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March 7, 2012

Apple offered Motorola and Samsung licensing deals at US$15 per device

Apple has been portrayed in the general media as a bully trying the stop Android from becoming competitive. This had been reinforced when Steve Jobs famously called Android a “stolen product” and said “I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong... I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this.”

But according to sources at Dow Jones Newswires, Apple, like Microsoft, had offered Motorola and Samsung a licensing deal, albeit at a high price ranging from US$5-$15 or ~1.0-2.5% per device.
Sources also claimed that Apple wanted to offer licenses only to select competitors and not all of them, in line with the generally thinking at Cupertino to use patents as a strategic advantage.

But there is more than what meets the eye
It might appear from first glance that Apple was ‘generous’ to give the Samsung and Motorola licensing deals, which they should have accepted. But a closer look gives a completely different picture.
For one, while Apple has had some success, it has been limited. It has not been able to get injunctions to stop competitor’s products like Galaxy phone and tablet from being sold. ‘Innovations’ in the mobile space is going at a breathtaking space; hence the window of opportunity is less. If, within that time frame, Apple is not able to stop competitor’s products, the opportunity is over. Also there is always a risk of new devices being launched, which makes the advantage of injunctions limited.
Another reason is that Android is now widely used, and it will be very difficult to stop it. It may be possible to do in the US, if everything went according to plan, but extremely difficult to enforce it across the globe.

Also, once some of the competitors accept the validity of patents; it can be used effectively against others. Validation of patent without spending anything would be a good for even Apple.
Offering licensing deals to competitors also have the added advantage that in the court the company does not appear very stubborn and might even look that Apple tried to do injunctions only as a last resort. The company had already told an Australian court last year that “Jobs had begun discussions with Samsung in the summer of 2010, in part because of the close relationship between the companies. But those talks broke down when Samsung released its first Android- based tablet, the Galaxy Tab, in the fall of 2010.”
But, probably, the most important reason was to substantially increase the cost of Android. Microsoft is already rumoured to charge between US$10-$15 per device and reportedly vendors selling 70% of the Android devices in the US have taken up the offer

Assuming US$10 for both Microsoft and Apple would mean an increase of US$20 per device, which would significantly cut the margins and might even make many of the low end devices impossible. This will not only be a new source of revenue for Apple (though arguable a small portion), but could also be used to effectively stop Android from becoming a dominant mobile OS platform.
It also had the added advantage of shielding Apple against royalty claims for standards essential patents, a win-win case for Apple.

Samsung – the big question
It remains unclear why Samsung didn’t even consider Apple’s offer, especially when it is rumoured to pay the same amount to Microsoft. Maybe Samsung thought that Apple’s patent weren’t credible enough to withstand in court. It also appears possible that Samsung assumed, wrongly, that Apple was so dependent on it that the threat of a legal challenge was minimal.
It should be note that Apple was once heavily dependent upon Samsung for some of the most important components including RAM and storage memory. The companies enjoyed excellent relationship, before Samsung’s rise in the mobile world and the patent war’s soured it. Since then Apple has made some efforts to diversify from Samsung, which means that if Samsung loses case against Apple it will not revenues from mobile devices will take a hit, but revenues from its component division will also be affected.
While the two  companies might be able to eventually mend their relationship it seems difficult to believe that, in the near term, it will come anywhere near the level they enjoyed before.

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