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Computerized Investing > Fourth Quarter 2012

Apple: Innovator and/or Corporate Bully?

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by Wayne A. Thorp, CFA

Somehow, another summer has come and gone. Here in Chicago, this summer was one of the hottest on record, so I am looking forward to a few months of crisp mornings and sunny and cool afternoons. As the trees begin to turn in northern climes, technology companies start ramping up for the holiday shopping season. By the time you read this, Apple may have already announced its next generation iPhone and, if the rumors are correct, an iPad mini.

Apple has been making headlines for different reasons lately, after a San Jose, California, jury found that Samsung had violated numerous Apple patents. This suit smacks of irony, since former Apple CEO Steve Jobs once quoted Picasso, saying that good artists copy and great artists steal. The jury handed down a $1 billion–plus judgment against Samsung, but most damaging may be Samsung’s inability to sell many of its handsets and tablets in the U.S. The impact on consumers is yet to be seen, but it could be far-reaching: Industry experts expect Apple to ride this victory into suits against other manufacturers. If Apple is successful, either all Android manufacturers will be paying Apple licensing fees, or Apple will make it too expensive for competitors to compete, which could put Apple in an all-but-monopolistic position in the U.S. All of this, however, is a not-so-veiled end run by Apple in its battle against Google and its Android operating system. By eliminating devices that run Android, Apple is effectively removing it as a competitor to iOS.

For many years, Apple was the anti-establishment company. Its famous “1984” Super Bowl commercial was a shot across the bow of blue-blooded technology icon IBM. Throughout the 1990s, Apple portrayed Microsoft as a corporate boogeyman that stifled innovation and competition. Now, Apple has come full circle. It holds tight reins over its iOS, which is locked down unlike Android’s open source code. Also, apps for the iOS also can only be sold or distributed through Apple’s own iTunes portal. With an Apple TV apparently on the horizon, Apple’s reach appears to be limitless. Emboldened by this latest legal victory, how far is Apple willing to go to secure its position in the marketplace?

As an avid user of Apple products—iPod touch, iPhone 4S, and iPad—I am not saying that Apple hasn’t had a positive impact on technology. Without the Mac OS, it is questionable whether Microsoft would have ever come up with Windows 7. Ultrabook PCs are a direct response to Apple’s widely popular Macbook Air. The list goes on and on. However, when Apple uses a flawed patent system to stymie innovation, everybody loses. In the end, Apple wants Google to cry uncle. When consumers cry foul, will anybody be listening?


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