So sue me

Apple and Samsung waged a patent war over the space of seven years.

It all began when Apple sued Samsung for copying its iPhone design.

How did it define its design?

“A rectangular product shape with all four corners uniformly rounded.”

So basically if any company made a phone-shaped phone, it was infringing on Apple’s design.

You would have thought the case would have been thrown out of court. But then you would be mistaking the world for a logical place.

Instead Samsung was ordered to pay Apple $1 billion in damages.

Imagine being Samsung in that situation. A court orders you to pay Apple – your biggest rival – $1 billion for making a rectangular phone.

What would you do?

Sue them right back.

If you can patent a phone being a rectangle, then you can patent an innumerable amount of other design quirks.

Samsung got to work suing Apple. Then Apple got to work suing Samsung.

The patent war raged on for the next seven years, until in 2018 both parties agreed to settle out of court for an undisclosed sum.

What did it achieve?

Well, I would imagine many millions in legal fees for a start. It also tied up the time and resources of both companies, and many courts around the world.

But more than that, it showed how patents could be used as weapons.

Over a century earlier a similar patent war had been fought by the inventor of the telephone, Alexander Graham Bell.

According to The Worldwide History of Telecommunications, this was “a persistent patent war, comprising 600 lawsuits and lasting for 11 years.”

So patent wars are not a new intention. But our modern technology makes them far more likely to occur.

Becoming a “patent troll” is a viable business model. You simply amass as many patents as you can, wait for someone to infringe on one and then sue them.

You can then either sell them the patent yourself, license it to them, or simply take their money and stop them from selling their product altogether.

The number of patents a company holds in a particular area is also a good clue to how powerful their company is.

The more patents the hold, the more advanced their technology is, and the bigger lead they have established over their competition.

So, with that in mind, looking at the worldwide patent rankings can tell you a lot about our leading tech firms.

And luckily for us, those numbers are readily available.

Which company has the most patents?

Samsung. By a long way.

Samsung has over five times as many patents as Apple and more than three times as many as Google (Alphabet).

In second place? Canon – the photography giant.

Third is IBM, which is a notorious collector of patents.

Fourth is General Electric.

Then in fifth is Bosh.

Bosch’s dominance may come in handy over the next few years as it plans to become a major player in driverless cars.

As I have written before, Bosh components are found in almost every car in the world.

Apple doesn’t surface until you get down to 35th place.

Here’s the top 10:

Source: IFI CLAIMS

It makes you wonder why Apple decided to start a patent war with Samsung, and which side won in the end.

Since that patent war ended, Apple has begun using Samsung-made screens in its iPhones.

According to SK Kim, an analyst with investment bank Daiwa Capital Markets, business from Apple accounts for 25% to 30% of sales at Samsung’s display division.

In fact, Samsung’s Apple contracts are credited for its record profits in the third quarter of 2018.

And that brings me back to my earlier question: what did this patent war achieve?

Absolutely nothing.

But could patent wars make you money, as an investor?

As you’ve seen, patents are big business. Patent issues can often stop a promising company in its tracks.

Or, if a small, innovative company patents a new technology, it can bring it untold financial rewards.

Patents are a currency. You can buy, sell and license them.

And patents are always something my colleague Eoin Treacy looks into very closely when he is making a stock recommendation.

Eoin has a number of companies in his Frontier Tech Investor portfolio that could do very well from the next wave of patent wars.

To find out which companies they are, and why Eoin believes they will massively increase in value, you can take out a trial of Frontier Tech Investor here.

Until next time,

Harry Hamburg
Editor, Exponential Investor
In Thursday Exponential Investor Premium, Eoin asked the question: Can a subscription business model save Apple? Apple has reported its first decline in Christmas sales since 2001 and its stock has dropped accordingly. But it may have one last ace up its sleeve. Apple may soon follow Netflix, Amazon, and Microsoft’s lead and switch to a subscription-based business model. Find out why and how in Thursdays video.

Category: Technology

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