Apple vs. The World: PatentMonkey IP-Review

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Apple is greater than the sum of its parts. IP is important for any company today and Apple’s whopping $74 Billion market valuation shows that investors love Apple’s IP. Apple’s intangibles boil down to several primary focus areas: its OS, iPod and iPhone patents and applications; the letter “i” (and other Trademarks); and know how in delivering digital media on its slick devices. In this IP-Review, we dive into Apple’s patent portfolio, provide insights into what exactly its holds, how defensible its business is and maybe find out if there is room for any more fish in the sea.

The iPhone is Coming
At MacWorld, Steve and Apple largely exceeded hefty expectations by announcing the iPhone noting emphatically that its joint effort with Cingular has 200 filed patent applications. If this is true, it would represent the single largest patent portfolio for a product category for Apple. With a robust patent portfolio of more than 1,700 patents and over 200 applications published in its name, Apple did not really focused on building concentrated patent portfolios around physical products until roughly 2003 when the iPod began to hit its stride.

Apple Inc. is a Software Company(?)
Based on our detailed analysis of Apple’s patent portfolio, we conclude at a high level that Apple is primarily a software company with roughly 65% of its issued patents being related to software elements like its: operating system; means for displaying information; networking; and image processing. Conversely, Apple’s record of using patents to protect products, like the iMac and desktops, have been less robust covering many improvements that have gone away over time, such as the G3 iMac, sunflower iMac and a host of printer innovations.

As the iPod and iTunes became more and more successful, patent applications have grown. Of Apple’s roughly 220 published applications, we assess that 72 of them relate to iPod/iTunes (62) or the new iPhone (10). Apple’s ten published applications on the iPhone to date relate to: touchscreens/dual-touch; audio playback speed; wireless data transfer; and proximity sensors. From Steve’s Keynote, we also expect to see applications on: screens with ambient light adjustments; ‘push to include’ conferencing on a call; switching to WiFi from cell networks; and display from horizontal to vertical using gyroscopic sensors.

iTunes + iPod = AOL to Access Internet
In our AOL and Yahoo patent portfolio analysis, we noted that AOL’s history of technology development stemmed from its strength in bringing the internet to the masses. This ‘walled garden’ approach also became a weakness as the internet grew, and AOL didn’t.

While Apple’s roots stem from a great OS and easy to use computers, iTunes is the driving focus on the company which can be considered a walled garden, too. To match its expanding media delivery network, Apple’s pending applications for delivering media to its media devices will be critical in assuring continued success in the face of Microsoft’s Zune assault. Much as Google was able to win the search wars against Yahoo and Microsoft, and much like YouTube was able to win the social video wars against Google, Apple is in the precarious unassailable leadership position facing unknown competitors with the uncanny ability to step up college campuses and into the limelight.

FairPlay DRM not so Pivotal
Steve Jobs this week called for the end of DRM, perhaps as a way to publicize his vote, perhaps ahead of the music industry’s pending decision. Apple won’t feel much financial pressure from the removal of DRM.

Of the $7.1 billion in sales in 2006, less than $600 million were from iTunes with, what is estimated as modest profits. Clearly, portable media players are a winner for Apple, not media sales. If DRM becomes less of an issue, competing media player companies will need to beat Apple based on specific features—a game Apple is comfortable playing. Our opinion is that currently, Apple is winning the interoperability war with their recent change to using Intel chips.

In Conclusion
Apple doesn’t hold a war chest of patents that backs up its recent iPod and iTunes related profit growth which (we hoped) would lead us to confirm that its business is on long-term, cash-spewing ground. That said, Apple does have a slew of smart applications pending. One of the most interesting patent applications on our watch list, with a priority date reaching back to 2002, reads like this:

“A method for synchronizing media contents between a portable media player and a media host… and synchronizing media content between the media player and the media host via the wireless connection…”

If this application issues as written, I’m sure Steve will rush to use his iPhone to make a call to his friends in Redmond.

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