Historically investors have been able to ignore the legal fuss. Yes, damages
and royalty settlements have dented some cash flows, and some suits
(Research in Motion-NTP, say) have driven significant short-term volatility.
And for small companies and IP specialists such as Qualcomm, IP wins are
crucial.
Over the long term, though, investors in the technology behemoths were
rewarded for attending to which ones were bringing innovative products to
markets fastest. Legal clarity often arrives after markets have passed their
judgment: Nokia’s big victory over Apple came when the profitability of
Nokia’s phones had long since collapsed.
The various IP cases involving Google’s market-leading Android mobile
operating system – most prominently Oracle’s claim that Android makes
illicit use of Java software – could change this. Google gives away Android
to device makers, building share that can be harvested with advertising
revenue. The model will have less appeal for gadget manufacturers if they
have to pay a royalty to some other patent-holder.
And as device prices drop, IP costs become a more significant threat to
margins. If Android’s IP proves weak, that could make room for a mobile
laggard such as Microsoft. But a defeat handed to Oracle by the US patent
office last week is a reminder that this battle will be fought in many
venues, over a long period. The stakes are rising, but there is no reason to
think that the legal system is any better at keeping up. For now, investors
should still focus on the products.
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