Lawsuits and Apple Pie: It's the American Way

On the morning of Jan. 9, Steve Jobs took the keynote stage at the Macworld Conference to introduce a new device he called the "iPhone." When he was done wowing the crowd, Jobs unceremoniously mentioned that Apple Computer Inc. (Nasdaq: AAPL) was changing the name to simply "Apple Inc."

With a wave of his hand towards the screen behind him, Steve Jobs chronicled Apple's merchandise: the Mac, the iPod, the Apple TV and the new iPhone. He then quipped that "the Mac is the only one you really think of as a computer." So in a span of 35 seconds, Steve Jobs erased the word "computer" and asserted that the compressed "Apple Inc." better reflects the products and direction of the company.

One word that everyone ascribes to Apple is "innovative." It is difficult to find a company that can ooze the same level of creativity as Apple. For the third year in a row, Apple topped the list of Business Week's 50 Most Innovative Companies, beating out the likes of Google (Nasdaq: GOOG), Toyota, GE, IBM (NYSE: IBM) and Sony (NYSE: SNE).

Apple is successful because it focuses on design more than technology -- not the physical design so much as the basic interaction of the corporeal human intellect with a piece of technology.

Apple is rarely the first batter in the lineup of a new technology. The iPod was not the first portable digital music player, the Apple TV is not the first media box and the iPhone is certainly not the first smartphone. Apple takes a product line; destroys old, tired conventions; applies fresh, fertile mojo; and bedazzles the world with a unique perspective on the product while other companies are left shrugging their shoulders.

A Patent a Day Keeps the Lawyers Away

The tangible measure of innovation in the United States and most of the world is the grant of a patent. General consumer goodwill and happiness go a long way in bolstering a company, but governmental protection (and monetary prizes) for an invention comes from a patent.

The U.S. Constitution empowers the legislative branch to secure a limited-time monopoly for an inventor. In order for an invention to be patentable, it must be novel (new), useful and not of an obvious nature (i.e. substituting metal instead of wood for a desk would not be patentable unless the metal was a new alloy or used in a totally unique configuration).

Patents usually take several years to be granted and last for 20 years from the date of application. A patentee enjoys the "right to exclude others from making, using or selling the invention throughout the United States." If another company infringes on a patent, the two sides either go to court or agree to a settlement.

Apple currently holds around 2,000 patents.

The Apple Look

While a patent protects an invention, a copyright protects an original artistic or literary work. Copyright grants an exclusive right of reproduction and distribution to the owners of "original works of authorship." The concept has been pulled through the ringer in the contemporary digital age, but copyright law continues to provide an important source of income for artistic intellectual contributions.

Today, most of us take the graphical user interface (GUI) of a computer for granted. However, back in the 1980s both Apple and Microsoft (Nasdaq: MSFT) were developing the idea of graphical icons and windows as a way to interact with a personal computer.

In 1988, Apple decided that Microsoft Windows 2.0 looked a little too much like the GUI that Apple had developed, and they filed suit. Apple claimed that Microsoft had substantially copied the "look and feel" of the Macintosh operating system as a whole. The judge, however, insisted that Apple's copyright did not apply to the overall idea of resizable windows, etc., but instead required Apple to enumerate the individual elements of the operating system that Microsoft infringed upon.

Apple provided a list of 189 elements of their GUI that they claimed Microsoft copied. Unfortunately, the judge found that each element was either previously licensed to Microsoft or it was not original enough to be copyrightable.

The two companies eventually settled their differences in 1997.

The tables were turned on Apple in 2007 when a small Illinois-based company alleged that the Mac OS X 10.4 infringed on a patent entitled "user interface with multiple workspaces for sharing display system objects." The company, IP Innovation, insists that Apple willfully infringed upon a patent that was awarded to Xerox (NYSE: XRX) in 1987 (and subsequently transferred to IP Innovation). The complaint, filed on April 18, 2007, does not specifically list which features of the Max OS infringes the patent, but the patent could be read broadly to apply to any interface that allows you to switch back and forth between different views (tabbed browsing, for example).

Only time will tell how far this particular matter will go, but it is apparent that Apple will continue to face similar lawsuits when they release future improvements for their Macintosh operating system.

Everybody Wants a Piece

The iPod is the undisputed heavyweight champion of digital music players today. Apple has sold over 100 million iPods even though it was not the first company to offer such a product.

For example, Creative Technology was shipping its Nomad Jukebox MP3 players several months before the iPod made its debut in October 2001. When Creative saw how easy the iPod allowed you to select an artist or song, it recognized the interface looked extremely similar to what it used on its own Nomad Jukebox MP3 players. Creative had patented its interface, and in late 2006, Apple agreed to pay Creative US$100 million for a paid-up license to use the technology detailed in the patent.

In 2005, a small Chicago-based company called Advanced Audio Devices made a broader allegation against Apple, claiming that the iPod infringed upon its patent for a "Music Jukebox." The patent describes a device that "includes a housing, ... [an] audio output structure ... and a data storage structure ... for storing audio signals." The patent certainly appears broad enough to cover the prolific iPod, but it will remain to be seen if the companies will settle the dispute.

In late 2005, Quantum Technology Management accused Apple of infringing upon a patent that covered the capacitive sensing technology used in iPod click wheels. The suit was filed in December 2005 but was kept quite until January of 2007 when settlement talks were revealed.

Even the synergistic Nike+iPod product was not immune to claims of infringement. Colorado-base PhatRat Technology alleged in late 2006 that Apple infringed upon several patents that covered wireless products that measured the wearer's performance. Apple has denied all material allegations, but the finish line for the lawsuit still looms ahead.

When you're king of the hill, you have to be prepared to defend your territory. Apple is constantly defending against both legitimate and groundless claims that the almighty iPod stepped on many inventors' toes during its climb to the top. Apple also aggressively pursues anyone that dares to use the word "iPod" or even "pod" for a product based on a fear that it will dilute their valuable trademark.

iPhone Mania

A trademark is a word, phrase, symbol or design that identifies and distinguishes the source of a product. While Apple imperiously polices anyone's use of the word "iPod" or "pod," the company appeared to exude a double standard when it blatantly used the Cisco-owned iPhone trademark for their newest product.

Cisco (Nasdaq: CSCO) obtained the iPhone trademark when it acquired Infogear Technology in 2000. The Linksys division of Cisco has been selling a line of VoIP (Voice over Internet Protocol) phones since December 2006 under the iPhone brand.

Mark Chandler, Cisco's general counsel, generously commented on his blog that they had been in "serious discussions" in the weeks before Apple's iPhone announcement "over how the two companies could work together and share the iPhone trademark."

It appears the negotiating table was in full use the night before the Macworld Conference until 8 p.m., at which time the talks broke off. The next morning, Cisco and the rest of the world watched as Steve Jobs revealed the name of Apple's newest device without batting an eye. Cisco had no choice but to slap a lawsuit on Apple for blatantly tromping on their trademark. We will never know which company would have won the battle, since a settlement was announced in late February without revealing any details whatsoever.

Innovation reigns supreme at Apple. When that innovation is fused with runaway success and impressive profits, it attracts a lot of attention. Usually that attention comes in the form of lawsuits from outsiders who claim they had the original idea before Apple. Other times, the attention just helps to keep Apple in the news.

It is obvious that Apple will always be involved in some form of patent, copyright or trademark lawsuit, because the company is preoccupied with staying creative. The fun part is watching the fireworks.