CLSA Asia Pacific Markets, a brokerage and investment group based in Hong Kong, has given some views on the latest interplay between Apple and Samsung. Professor Doug Lichtman, of UCLA, who is also a CLSA U patent expert, discusses the many aspects of active litigation in the IT sector.
He notes that Google Inc (NASDAQ:GOOG) has based its market on giving free licenses, and generates capital from other sources, like advertising and e-commerce. The lawsuits against many mobile companies that use the Android environment are driven to increase the cost of the free Android license. If successful, the cheaper Android market will be forced to upgrade, and will result in a reduced market share for Google.
Moreover, the professor strongly believes that the actual intent behind litigation is not just to get huge settlements and payments in damages, but to have some anti-cloning agreements in place. The smartphone market is valued at $225bn, while the tablet market caps on $50bn, Apple wants a solid and unshakable share that is undeterred by copycats.
Eventually Apple Inc. (NASDAQ:AAPL) is going to lay out a mechanism from where it can seek royalty payments from those who choose to use Apple's ideas. Lichtman does not think that Samsung is going to bend to such agreements anytime soon, but there is a strong possibility that it will diversify to different technologies in the next couple of years. The most interesting point raised by Lichtman, is that this patent litigation could, in the long run, affect Apple adversely. If indeed Samsung and others strive to make their products and technology stand out in comparison with Apple's, we might see a user experience that consumers prefer. Lichtman notes that there is definite room for improvement in iPhones, and Samsung could capitalize on some unfriendly features to its advantage.
Lichtman also sees the value of Samsung and Google patents that Apple Inc. (NASDAQ:AAPL) could possibly infringe upon, but the possibilty is smaller and less impactful in light of the present war that Apple has unleashed on Samsung and HTC. A frosty relationship between Samsung and its best friend, Google, may also be expected, as the Android maker failed to stand behind its business partner. Lichtman agrees that it is impossible to decide whether it's Samsung that is copying features like, double-tap to zoom, slide to unlock, or it is Android, without seeing the source code. But there is no second view on who Apple actually wants to hurt with the patent war, the prime target is always Google in all cases.
The analysis also does not see any long lasting damage to Samsung if a big payment is made in fines to Apple, or even if Galaxy S3 is barred from selling, Samsung is simply too big to fall from such orders. The only real damage will come from "injunctions that apply to hardware features on phones that Samsung has already manufactured but not yet sold".
While the anti-cloning clauses and cross-licesing agreements will take time to take shape, guidance can be taken from Apple’s license agreement with Microsoft Corporation (NASDAQ:MSFT), signed in the 1990s. CLSA thinks that a royalty agreement could provide Apple with US$2.08-3.24 in incremental EPS in 2014. Samsung's only option seems to be diversify, the royalty agreement could drive EPS down to 2-20% . CLSA target price for Apple Inc. (NASDAQ:AAPL) is $750 while for Samsung it is 1.62m won.