Despite Apple's (AAPL) ferocity in the courtroom, at least when it comes to the protection and enforcement of its intellectual property, the Cupertino-based company has found itself to be the defendant in a number of lawsuits around the world, and some investors might be beginning to fear that Apple could die the death of a thousand cuts. Litigation is expensive, and companies large and small are suing Apple around the world, and so those fears are not entirely unsubstantiated. It's pretty tough to forget the $100 billion sitting idle in Apple's bank account, and by some estimates Apple now trades at less than 10x fiscal year 2013 earnings excluding that cash hoard. That said, litigation is not cheap, especially when you hire the world's most expensive attorneys, and, as a result, investors might be questioning Apple's wisdom in pursuing an offensive litigation strategy that pits Apple as the legal aggressor in the global technology marketplace.
Here are a few numbers that have been circulated illustrating the scope of Apple's legal fees. Apple spent at least $32 million in one patent infringement dispute with Google, more than $2 million on a single expert witness in its San Jose lawsuit against Samsung, and as much as $1,200 for one hour of one lawyers time (and you can be sure they have more than one on the payroll). To some extent what is behind all of these expenditures is, of course, the late Steve Jobs' pledge to spend as much as $40 billion on thermonuclear war. But what if Apple really spent that much money on intellectual property litigation? Would there be any clear gains? Would the company be worth investing in at that point?
Here's a quick recap of some of Apple's domestic intellectual property imbroglios. In the U.S., Apple has been sued by Nokia (NOK) for infringement of Nokia's patents relating to wireless technology. Apple also become involved in a patent litigation with Eastman Kodak (EK)(trading suspended as of January 2012) in the context of the latter's bankruptcy court filing, namely because Apple's claim to the ownership interest in certain patents in Eastman Kodak's portfolio would prevent the sale of those assets in a bankruptcy liquidation. Apple has been sued by Google (GOOG) over patents held by the recently acquired Motorola Mobility, and by Samsung on the basis of its standards essential utility patents. The word is that Samsung is also considering a suit against Apple over the iPhone 5's use of LTE technology. Of course, that's not including lawsuits brought against Apple on behalf of the federal government, for example, the Department of Justice's anti-trust case for alleges price-fixing with respect to e-book publishers.
Abroad, Apple has been on the wrong side of the "v" in a number of China-based intellectual property cases as well. Keep in mind rent-seeking trademark litigation is much easier to bring because of China's first-to-file trademark regime, where Apple has proven to be susceptible to legal attack for a range of its products. The Proview lawsuit over the iPad trademark resulted in a settlement. That case ultimately settled for $60 million. Clearly, the precedent had been set for trademark trolls, and with blood in the water, Jiangsu Xuebao sued Apple for trademark infringement in early July, claiming ownership of the Chinese translation of "Snow Leopard," or "Xuenbao." A university in Taiwan has also filed a patent lawsuit against Apple over Siri voice recognition technology, claiming that it owns the rights to two voice-recognition patents.
Given all of this activity, one wonders whether Apple could potentially be crushed under the weight of these lawsuits, or at the very least, what Apple gets in return for all of the legal fees expended in the defense of its intellectual property? Some would say that the drive to defend its intellectual property is based upon the company's desire to be recognized as a true innovator. While that might not seem to be something to which investors can attach monetary value, they shouldn't be so quick to disregard the importance of public perception.
After all, the premium that Apple charges for its products is ultimately based upon its brand value, and Apple's brand value is precisely what is at stake in all of these lawsuits. In order to fully understand the value of Apple litigation, we need to imagine a world where Apple allows Chinese companies to make counterfeit Apple products, where the company idly stands by as imitators make near replicas of its aesthetically pleasing products, and in which Apple avoids huge markets and opportunities like China in order to avoid lawsuits from trademark trolls. Clearly, that world doesn't bode well for Apple, particularly given Wall Street's growth expectations for all companies, Apple included.
Perhaps an even more critical reason for Apple to protect its image as an innovator is because that image is critical to the Apple brain trust, and to the talent Apple attracts to work at the company. This, of course, applies not just to the technical aspects of its hardware and software, but to its marketing, public relations, and promotions prowess as well. From that perspective, it would appear that Apple's intellectual property litigation strategy represents management's interest in pursuing a long-term, growth-oriented strategy focused on maintaining the value of the company's core assets, and ultimately bolstering the value of the company's goodwill, while setting a stern precedent for those that would seek to free ride on that goodwill, whether it be the rent-seeking Chinese trademark trolls or major tech sector competitors the likes of Google.
In short, while investors may buy on momentary upswings when Apple secures a legal victory, or sell when it suffers a loss, those short-term trades do not represent the real value of Apple's intellectual property litigation. Rather, it suffices to know that Apple is doing what it needs to do by securing its intellectual property around the globe, and being proactive in ensuring that competitors are prevented from trading on its good will, or at a minimum deterred from doing so.