IP Democracy: Apple's New Lesson: Don't Start Lawsuits

Santa Rosa, CA-based audio and video content transmission tech company Burst.com filed a counter-claim in a California Federal court yesterday accusing Apple Computer Inc. of infringing upon its patents by using Burst’s technology in its iPod/iTunes products. In its filing, Burst claims that its patents, which speed the transmission of video and audio material, stretch back to the late-80s and through the 1990s and that Apple was aware of these patents as early as 2000.

Burst first requested that Apple pay royalties on the patents in 2004, following a $60 million settlement that Burst received from Microsoft after Burst filed a patent infringement suit against the Redmond software titan. But this go-around, Apple actually started the litigation by filing suit against Burst in January, seeking a declaratory ruling that its technology, which Apple first made availabe in 2002, doesn’t infringe Burst’s patents.

And therein lies a probable strategic mistake by Apple. Courtesy of The Cult of Mac, Robert X. Cringely said it best when Apple first brought on this legal problem.

But since Apple sued Burst, Burst shares have gone UP by 30 percent. The market is rarely wrong. Suing Burst was an enormous mistake for Apple, casting a pall on their video strategy and potentially costing the company strategic alliances with networks and movie studios. Apple realizes this now and is struggling internally to find a way to change course and put a positive spin on the course correction. Apple will lose and Burst will win, and Apple won’t be able to afford to wait for the courts to decide anything, since time is critical in staking out Internet video turf. I predict that Apple will eventually take a license from Burst, that is UNLESS SOME OTHER COMPANY (Google? Real? Yahoo?) doesn’t snatch up Burst first.

Why Apple, no stranger to the twists and turns of litigation, would actually invite a counter-suit by Burst is a mystery. Perhaps Apple’s attorneys thought that Burst wouldn’t take a chance in having a court or jury invalidate its lucrative patents. Or perhaps Apple banked on Burst running out of funds before the suit could get very far.

Either way, Burst has a lot to gain and Apple has a lot to lose from this litigation. Cringely is probably right — Apple will cave rather than deal with investor uncertainty.

Posted by Cynthia Brumfield on April 18, 2006 3:42 PM to IP Democracy