Apple’s Tactics
A Long-term Pattern of
Deliberate Exploitation.
Apple’s approach to intellectual property and innovation reveals a distinct pattern: exploiting innovative technologies that support and differentiate its products, while putting in place policies which have the effect of devaluing said technologies – all with the aim of maximizing its own profits. This strategy not only cripples cellular R&D by disincentivizing its outputs, but also distorts the overall tech landscape and, if left unaddressed, has the potential to stagnate our mobile technological progress in the long-term.
Devaluing Standard-Essential Patents.
Apple is an unavoidable licensing partner for all patent owners licensing cellular technologies. Independent studies have established that Apple takes somewhere between 70 and 80% of the worldwide industry profit on the manufacture and sale of mobile handsets. By reason of its position in the market Innovators wishing to recoup their investment must secure a license with Apple which gives recognition and reward to that investment. But Apple devised a scheme to disrupt the ability for innovators to secure a fair license.
Apple’s Financial Leverage.
However, in 2014, Apple recognized the financial leverage which it could reap by devaluing standard-essential patents (SEPs) that underpin the broader cellular marketplace. It devised a clearly articulated plan to challenge, delay and reduce licensing fees for technologies vital for the operation of Apple’s products – as discovered in the landmark 2019 FTC v Qualcomm antitrust case.
Its subsequent licensing framework includes policies which have been deemed by a Court as “economically and rationally indefensible”, yet it continues to promote this framework on its website today.
Surviving without Apple’s royalties for a long court fight is not feasible for patent holders making real contributions to cellular innovation. In the face of prolonged litigation on multiple fronts, even large companies – with shareholders to answer to – must settle at royalty amounts that are a mere fraction of the true worth of their patents.
Gaming the Court Procedures.
Apple pays less money by drawing out litigation as long as possible and then settling rather than agreeing to fair license agreements up front. It gets away with infringing patent rights for long periods of time because it is expensive for patent owners to litigate their rights and Apple has the resources to outlast and dominate patent owners in these legal challenges. Apple’s litigation strategy to delay paying for valuable patents is evident by the fact that on average they take more than twice as long to settle a patent case, as compared to a non-patent one.
In accordance with its stated policies, Apple has extracted favorable patent deals for well over a decade. Worse still, it uses those deals as a benchmark to further depress royalties against rights-holders globally, effectively creating an onslaught against patent owners and licensors like PanOptis. All according to its Devalue SEPs playbook.
Closing the Door on Innovation.
At a moment of significant tech concentration, with ecosystems’ omnipotence largely unchecked, it is crucial that the market and legal systems enable patent holders to recoup their high sunk costs and other investments and provide a reward for innovation that is appropriately aligned with their economic contributions.
Large market players must not be allowed to close the door behind them. R&D companies must be fairly compensated to continue to invest in next generation cellular technology. Otherwise, innovation will stagnate – indeed, we’ve already seen many companies significantly reduce their cellular R&D footprint. More specifically, the market for cellular technology which was once dominated by US and EU innovators has been replaced by Chinese and other Asian players as evidenced by the share of total Cellular SEPs.
When the rewards of innovation flow disproportionately toward a few tech gatekeepers, innovation, as an economic force, is diminished. Apple’s policies not only place great costs on other mobile manufacturers and innovators, but also disincentivize and reduce the number of opportunities for inventors and engineers to invest in cellular R&D.
