Apple’s Aggressive Patent Litigation Could Be Bad For Shareholders

Android vs iPhone

Bloomberg looks at the jungle of patent litigation surrounding Apple and posits that their aggressive, offensive strategy could be harmful for shareholders.

Along with their success, Apple’s amassed an immense portfolio of patents. And, they’ve also amassed a massive portfolio of patent infringement lawsuits.

Kevin Rivette, an intellectual property advisor, takes note of Apple’s offensive strategy as a whole.

“A scorched-earth strategy is bad news because it doesn’t optimize the value of their patents — because people will get around them,” said Rivette, whose clients include Android licensees. “It’s like a dam. Using their patents to keep rivals out of the market is like putting rocks in a stream. The stream is going to find a way around. Wouldn’t it be better to direct where the water goes?”

Instead of wasting time and money in long drawn out court battles, Bloomberg believes that licensing patents would be a better strategy in the long term.

Tim Cook, who took over in August when Jobs announced he would be unable to come back as CEO, has many other ways to take advantage of the company’s patent portfolio. The company could probably collect as much as $10 in royalties for every device sold, more than the amount analysts speculate Microsoft (MSFT) receives from Samsung and HTC, which use its mobile technology, said Rivette at 3LP.

In addition, Rivette suggests that Apple could use its patent licensing as leverage. For example, they could allow Samsung to use its patents so long as they delay the launch of their device by six months.

If Apple agreed to let Samsung include Apple’s proprietary iTunes software in such a device — an unprecedented and unlikely step, he said — Samsung’s sales would probably increase. That would help slow gains by Amazon, whose push into hardware makes it a threat to Apple.

Rivette points out that Apple needs to look at the long-term effects of its patent policies, and how they can stimulate growth in the technological community while still maintaining an advantage.

“If I’m Apple, I want divided loyalties” from Android licensees, Rivette said. “At this point, it would make more sense for Apple to build an ecosystem that everyone can live in. If you’re going to license, why not go for the big deal where you lock down supply chains, get your technologies broadly adopted and slow down competitors? That is the game.”

Of course, not everyone agrees. Christopher Marlett, the chairman and co-founder of MDB Capital Group, believe that Apple’s in a very strong position and they shouldn’t back down. That may be not be the case forever. While Apple’s patent portfolio is strong and they’ve had some success against companies like HTC, the tides seem to be turning a bit. Apple lost their bid to halt Samsung from selling the Galaxy Tab in the US, and Motorola won an injunction against Apple in Germany in relation to a 3G modem patent.

As Ron Laurie, managing director of IP consulting firm Inflexion Point Strategy, points out, working towards settlements helps drive innovation and profit for all companies in the mobile market. Perhaps it’s time Apple reconsiders their strategy. What do you think? Sound off in the comments.

[via Bloomberg]