‘Apple will push its legal claims hard and unrelentingly’
The payoff should Apple prevail in the patent wars: an estimated $30 billion
In a note to clients issued Thursday, Bernstein’s Toni Sacconaghi takes a hard look at the flurry of patent lawsuits Apple AAPL has launched against the manufacturers of Google GOOG Android phones.
All in all, he likes Apple’s chances. The two key bullet points (we quote):
We anticipate that Apple will push its legal claims hard and unrelentingly and believe that the company’s key goal is to upend Android’s momentum by forcing a work around on key essential features which, if successful, could have huge, positive financial implications for Apple. Given that Apple appears to have more to lose in any one legal case than they might gain (since Apple ships a much higher value of smartphones than any other player), logic suggests that Apple feels confident in its odds of winning patent disputes it initiates. Should Apple prevail in forcing Android to rework some of its functionality, resulting in market share shifts, it could have huge, positive financial implications for Apple: we note that a 10 percentage point shift in smartphone market share from Android to Apple (the current run-rate smartphone market share is 46% for Android vs. 18% for Apple) in 2013 is worth an estimated $30B+ in annual revenue and $10+ in annual EPS to Apple.
Apple appears to have the strong upper hand in its legal battle with HTC, but we see the current rulings as only a warm up bout. A second Apple suit against HTC – as well as separate suits against key Android vendors Samsung and Motorola – involves its iOS multi-touch patents, which we believe are the key pieces of IP that Apple ultimately seeks to reaffirm at all costs, given their potential to undermine Android. While HTC (specifically, its recent acquisition – S3 Graphics) and Apple recently won preliminary judgments against each other at the US ITC, we view S3’s victory as limited in scope (unlike Apple’s claims against HTC) and not posing a credible threat to Apple. More importantly, however, Apple recently launched a second case against HTC claiming infringement of its key multi-touch patents. We believe this is the much more important battle, and one which courts have yet to rule upon. Apple’s legal suits against other key Android OEMs (Samsung and Motorola) also include claim violation of such patents. Consistent with the importance of this IP, Apple’s recent settlement of its patent dispute and accompanying licensing agreement with Nokia does not appear to involve these patents.