In a private note to clients picked up by Philip Elmer-DeWitt at CNN Money, Chris Whitmore says Apple (NASDAQ:AAPL) shares could rise by hundreds of dollars each based on success in its present Android patent suits filed against OEMs of Google (NASDAQ:GOOG).
Florian Mueller of FossPatents, who has generally been bullish about Apple's chances in its litigation, is calling the claims nonsense.
Mueller is especially upset over Whitmore's belief that a settlement charging Google $10 per Android handset would add substantially to the Apple share price.
There is no realistic scenario -- not even a remotely realistic one -- in which Apple can simply tax the Android ecosystem, generating additional income but also keeping market prices and its own margins higher by (in the analyst's example) $10 per device, without losing out on the bottom line.
What is far more likely, Mueller believes, is a result where Android is hobbled by the results of court cases, where it has to work-around iOS features and come up with second-best solutions. “A $10 royalty per device is worth far less to Apple than originality,” Mueller writes.
What Apple is trying to establish in court is differentiation between what it provides the market and what rival products provide. Without that, it faces the same fate it caught from Microsoft and its OEMs 20 years ago, the status of a high-end niche product, and in fact Android's momentum in the marketplace throughout 2011 is in the process of making that happen.
After almost two years of litigation against Android, it has had some impact (not only in terms of court decisions but also in terms of discouraging the Android ecosystem from copying certain features), but in order to get any deal -- whether a flat royalty deal or a more sophisticated deal involving royalties and restrictions -- it needs much more leverage than it has at this stage.
The real problem for Apple lies in the nature of patents. They don't protect the idea of doing something. They protect the way something is done. Patents are published and designed to be worked-around. You create a better mousetrap, you patent the design, but that design becomes the guideline against which competitors can create an even-better mousetrap.
This can be seen when you look at the ads announced during CES by Acer, the Chinese PC maker. The ads look like clones of those for Apple's own products, and they copy the basic structure of Apple's offerings – MacAir devices for the desk, mobile devices for the hand, a cloud to tie it all together.
Apple may be able to sue Acer and get the ads changed, but the damage they are doing would already be done. And they can't keep Acer from having a similar product line to Apple in any case. All they can do is assure some form of differentiation, and that only after a long period of time.
It may not be enough to keep Apple from niche status in the long run.
Disclosure: I am long GOOG.
Additional disclosure: I changed the headline to make it less confrontational and make it clear that my sources aren't calling for a market share decrease as a result of litigation, just a limited increase.