concentric circles. The inner circle is the narrower understanding of those patents: the anti-cloning part of the deal makes this off-limits for HTC. If you subtract the inner circle from the outer circle, you get the part that HTC is now paying for: it no longer has to worry about patent assertions based on a broad claim construction.

The slide-to-unlock feature is used in the agreement as an example. It's familiar to me. As a matter of fact, no one outside Apple has attended more slide-to-unlock trials than I have. Almost all slide-to-unlock trials that have taken place so far were in Germany. An unreasonably broad interpretation of Apple's slide-to-unlock patent would cover any slide-to-unlock mechanism, but that interpretation would never work because there is prior art such as the Neonode N1m. A reasonable but still extremely Apple-friendly understanding of the patent would cover all slide-to-unlock mechanisms that involve an image that the user moves around the screen. No court adopted such an interpretation, at least not for the original slide-to-unlock patent (Judge Koh actually adopted an extremely broad, in my view exceedingly broad, claim construction of the newer slide-to-unlock patent). Under the HTC deal, "a specific graphical slide animation used in a APPLE Mobile Communication Device[] at the bottom of a display screen [...] could qualify as a Distinctive Apple User experience [thus be barred], however, a different animation (for example a bubble slider) or an animation at another location (for example along the side of a screen) would not be considered substantially simila and would not constitute a Cloned Feature". There you have it again: no assertions based on the outer circle, but still no license to infringe the inner circle.

Apple's March 2, 2010 press release was also consistent with what, according to the Isaacson biography, Steve Jobs told then-Google CEO (and now-Google executive chairman) Eric Schmidt a few weeks later. Reportedly, Jobs told Schmidt that he wanted Google to stop using Apple's ideas in Android. And he said that he didn't want Google's money. This is now again a matter of interpretation, but I view it this way: Apple still doesn't accept money in exchange for letting someone infringe the inner circle. As I said in my previous post, it's distinctive user experience is not for sale.

What's key here is to interpret "don't want your money" commercially reasonably, not literally. In the world of business, the question is usually just whether the price is right, and "not for sale" can mean "unless you make me an offer I can't refuse". For example, if a soccer club comments on rumors that another club is poaching a player and says "we won't even negotiate", it usually just means that they want an insanely high price. If Google could (which it obviously can't) acquire Apple, it would get to own all of Apple's technology, too. What Steve Jobs realistically meant to tell Eric Schmidt was that Apple values its distinctive user experience so much that it would never sell it to Google (and its device makers) at a price at which those could still have a viable business, so there's no point in negotiating.

With a sense of commercial realism one can definitely reconcile the HTC agreement with Steve Jobs's public statement in the press release as well as the message he reportedly delivered to Eric Schmidt in a Palo Alto cafe. And in my view the HTC agreement passes the ultimate mental test: would Steve Jobs have done this deal, too? Now that most of the agreement is publicly available, I guess it really comes down to how much HTC is paying, but in principle, this is a deal that he could have done without contradicting his own public statements or backtracking on what he had told Eric Schmidt. However, the deal doesn't mix at all, no matter how you look at it, with the vow of a "thermonuclear war" and the notion of "killing".

If you want to "kill" someone, you can't draw a line and say "stay out of the inner circle, but I'll let you enter the outer part of the circle if you pay". In that case, you have to draw the widest possible circle and say "stay out of here entirely". You then have to enforce lethal patents: patents that are so broad you can't work around them in a way that still allows you to succeed in the marketplace. Apart from standard-essential patent abuse, it's incredibly difficult to literally "kill" a large player (with resources to defend himself) with patents. The broader a patent is, the less likely it is to survive a challenge to its validity. Apple has won a number of sales bans in different jurisdictions, but all of them were narrow enough that they could be worked around without catastrophic consequences. Over time Apple may also identify some high-impact patents that really are valid, but even if they reached that point, I believe they wouldn't want to "kill" anyone. They would just use such patents as leveage to get an HTC-like deal.

Maybe Steve Jobs overestimated Apple's ability to "kill" others with its patents. Maybe he thought that Apple had been so innovative that it would have some arrows in its quiver beyond the slide-to-unlock and rubber-banding category of patents. Maybe -- maybe -- the fact that many of the 20 patents Apple asserted in its March 2010 lawsuits against HTC cover fundamental computing technology (operating system functionality, real-time signal processing, object-oriented programming, networking) and were filed long before the iPhone is an indication that the original plan could have been to force HTC to drop Android and focus on other platforms. But there is no hard evidence that Apple ever wanted to destroy the competition. It wants the competition to play by certain rules, and we could all have endless debates over whether this is the way things should be, but thermonuclear it's not.

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