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Jason Merriam is publisher and editor of the Merriam Report providing innovative financial analysis based on dual cash-flow, accruals and capital productivity methodologies. An active investor for 35 years, he is also founder and president of Merriam Investor Services since 1990. MIS offers... More
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  • Apple: Innovator Or Vexatious Litigant?

    It was not surprising to see Apple's (AAPL) victory in its fierce patent dispute with rival Samsung.

    The cornerstone of patent law is limited monopoly. The government grants the inventor a limited-time monopoly on the invention in exchange for publishing it. The idea is to spur more invention by way of derivative works, and in a sense that's innovation by copying on the work of others.

    Society is expected to benefit from this approach, as one inventor's creation leads someone else to make something else -- thus pushing technology's advance. Patents are supposed to spur innovation, not prevent it.

    Apparently, this did not deter the Silicon Valley jury from its verdict favoring AAPL Instead, they believed Samsung had violated certain AAPL patents.

    It could be argued that the Apple phenomenon has a cult-like loyalty. The late Steve Jobs has been compared to something akin to a religious icon. Thou shall not cast aspersions against the mighty Apple. Yet, the Apple story is mesmerizing to say the least.

    It should also be noted that according to a Buddhist Abbott in Bangkok Thailand, the late Apple co-founder Steve Jobs has been reincarnated as a 'divine being'. The Abbott claims that Jobs is living in a parallel universe "not very far away from where he was as a human".

    Speaking of parallels, some have suggested software giant Microsoft (MSFT) snatched DOS from IBM. Unfortunately, Big Blue was not focused on the "personal" computer market; they remained defiantly entrenched in mainframes.

    IBM attempted to woo the public away from MSFT with OS/2, but by then it was too late. Microsoft realized the opportunity and hence a star was born. But, Microsoft Windows was for all practical purposes, bundled-software.

    To Apple's credit, they have a remarkable $600+ billion market cap and a pile of cash on their balance sheet; certainly enough to pay their army of lawyers. At one point in the trial, tempers boiled over with the judge reprimanding Apple for trying to book too many witnesses in its last few hours.

    'I am not going to be running around trying to get 75 pages of briefings for people who are not going to be testifying,' Koh told Apple's lawyer Bill Lee. 'I mean, come on. 75 pages! 75 pages! You want me to do an order on 75 pages, (AND) unless you're smoking crack, you know these witnesses aren't going to be called when you have less than four hours,' Koh said.

    She reportedly told both companies that she didn't trust any information that came from either side's lawyers, asking instead to see papers. Not only is litigation messy, but the Apple-Samsung brouhaha is expensive too.

    Vexatious litigation appears to be Apple's way of dealing with anyone standing in their way. Between January 2008 and May 2010, Apple filed more than 350 cases with the United States Patent and Trademark Office, after taking exception to other organizations'' use of terms such as 'apple', 'safari' and 'pod'.

    Critics have accused AAPL's legal department of being overly vexatious - that is, bringing action solely to harass or subdue an adversary. And you can see why: no one, it seems, from The Beatles to a supermarket, is safe from their legal challenges.

    There is nothing wrong with aggressively managing your firm's intellectual property, but when you have more money than anybody else, asking for more does not evoke sound corporate governance. Rather, it assumes a monopolistic attitude which reminds more of greedy feudalism.

    Apple's late co-founder Steve Jobs was a brilliant visionary and superb marketer. Yet, he was once mortal like the rest of us. His legacy is solidly intact, but to use the man's own words:

    "I don't think I've ever worked so hard on something, but working on Macintosh was the neatest experience of my life. Almost everyone who worked on it will say that. None of us wanted to release it at the end. It was as though we knew that once it was out of our hands, it wouldn't be ours anymore. When we finally presented it at the shareholders' meeting, everyone in the auditorium gave it a five-minute ovation. What was incredible to me was that I could see the Mac team in the first few rows. It was as though none of us could believe we'd actually finished it. Everyone started crying." [Playboy, Feb. 1, 1985]
    "Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it." [Fortune, Nov. 9, 1998]

    That said, it is safe to assume that Apple "gets" it. Judging by the exuberance of their brand loyalty from customers, it's a fair bet the company will continue "getting" it for quite awhile. However, litigating your adversary(s) into submission is not the solution.

    Technology is not a closed book or doctrine of any one principle. The difference between exploitation and opportunity is the innovation which competition provides. This isn't about Apple products, it's about a culture that insists on controlling innovation.

    Mr. Jobs was not immune to borrowing from others' playbook(s). Should not Samsung and other smart phone competitors be entitled to the same?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: MSFT, AAPL
    Aug 28 12:22 PM | Link | 2 Comments
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