Posner Gives Apple One More Chance

Jun.15.12 | About: Apple Inc. (AAPL)

Analyst (and Oracle consultant) Florian Mueller was in high cotton yesterday, joyful over Judge Richard Posner's decision to give Apple (NASDAQ:AAPL) a chance to argue for an injunction against Google (NASDAQ:GOOG) for patent infringement.

Mueller thinks this may mean Posner is ready to rule Android out of the market altogether, that he has changed his mind.

That's not how investors should bet.

Posner has realized, from reading the briefs and listening to the arguments for months, that the most potent relief either side could get would be an injunction keeping the other side's gear from the market. This is already a reality in Mueller's home of Germany, where individual products have been forced off shelves after courts ruled they violated some patent.

While giving both sides' lawyers the chance to argue for a German solution, Posner is looking for a different kind of precedent. From his order:

The parties should be prepared to address the possibility of substitution for an injunction of an equitable decree for a reasonable royalty going forward.

In short, Posner wants this settled as a business deal is settled, through a settlement rather than the open warfare of keeping competitors from reaching customers. He may even be aware that carriers like Verizon (NYSE:VZ), seeing greater profits in Android gear, are now succeeding in pushing customers toward it, away from the iPhone.

If Apple has a case, it should be looking for a piece of that action, not the obliteration of its rival. That's my reading of Posner's thinking in any case.

His one-page order also addresses the other side of the case, Google's call for an injunction against Apple based on a Motorola patent essential to mobile phone standards. Again, from his order:

And if Motorola means to argue for injunctive relief it should be prepared to address the bearing of FRAND on the injunction analysis.

Translation: I suggest you not go there. (FRAND stands for Fair, Reasonable And Non-Discriminatory, terms under which patented inventions have been added into industry standards in the past.)

Posner, who has made his career as an appellate judge, seems well aware of his judicial celebrity and the precedent his handling of this case might make on future software patent issues. He's pointing toward a financial settlement, either through an agreement of the parties or imposed by the court.

What this means for investors is that you should not be basing investment decisions on what is happening in courtrooms, but relying instead on what is happening in the marketplace. Apple's margins are due for some compression, at least in the U.S., which will make it appear the stock is in trouble unless it can increase its brand presence in China. Which is just what it's in the process of doing.

Disclosure: I am long GOOG, AAPL.