Market Overview

Are Apple and Samsung's Patent Wars Going Too Far?

Samsung may be a winner today, but in the end, everybody loses.

When this began, Apple (NASDAQ: AAPL) thought that it could reduce competition, eliminate copycats, and dominate the smartphone and tablet markets by claiming that its competitors (such as Samsung and HTC) infringed on its patents.

Let's suppose for a moment that Apple was completely justified in its actions. Let's assume that Samsung and HTC are guilty of cloning Apple's products, since, well…have you looked at them? If they don't legally infringe on Apple's patents, they certainly infringe on Apple's creativity and originality.

Unfortunately for Apple, Sony (NYSE: SNE) and any other company that wants to pick a fight, patent law disregards creativity and originality. In these battles, the only thing the law cares about is which company holds the oldest patent.

Thus, Apple could develop the most revolutionary product the world has ever seen. It could do so independently without ever spying on or communicating with another company. But if it turns out that Samsung had a similar concept 10 years prior – and holds a patent to back up its claim – Apple will lose. It doesn't matter if Samsung's patent was filed independently of Apple. It doesn't matter if Samsung's intentions were different from Apple's, nor does it matter if Samsung never actually intended to produce the product described in its patent. In the end, the only thing that matters is whether or not the court believes that Apple's product appears to match Samsung's patent. If the court rules in Samsung's favor, Samsung could then use that patent to extract money from Apple or to halt the sale of Apple products.

That's not to say that Apple is always innocent in these battles. But from where I'm standing, Apple isn't guilty as much as it is foolish. Up until the Mac maker launched its first round of attacks, patent infringement cases were rather scarce in the tech world. Sure, you'd hear about them from time to time. But the majority of the cases were kept quiet, and typically involved millions (not billions) of dollars. Now that Apple has made it clear that it will take no prisoners in the patent war, its competitors are out for blood. They've dug deep into their patent collections, not only to defend their products from Apple's assaults, but to see if they can retaliate. They have, and sometimes they win.

The problem Apple now faces is that it can't go back. Apple's world will never be the same again, and if the stars align against it, things may actually get worse.

Like it or not, Samsung is now in this battle for the long haul. It can't back down now or else Apple won't simply think it has won – it will actually come out the victor. Thus, Samsung will have to continue comparing its patents to current and future Apple products, hoping it can file another lawsuit that will overshadow whatever suit Apple is preparing to file next.

As the patent wars continue, tech companies aren't the only ones who will suffer. Consumers will inevitably feel the pain with higher costs and product delays. Every dollar Apple spends in court will eventually get passed on to consumers. And if a tech company anticipates a lawsuit, it may hold off on releasing a particular product until its legal team is better equipped to deal with the problem.

ACTION ITEMS:

Bullish:

If you're interested in tech companies that own a robust patent collection, consider the following:

  • With the acquisition of Motorola (NYSE: MMI), Google could wind up with more patents than any other tech company.
  • Similarly, Microsoft (NASDAQ: MSFT) was once rumored to be interested in acquiring Nokia (NYSE: NOK). While that acquisition might have serious issues, it would allow Microsoft to beef up its patent database.

Bearish:

If you'd prefer to invest in companies that sue first and ask questions later, consider these alternatives:

  • Apple is the king litigator in this department.
  • Sony jumped the gun in suing LG, leading to a retaliatory suit and a temporary import ban on PlayStation 3 consoles in Europe.

Follow me @LouisBedigian

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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