A Soft Cook Behind Apple-HTC Deal: Will the Microsoft Approach Work?

Over the weekend, Apple and HTC delivered some surprising news: their global lawsuits against each other have been dropped, accompanied by a 10-year licensing agreement.  Both companies were quite pleased with the deal as HTC hopes to focus more on innovation rather than litigation, while Apple stated that they, too, will be “laser-focused” when it comes to innovation.

A brief history

Apple is on a desperate mission to take down Google’s Android mobile operating system, and it’s the device manufacturers that have become the casualties caught in the cross-hairs.  In fact, HTC was an early victim of Steve Jobs’ thermonuclear war against Android.  In their 201 dispute Apple sought to ban HTC products from being sold in the US, claiming they infringed patents including Apple’s pinch-to-zoom technology.

In May of this year, Apple was awarded a preliminary ban on HTC’s devices, the One X and EVO 4G LTE, that resulted in a delayed launch in the US.  Apple complained that the devices infringed their patent for a system to detect telephone numbers in e-mails.  HTC was quick to address Apple’s concern and found a way to work around the said patent infringement.  Apple argued that the devices still infringed their patent, and requested an emergency ban to prevent them from reaching US soil, but their request was denied.

Tim Cook going soft?

It seems ever since Tim Cook took over Apple, the company has been less interested in court appearances.  That’s a complete turnaround compared to Jobs reign, when Jobs vowed to go “thermonuclear” on Android’s entire ecosystem, spending Apple’s entire reserve to defend its product line.  But it’s been a tough directive to maintain since Jobs’ untimely death last year, and Cook is resetting expectations around his own vision for the iPhone maker.

“For as long as Tim Cook has been CEO, Apple has been less interested in pursuing legal assaults against competitors, choosing increasingly to find ways to settle differences out of court,” said Carl Howe, an analyst at Yankee Group in Boston. “This settlement indicates a softening of Apple’s legal thrusts.”

The Good

The deal with HTC could possibly open doors to end Apple’s other long-standing patent disputes with Samsung, Google, and Motorola, taking Microsoft’s approach to licensing agreements with their remaining rivals.  And a string of licensing deals could even be lucrative.  The deal with HTC could award Apple $180 million to $280 million a year, or about $6-$8 per device sold by HTC.

Shaw Wu, an analyst at Sterne Agee & Leach Inc., thinks that it’s just right for Apple to get paid for their patents, considering the high bar Apple set for product design with the iPhone and iPad.

“We think it is fair that Apple will get some licensing revenue for the intellectual property it has developed — in particular multi-touch gestures — in making the modern smartphone and tablet with touchscreens,” Wu said. “Prior to the iPhone and iPad, there were arguably no products that were close in functionality and appearance.”

This not only affect the companies involved, but end users as well.  Since both Apple and HTC have gotten their patent quarrels off the table, perhaps consumers will see improved products hit the market.  And because HTC can now legally use Apple’s technologies, we may end up with a better range of device capabilities.

The Bad

Though this deal could possibly be the start of several more licensing deals, this could also mean that Apple has even more ammunition against Samsung.  And let’s be honest, HTC is not the tough competitor Samsung’s become.  With HTC out of the picture, Apple can now focus all their legal efforts against Samsung.  It can’t be denied that Samsung is currently the top contender against Apple and the fruity company doesn’t really do well with sharing the glitz and the glory.

Though Jobs welcomed competition, he viewed Samsung products as Apple imitations.  Samsung is one of Apple’s largest suppliers of iDevice components, giving them advantage and opportunity to blatantly copy Apple’s design.  Landing deals with more Android handset makers could put the pressure on Samsung to fall in line, better positioning Apple as a dominant force in today’s mobile ecosystem.

The Ugly

What consumers will most worry about, however, is how this licensing deal will affect the price of HTC devices. They could skyrocket, since HTC will have to make up the money lost in paying for patent licensing on every device they sell.  It’s unlikely prices would go up terribly high initially, but between Apple and Microsoft tightening the screws on licensing deals, we may see prices on Android devices rising over time.  One thing’s for sure–this is a power-play by Apple as they shift tactics in their pursuit of total market dominance.