Fiber series fourth week news Abstract 7

2012-01-28 11:53:24

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Apple ‘Scorched Earth’ Legal Strategy May Undervalue Its Patents

Steve Jobs, the co-founder of Apple Inc., told his biographer that he’d rather wage “thermonuclear war” with Google Inc. than make deals

to share its technology with the maker of the Android operating system.

That was no empty threat. In the 18 months before Jobs died on Oct. 5, Apple sued HTC Corp., Samsung Electronics Co. and Motorola Mobility

Inc., the three largest Android users. It alleged that the phone makers stole Apple’s technology and asked courts to make them stop.

Now, as rulings start coming in, it might be time for a détente that helps Apple maximize the value of its patents, said Kevin Rivette, a

managing partner at 3LP Advisors LLC, a firm that advises on intellectual property. When courts side with Apple and impose bans on

infringing products, competitors can often devise workarounds; in cases where Apple doesn’t win import restrictions, it would be better

off striking settlements that ensure access to a competitor’s innovation, he said.

“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?”

Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment for this story.

Early Victories

For a time, Apple’s strategy looked sound. In October, an Australian court banned the sale of Samsung’s Galaxy 10.1 tablet in that

country, and the U.S. International Trade Commission agreed to consider an import ban on sales of certain HTC devices.

Then the tide began to turn. Apple suffered a setback Nov. 30 when a higher Australian court overturned the ruling against Samsung. On Dec.

22, a German judge said he was unlikely to uphold an import ban on a version of the Galaxy, which Samsung had modified in response to a ban

on the original design.

The ITC gave Apple only a partial victory on Dec. 19 by ruling that HTC had violated only one of four patents Apple said it infringed. The

patent covered so-called data detection, a feature that helps users make a call, send an e-mail or find an address on a map with a single


Can’t Last?

HTC decided to drop the feature. That’s a significant loss for HTC, since the capability has come to be an expected part of using a

smartphone. Still, the ruling reinforced predictions that Apple won’t succeed forever in preventing Android rivals from selling gadgets

with the now-familiar hallmarks of Apple’s pioneering devices. These include touch screens and app stores.

Legal history isn’t on Apple’s side, said Marshall Phelps, former head of intellectual property at International Business Machines Corp.

and Microsoft Corp.

“Nobody has ever kept competitors out of any market with patents,” in part because software can usually be slightly changed to find a

non-infringing alternative, he said.

Exceptions, he said, include an IBM patent that characterized the basic architecture of a computer and Texas Instruments Inc.’s original

patent for the integrated circuit, or computer chip. IBM was ordered by the U.S. Department of Justice to license its patent, while Texas

Instruments decided to do the same, which has resulted in billions of dollars in royalties, Phelps said.

Many of Apple’s patents, by contrast, relate to the look and feel of devices or particular ways of using a machine, rather than a basic

technology breakthrough.

Shift Ahead

The question on the minds of many patent lawyers isn’t whether Apple should adapt its legal stance, but when. For now, the company’s

approach is costing rivals millions of dollars in fees, distracting management and preventing them from emulating Apple’s products more

boldly, said Ron Epstein, a former attorney at Intel Corp. who now runs patent licensing firm Epicenter IP Group.

Apple’s patent portfolio remains strong compared with those of rivals, thanks both to the innovations that went into groundbreaking

products such as the iPhone and iPad, and to the effectiveness of Apple’s legal department in obtaining patents for those innovations,

said Christopher Marlett, chairman and co-founder of MDB Capital Group, an investment bank that advises companies on buying and selling


“Apple has the patents, the money and the expertise to go to war,” Marlett said. “I just don’t see why Apple would seek détente, since

they’re the clear leader. Until they’re hit with an injunction by Google or Samsung, they don’t need to get serious about licensing.”

Right Back at You

Still, as more companies pour resources into the booming mobile-devices market, Apple should eventually cut deals to ensure access to

rivals’ innovations as well, Epstein said.

“How long can you beat everyone else over the head before they can do the same to me?” he said.

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 receives from Samsung and HTC, which use its mobile technology, said Rivette at 3LP.

Other Arrangements

With $81 billion in cash and investments, Apple has little need for more. Instead, the company could pursue out-of-court settlements that

would help it take on Android in other ways, Rivette said. The company could offer to drop its more than two dozen patent claims against

Samsung in exchange for an agreement to hold off using Apple technology for six months or a year, he said. Cook could also try to get price

breaks or guarantees that would give it greater access to Samsung parts, Rivette said.

Apple and Samsung also could agree to focus on different parts of the market. For example, Apple might make iPad-sized devices while

agreeing to stay out of the market for smaller devices with 7-inch displays that could compete with Inc.’s new Android-based

Fire tablet, Rivette said.

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. The

move also would make Samsung more reliant on Apple, lessening its dependence on Google.

‘Divided Loyalties’

“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.”

Apple should pursue such settlements soon, before it winds up in need of other companies’ technology, Rivette said. The ITC is expected to

rule in September on an import ban on Apple and Research In Motion Ltd.’s mobile devices, for improper use of a photo preview feature

patented by Eastman Kodak Co.

If the Commission decides there was infringement of the Kodak patent, Apple would need to settle the dispute by licensing the technology or

buying some or all of Kodak’s patent portfolio to continue selling its products in the U.S. Because Kodak has been actively trying to sell

its portfolio of 1,100 patents in recent months, Apple runs the risk that they may be purchased by Google, Samsung or another competitor.

Google Maps

While Apple is working on its own location-tracking technology, many iPhone and iPad users now rely on Google mapping tools to get

directions or find the nearest coffee shop, by way of a partnership between Apple and Google that predates the rise of Android. Nokia Oyj,

Microsoft and Skyhook Inc. also hold valuable patents for tools that keep tabs on a device’s whereabouts. Apple has made little headway in

social networking and may need deals with companies such as Facebook Inc. to add features that help users connect with one another.   “If

Apple wanted to get into social networking, they’d have a big problem,” said Ron Laurie, managing director of Inflexion Point Strategy, a

Palo Alto, California-based intellectual property consulting firm.

Working toward settlements sooner would help Apple and its rivals maintain the fast pace of innovation that has fueled the mobile-device

market, he said.

“At some point, there has to be some kind of settlement, some kind of peace,” Laurie said.
GSM phones vulnerable to hijack scams: researcher

Flaws in a widely used wireless technology could allow hackers to gain remote control of phones and instruct them to send text messages or

make calls, according to an expert on mobile phone security.

They could use the vulnerability in the GSM technology -- which is used by most telecom operators globally and by billions of people -- to

make calls or send texts to expensive, premium phone and messaging services in scams, said Karsten Nohl, head of Berlin-based Security

Research Labs.

Nohl is a well-regarded expert on mobile security who last year identified a bug in GSM technology that makes calls vulnerable to tapping.

He says he is calling attention to these flaws to pressure the industry into beefing up the security of their products.

Mobile security is a hot issue because hackers are paying unprecedented attention to the devices as smartphone sales have outpaced sales of


Only a few flaws have been found in GSM technology - which stands for Global System for Mobile Communications - over its 20-year history.

Industry lobby group GSMA said on Tuesday it did not expect the new findings to affect its views on the security of the technology.

"The GSMA and its mobile network operator members are confident in the security of existing 2G GSM networks and real attacks on real

networks against real customers are most unlikely," it said in a statement, adding that newer technologies are safer and not impacted by

the new research.

GSMA's statement "on anticipated GSM security announcements" did not make clear whether the industry group had actually seen Nohl's latest


Security experts have previously identified a small number of viruses designed to infect smartphones, allowing hackers to take control of

the devices and force them to make calls or send text messages. But Nohl said he has discovered a way to leverage previously disclosed

vulnerabilities in GSM technology that could potentially threaten hundreds of thousands of phones.

"We can do it to hundreds of thousands of phones in a short time frame," Nohl told Reuters ahead of a presentation on the topic at a

hacking convention in Berlin on Tuesday.


Smartphone malware is popping up at an unprecedented rate as people put more and more valuable information on the devices, using them to

hold corporate secrets, conduct banking and function as digital wallets.

GSM became the dominant mobile technology globally in the late 1990s and even though new, faster mobile networks have been rolled out

across the world, operators have stuck to their GSM networks to support older phones and to offer service when new networks fail.

The Berlin convention takes place just days after U.S. security think tank Strategic Forecasting Inc (Stratfor) said its website had been

hacked and that some names of corporate subscribers had been made public. Activist hacker group Anonymous claimed responsibility.

Attacks on corporate landline phone systems are fairly common, often involving bogus premium-service phone lines that hackers set up in

countries in Eastern Europe, Africa and Asia.

Fraudsters make calls to the numbers from hacked business phone systems or mobile phones, then collect their cash and move on before the

activity is identified.

The phone users typically do not realize the problem until after they receive their bills, and telecommunications carriers often end up

footing at least some of the costs.

Even though Nohl will not present all details of possible attacks at the conference, he said hackers will usually replicate the code needed

for attacks within a few weeks.


Mobile networks of Germany's T-Mobile and France's SFR offer their clients the best protection against online criminals wanting to

intercept their calls or track their movements, according to a new ranking Nohl will unveil at his presentation.

The new ranking, at, is conducted by security researchers, who hope this will heighten the awareness of operators and consumers

on the vulnerability of their mobile communications.

Researchers reviewed 32 operators in 11 countries and rated their performance based on how easy it was for them to intercept the calls,

impersonate someone's device or track the device.

"None of the networks protects users very well," Nohl said.

The sample is set to grow from 32 carriers dramatically next year as the tool enables anyone to participate in data gathering

by downloading measuring software to their phones.

Nohl said mobile telecom operators could easily improve their clients' security, in many cases by just updating their software.

Researchers reviewed operators in Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, Morocco, Slovakia, Switzerland and

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