Foundations of IP Strategy

Enforcement: Apple’s IP Battle Against Samsung

The notorious smartphone battle between Apple and Samsung is perhaps the best illustration of the way in which Apple leverages its vast IP portfolio. In its lawsuits against Samsung, Apple asserted a full gamut of IP rights, including industrial designs, trade dress, trademarks and patents in lawsuits initiated in a number of jurisdictions, including Australia, France, Germany, Japan, the Netherlands, the United Kingdom and the United States. While Apple enjoyed mixed success in these various lawsuits, it was awarded millions of dollars in damages by a US court and it continues to use litigation to maintain its strategic advantage.

Licensing: Apple’s Open Innovation Ecosystem

Like Mercedes, Apple has derived competitive advantage through the offensive use of its IP; in other words, through lawsuits. However, Apple is not just about lawsuits and aggressive enforcement. The company has also been a pioneer in building open innovation ecosystems. As we saw in module 1, Apple’s App Store sells applications developed by third parties who have signed on to its Apple Developer Program. This program allows these independent app developers to access Apple’s proprietary software to build Apple-compatible applications.

This initiative provides Apple with the following strategic benefits:

• It enhances the desirability of Apple’s platform among end-users (because of the broad range of applications that can be used with these platforms as discussed below).
• It creates an additional source of revenue for Apple because:
• app developers pay a membership fee to access a menu of online tools and other supports as they develop their apps; and
• there is a revenue-sharing arrangement with these third-party developers in relation to app downloads.

Apple’s strategy is very effective in terms of locking customers into the Apple platform. Customers will be reluctant to switch platforms because they will have invested significantly in acquiring applications and content that they will not be able to readily use on another platform. Apple’s App Store now contains more than 1.4 million apps, most of which have not been developed by Apple itself, and more than 100 billion copies of apps have been downloaded from around the world.

Contrast this with some of Apple’s competitors, who focused only on the innovation in their own proprietary product rather than thinking about how they could leverage the creativity of third parties to enhance the user experience. For example, Motorola was a strong competitor in the cellphone market with its elegant and slim Razr cellphone. However, its follow-up handsets did not enjoy the same measure of success once competitors, including Apple, began to enter the field with equally appealing handsets but who also offered consumers an exceptional user experience. Apple correctly assumed that consumers would choose a superior user experience over the next new handset and fostered that user experience through an innovative IP licensing strategy.

WHAT ARE THE LESSONS LEARNED FROM THE APPLE EXAMPLE?

• Using a mixture of licensing and enforcement strategies can be a useful approach.
• In an industry that is highly competitive and where it is easy for consumers to switch between products, one effective strategy is to enhance the “stickiness“ of your core products and services by creating an ecosystem of complementary products and services through licensing to ensure that your competitive position is maintained. This ecosystem strategy ensures that your product becomes even more desirable to consumers and, once adopted, makes it more difficult for them to switch to a competitor’s platform.
• By licensing your IP free of charge and/or on terms that are readily acceptable to third-party creative developers, you might enhance the value of your trademarks and acquire a new revenue stream.