A Few Big Picture Thoughts on the Apple/Samsung Trial

As the world now knows, a jury in San Jose delivered Apple a rapid slam dunk verdict over its business rival (and partner), Samsung.

Tremendous analysis exploring all facets of the case has surfaced online, and I won't attempt to contribute to the detailed reporting undertaken by smart devoted followers of disparate areas such as law, technology and business. Personally, it was amazing consuming the wide-ranging resources covering the trial, and I can't recall a time with greater access to material.

That said, here are several big picture thoughts:

First, Apple is a company operating (at what seems to be) near the pinnacle of its ability from an intellectual property, innovation and operational perspective, building on the work of its legendary founder Steve Jobs. That is to say, Apple does not bring high-stakes litigation to trial, send it to a jury and come up on the short end. I do not see any reason to predict a discontinuation of this trend and expect Apple to continue to aggressively enforce its IP portfolio.

Second, and more important, the legal battle for control of the smart phone/mobile computing market between Apple and Samsung, culminating in last week's jury decision, has shone a much-needed spotlight on the current intellectual property/patent protection legal regime in the United States.

What made Apple's victory so (potentially) powerful is that  not only were certain of its utility patents found to be infringed, but the jury also concluded Samsung violated the iPhone's (but not iPad's) design patents.  Design patents protect the "look and feel" of the product, as opposed to specific software functionality.



(A brief US Patent & Trademark Office guide on the difference between utility and design patents, for those interested)

While many have criticized the jury for reaching a decision on such a complex matter in less than 3 days, it strikes me that their conclusion is a serious and fair one that upholds the current state of US law. The duty of a jury is to dispassionately apply the law as it exists to the facts of the case; in that context one can understand how the jury readily concluded that Samsung copied Apple's features and/or design. After all, Apple is the clear market leader and innovator, and US law allows for broad sweeping patent rights.

Stepping back, one has to acknowledge that there is a very real dissatisfaction with the current state of patent law. Detractors argue that patent applications are backed up, patent trolls clog the courts with frivolous claims, and innovation is stifled by the duration and scope of patent rights.

It would not surprise me to see opportunistic politicians leveraging the high-profile nature of the Apple verdict to push for patent reform. After all, when the judiciary continues to produce (arguably)unsatisfactory but correct results applying current law, the legislative branch has every right to step in and change the rules of the game.

FOUNDER POWER: CLOUD = STEROIDS FOR FOUNDER CONTROL

Part of what I hope to accomplish in writing this Blog is to peel back the esoteric layers of the "Cloud" and distill reality from hype, facts from vagueness, and principles from chaos.

To that end, until proven otherwise, one concrete example of how I think the Cloud has and will continue to change the world is its ability to enable greater Founder control of companies.

Yes, I'm attempting to use a catchy title to draw in readers, but, the metaphor remains true.  I'll explain...


Particularly for consumer-focused internet technologies, like Instagram, DropBox, Tumblr and Yammer to name a few, the product can be scoped, built and in the market rapidly, at far lesser financial cost than was the case even 5 years ago, let alone a decade or more.

The single greatest economic factor driving down costs for early stage software companies is Cloud technology and the wide-spread availability of on-demand computing resources including, database storage/hosting, computing power, security tools and much more.

Moreover, the pricing model for cloud infrastructure services allows companies to pay for only what they actually consume, and the technology allows for rapid scaling up or down to meet network demands. No more building software for large-scale use to accomodate peak-demand, only to watch computing resources lying dormant during non-peak periods.

Whereas once software companies had to invest millions of dollars buying computer hardware and other infrastructure equipment, now they can rent this by the hour from mega Cloud providers like Amazon Web Services.

That fundamental dynamic has shifted the relationship between software Founders and their investors. Because an internet-delivered software product can be built and delivered without an initial capital expenditure of millions of dollars for computing equipment, Founders no longer must raise great sums of money during initial product development, launch and early iterations; put plainly, early on Founders can keep much more of the equity in the company for themselves and delay bringing in large-scale institutional money, which would require shareholder dilution and Founder relinquishment of control over time.

By the time larger moneyed parties are now brought in, Founders have a real product with demonstrated value, so their money buys much less of a percentage of the company's shares. Consequently, Founders of SaaS companies can hold onto a percentage ownership of the Company that allows them to control core business decisions and its overall direction.

Founders tend to have longer-term, albeit more emotional, perspectives, which fosters large-scale innovation. This trend is only beginning to play out, and I believe will have a long term impact on the global technology economy.

Yes, this analysis is a bit of an oversimplification, but the fundamental principles hold true. So get used to your Founders sticking around a while.