Smartphone Patent Suits Challenge Big Makers

Smartphone Patent Suits Challenge Big Makers
By STEVE LOHR
Copyright by The New York Times
Published: July 8, 2010
http://www.nytimes.com/2010/07/09/technology/09patent.html?th&emc=th


NTP, a patent-holding company best known for prying a settlement of more than $600 million from the maker of the BlackBerry, is now suing the other big names in the smartphone industry: Apple, Google, Microsoft, HTC, LG and Motorola.

The suits, filed late Thursday afternoon in federal district court in Richmond, Va., charge that the cellphone e-mail systems of those companies are illegally using NTP’s patented technology.

The round of litigation against leaders in the smartphone hardware and software market is the latest step by NTP to assert that its intellectual property is the foundation of modern wireless e-mail systems and that major corporations are infringing with impunity. Its critics have said that NTP has consistently inflated the importance of its innovations and that it is the very model of a patent troll, a company that produces no product or service other than licensing demands and lawsuits.

NTP and Research in Motion, the maker of the BlackBerry, fought in the courts for years, with NTP fending off most legal challenges. Indeed, R.I.M. settled with NTP in 2006, a few months after the Supreme Court refused to hear the Canadian company’s appeal. The $612.5 million pact included a perpetual license for R.I.M. to NTP’s technology.

The potential payday for NTP in the current litigation is uncertain. It could be as much as several hundred million dollars, legal experts say. But it could be far less because technology and product designs change quickly and recent smartphone e-mail systems may well have been designed with an eye toward avoiding NTP’s patents.

The companies named as defendants in the suits declined to comment.

But whatever the outcome in the latest suits, NTP has already altered the patent economy, legal experts say. Big technology companies, they say, no longer ignore sizable patent clusters in their field, but go looking for them. R.I.M., by contrast, first learned of the NTP infringement claim in a letter in 2000, when the Virginia company tried to persuade R.I.M. to license its technology.

NTP was founded in 1992 by an engineer and inventor, Thomas J. Campana Jr., and Donald E. Stout, a lawyer. Its initial patents grew out of work that Mr. Campana, who died in 2004, had done in 1990 for AT&T for relaying messages from a computer to a wireless device — a pager or a cellphone. His collection of patented technology covers wireless e-mail and the design of radio antennas used on mobile devices.

He never did commercialize his technology. But the NTP claim is that despite all the work done by others in the field, Mr. Campana was indeed the creator of wireless e-mail. And NTP, a private company owned by about 30 investors, is wielding those patents in its new lawsuits.

“Every infringer is now on notice,” said Ron Epstein, counsel to NTP. “They are going to have to deal with this instead of trying to wait it out.”

The NTP patents expire in 2012.

In recent years, big companies have increasingly turned to patent-buying groups like Intellectual Ventures, RPX and Allied Security Trust, a nonprofit organization. These groups essentially provide big companies with insurance against lawsuits on the patents they hold or license, in return for fees or investments.

The R.I.M. case, said Robert P. Merges, a law professor at the University of California, Berkeley, proved to be “a major milestone in the evolution of the patent ecosystem,” spurring the adoption of tactics to reduce the risk of huge payouts.

The United States Patent and Trademark Office also conducted a lengthy re-examination of NTP’s patents. That process winnowed the company’s portfolio of legally valid patents.

But last December, the patent office’s board of appeals ruled that 67 of NTP’s patent claims in four patents were valid, including three claims that R.I.M. was found to have infringed. NTP filed a petition with a federal appeals court to overturn other patent claims that the patent office rejected.

A previous group of suits, filed by NTP in 2007 against several telecommunications carriers, was stayed pending the outcome of the patent review. The companies sued in the carrier suits included AT&T, Sprint Nextel, T-Mobile and Verizon Wireless. Those cases have not yet been settled or come to trial.

A few companies other than R.I.M. have licensed NTP’s mobile e-mail patents, including Nokia and Good Technology.



Opening a Big Store in China, Apple Remains a Market Underdog
By DAVID BARBOZA
Copyright by The New York Times
Published: July 8, 2010
http://www.nytimes.com/2010/07/09/technology/09apple.html?th&emc=th


SHANGHAI — Although Apple is widely admired in China, most fans of its products here have been buying their iPhones, iPods and Mac computers from smugglers who operate through underground electronics markets.

The company, which has been slow to cultivate the Chinese market, has relatively few sales outlets in the country and only one Apple Store — a modest branch in Beijing.

But with Apple set to open a flagship showroom on Saturday in Shanghai — one of its largest stores in Asia — the company is making a new push to tap into the world’s biggest mobile phone market and grab a bigger share of China’s fast-growing consumer electronics business.

Success is far from guaranteed, because the company will be going up against big, entrenched competitors in both the personal computer and mobile phone markets. And its newest, hottest products — the iPad and the iPhone 4 — are not yet available in China, and the company has not announced when they will be.

Apple intends to open 25 retail stores in China over the next two years, starting with the 16,000-square-foot Shanghai outlet that it previewed for reporters on Thursday.

“We view this store as a kind of launching pad,” Ron Johnson, a senior vice president based in California and the head of Apple’s retail operations, said at the preview.

By opening retail outlets in China, Apple is following other global brands eager to market to the growing numbers of increasingly affluent consumers in this country of 1.3 billion people. With retail sales booming in China this year, companies like Best Buy, the Gap, Nike, Starbucks, Zara and most of Europe’s big luxury goods makers are opening stores in China.

Analysts who follow Apple say that China is a potentially huge opportunity for the company because its market share here is tiny — less than 5 percent in big categories like personal computers, music players and mobile phones. But it has been adding authorized Apple dealers in China — expanding those ranks by about 800 in this year’s first quarter, bringing the total to around 2,000 locations.

“Apple plans a major invasion of China over the next 18 months to two years,” said Charles Wolf, an analyst who follows Apple for Needham & Company and credits its retail stores with significantly bolstering Apple’s brand. “To date, Apple has not been a force in China. But it will be.”

Still, other analysts say Apple faces significant hurdles. The challenges of finding Chinese partners has tended to delay product releases. China’s mobile phone market, for example, is tightly regulated and state-owned companies control service contracts.

And sales through official distributors have been weakened by prices that are substantially higher than in the United States (about $864 upfront for the 3GS model with a complicated calling plan requirement of a two-year commitment that involves an additional monthly fee), driving a brisk underground trade in smuggled goods.

The iPhone was not officially released in China until late last year, nearly two years after its introduction in the United States because of what analysts say were long-running negotiations with state-run telecom companies, and restrictions on what kinds of services could be offered.

By then, analysts say, more than one million iPhones had been brought into the country by tourists or smugglers and unlocked by Chinese hackers, enabling use without a long-term contract.

Apple also faces stiff competition from Nokia, Motorola, HTC and other mobile phone brands that use Google’s Android operating system. Those companies have been aggressively marketing their products in China, which has more than 650 million mobile phone users.

Even Lenovo, the Chinese computer maker, has entered the smartphone market by introducing what it calls the LePhone, which is priced at about $400, far below the iPhone in China.

In an interview published in The Financial Times on Monday, Liu Chuanzhi, the head of Lenovo, said Apple was missing a huge opportunity in the Chinese market because the company was spending too little time serving Chinese consumers and understanding their needs.

Apple declined to comment on the Lenovo statements. But Apple executives say they hope that building stores in China will give the company more direct contact with its consumers and duplicate the excitement Apple has generated elsewhere. If Apple opens 25 stores by 2012, analysts say China would very likely become the company’s third-largest market.

Retail stores could also aid Apple’s partner here, China Unicom, a state-owned telecom company that has an exclusive multiyear deal to sell the iPhone in China.


Analysts estimate that China Unicom has sold about one million iPhones since late last year. They say the company had expected to sell far more by now but that the high price of the iPhone has prevented stronger sales.

“The price of the official iPhones is too high compared to that on the gray market,” said Sandy Shen, an analyst at Gartner, the research firm based in Stamford, Conn. “Also, Apple has too few retail stores in China. It is inconvenient for consumers to find one when they want to buy the iPhone, iPod or Mac.”

China Unicom trimmed $147 from the iPhone plan, and analysts say that sales have picked up.

Black market merchants say that even with new Apple stores, they have an advantage.

“They won’t have any impact on our clients,” Yang Zijie, an unauthorized vendor selling smuggled Apple products, said Thursday at an electronics market in Shanghai. “Their price for the iPhone 3GS is much higher. Customers who already got used to the price of smuggled goods won’t turn to them. And they don’t have the iPhone 4 or the iPad at all.”

But many analysts predict that consumers will flock to Apple stores. Apple products are widely and even comically imitated in China — there’s the iPed, iRobot, iOrgane and aPad — and the large number of actual Apple phones smuggled into the country is an indication of pent-up demand.

Apple should get a better sense of that demand on Saturday, when the Shanghai flagship store is set to open in a fashionable mall in the Pudong financial district near some of the city’s gleaming new skyscrapers.

The shop is designed in Apple’s sleek, minimalist style and punctuated by a 40-foot-tall cylindrical glass shell that echoes the company’s glass cube on Fifth Avenue in New York.

The store has about 175 workers. Customers enter through a winding staircase that takes them into an underground area that sells computers, smartphones and accessories. It is outfitted with the company’s usual Genius Bar, where customers can get technical support, as well as a “briefing room” intended for business seminars.

On Thursday, Mr. Johnson was beaming as he introduced the store’s features to about 100 Chinese journalists, saying the shop offered “all the hallmarks of an Apple store experience plus a couple more.”

At the end of his briefing, even the reporters seemed to have been pulled in by Apple’s aura, breaking into loud applause.


Bao Beibei contributed research.