That first phone, the Dream, was clunky to use and lacked important features like a decent music player and a robust app market, but Android began gaining traction as mobile industry heavyweights like Motorola and Samsung signed on as a way to compete with the iPhone. Their marketing efforts were supported by cell phone carriers who didn’t have a deal with Apple to sell its device. Jobs’s anger grew as he saw signs of Android moving toward features similar to the iPhone. He felt betrayed because Schmidt had been an Apple board member, and the two companies had been close enough to collaborate on core features of the iPhone.
For years, Apple and Google had been content to rule different sectors of the global technology market. Apple made computers and consumer electronics devices while Google dominated Internet search. But the two were increasingly clashing as they both sought to control digital content and the devices and software through which users accessed them.
The two companies vied against each other to acquire some of the same Silicon Valley start-ups to boost their offerings. Google had toyed with buying online music company La La Media before Apple acquired it for $85 million. Apple had pursued a deal for the mobile advertising company AdMob before Google snatched it away for $750 million.
Early in January 2010, the tension boiled over as Google unveiled the Nexus One, its first branded phone, developed in partnership with HTC.
“The Nexus One is where Web meets phone,” declared an Android executive at its press conference. “It’s an exemplar of what’s possible on mobile phones. It belongs in an emerging category of devices which we call superphones.”
The device used gestures like swipe, pinch to zoom, and double tap to navigate the phone. Jobs considered them to be Apple’s inventions. The Google team believed that Apple could not legitimately lay claim to the features because there was enough evidence that other companies had previously developed similar technologies.
Jobs’s fury built until it exploded at an internal Town Hall meeting shortly after the launch of the iPad. It was customary for the CEO to hold a meeting after major product launches so employees could ask him questions. This time, however, when someone asked him about Google, the CEO unleashed an awe-inspiring rant against Android and Google.
“We did not enter the search business. They entered the phone business,” he said. “Make no mistake. They want to kill the iPhone. We won’t let them.”
Jobs was so fired up that he continued even after someone else tried to change the topic.
“I want to go back to that other question first and say one more thing,” he said. “ ‘Don’t be evil’ is a load of crap.” Jobs was referring to Google’s famous corporate motto. In what came to be known as the “Don’t Be Evil” manifesto, Google had said in its filing for its 2004 initial public offering: “We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short-term gains. This is an important aspect of our culture and is broadly shared within the company.”
Jobs assured the employees in his Town Hall meeting that Apple planned to deliver aggressive updates that Android wouldn’t be able to keep up with. He called the next phone, the iPhone 4, an A-plus update.
What he didn’t tell employees that day was that he was also planning to sue HTC over twenty patents.
At the time of the first iPhone’s release, Jobs had issued a warning to anyone who thought about copying it. “We’ve been innovating like crazy the last few years on this, and we’ve filed for over two hundred patents for all the inventions in iPhone,” he said. “We intend to protect them.”
Apple wasn’t bluffing. Two months after the Nexus One went on sale, Apple filed separate complaints with the U.S. International Trade Commission and the U.S. District Court in Delaware.
“We can sit by and watch competitors steal our patented inventions, or we can do something about it,” declared Jobs. “We’ve decided to do something about it.”
The press rightly surmised that HTC was just a proxy for going after Google. As much as it wanted to, Apple couldn’t sue Google directly because it would be difficult to make a case against a company that wasn’t profiting from the software. When Jobs sat down with Isaacson later that week, he went into a tirade. “Our lawsuit is saying, ‘Google, you fucking ripped off the iPhone, wholesale ripped us off,’ ” he said, calling it “grand theft.”
“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 to thermonuclear war on this. They are scared to death, because they know they are guilty. Outside of Search, Google’s products—Android, Google Docs—are shit,” he said.
Jobs was angrier than Isaacson had ever seen him.
Later that month, Jobs met with Google CEO Eric Schmidt over coffee at Calafia, one of Jobs’s favorite cafés, owned by a former Google chef in Palo Alto.
The talk soon turned to Android’s similar user interface designs. “We’ve got you red-handed,” Jobs told Schmidt as he once again accused Google of ripping him off. “I’m not interested in settling. I don’t want your money. If you offer me $5 billion, I won’t want it. I’ve got plenty of money. I want you to stop using our ideas in Android, that’s all I want.”
Schmidt disagreed. Android had begun as a start-up in 2003 before the iPhone and before Google acquired it a couple of years later. Its innovations were its own.
Not all of the conversation was hostile. As the two CEOs spoke, a passerby overheard Jobs enthusiastically telling Schmidt, “They’re going to see it all eventually so who cares how they get it.” The eavesdropper guessed that the two were speaking about Web content. As he surreptitiously snapped photos of Jobs and Schmidt, other people noticed them. “Let’s go discuss this somewhere more private,” Jobs was heard suggesting before they left.
When photos of the meeting surfaced online, readers and journalists speculated that it was a publicity stunt.
The lawsuit had clearly come from an emotional place. Jobs had felt cheated before in the 1980s when Microsoft grew dominant in the computer industry by licensing out an operating system with a user interface like Apple’s. That was partly why the company was careful to protect its turf this time with patents that covered its inventions. Apple was again in danger of ending up in a similar position albeit in another industry with another opponent. This time, Jobs was determined that it would end differently. As the threat of Android loomed, Apple was more prepared for battle.
What mattered now was who controlled the innovations that were rewriting the future of mobile communication. Apple’s patents covered an array of designs and technologies particular to the iPhone, from core functionalities to the device’s physical appearance to the way the phones were used. One example was the “rubber band” patent, so called because of the way content on the screen bounced to signal when a user reached the bottom. Without it, scrolling stopped abruptly and awkwardly. Though the feature was seemingly minor, it had been one of Jobs’s favorite patents. It had inspired him to work on a phone in the first place. Jobs saw the fluidity of the unique action as part of the iPhone’s distinguished look and feel, and his anger roiled when its rivals made it commonplace. Apple also had design patents laying claim to the iPhone and iPad’s rectangular shape with rounded corners, edge-to-edge glass, and home button.
Apple was determined to bring down competitors who it believed had stolen the game-changing advances developed for the iPhone. HTC was a strategically smart first target. The company was relatively young and had a weak patent portfolio that made it harder for it to countersue. Also, Apple and HTC had no vital business relationship that might be jeopardized in a take-no-prisoners battle. With no reason to hold back, Apple’s lawyers were free to attack as ruthlessly as they liked. If they obliterated HTC, then Apple could use the precedent to build its case against the other rivals.
The company’s momentum, however, was slowed by its ongoing fight with Nokia. By engaging in two battles at once, Apple had given the court an opportunity to consolidate the cases, which simultaneously slowed the process down and allowed HTC to take advantage of Nokia’s defense savvy.
Apple had yet to make much headway in the process when it was embroiled in yet another patent fight six months later. As the turf battle between Apple and the Android device makers heated up, Motorola filed suit against Apple, accusing the company of violating eighteen patents. Apple countersued a few weeks later.
Now Apple was engaged in conflicts on three fronts. And the intensity of the war was showing no signs of abating. Industry research firms were predicting that Android would continue to gain momentum and was poised to overtake Apple in market share in 2011. Leading the charge wasn’t HTC or Motorola; it was Samsung, the aggressive South Korean electronics conglomerate with global ambitions.
On the evening after the first iPhone went on sale, a couple of dozen visiting designers from Samsung were dining at a Korean barbecue restaurant in San Francisco called Hanuri when a friend showed up with the device. The phone was locked, so the designers couldn’t see the home screen or open the applications. But it didn’t matter. They were impressed enough with the sleekness of the device and the elegant ease of swiping their finger to pull up the pass-code screen. They oohed and aahed as they made the gesture over and over again. They had never seen anything like it.
Like the rest of the world, Samsung’s executives and designers were awed by the iPhone, and they wanted something similar. Historically, companies chased each other all the time with products that looked the same. If one scored big with a product that was slightly different, others followed quickly with varying degrees of modification. That was how minor companies moved up the food chain. Samsung was no different. The company had access to plenty of top engineers and designers and didn’t lack for talent. But their main task was to look at popular products in the market and focus their energies on improving upon them. Part of its modus operandi was to use its manufacturing prowess and its relationships with its customers to follow rivals quickly from behind. When Motorola’s Razr phone was all the rage, Samsung’s executives demanded that its engineers outdo them with a similar phone that was even thinner than the Razr. The edict was the same with the iPhone.
From Samsung’s perspective, there was nothing wrong with being inspired by a rival. Companies were stimulated by each other’s products all the time.
The Galaxy S, Samsung’s first iPhone look-alike, created an enormous complication for Apple. Unlike HTC, Samsung was a formidable opponent—a family-controlled multinational conglomerate with nearly limitless resources and numerous subsidiaries and businesses from electronics to heavy industries to life insurance. In 2010, the electronics division alone reported revenues of 154.6 trillion won, or $142 billion. The company had a strong portfolio of patents that was only growing bigger.
Although the two corporations were rivals, Apple also happened to be one of Samsung’s biggest customers. That same year, Apple had spent about $6 billion with Samsung on microchips, memory chips, and liquid crystal displays. If a legal battle led the Korean company to withhold those components, Apple would be in trouble.
Cook, Apple’s reigning expert on the intricacies of the supply chain, was particularly wary of endangering the relationship.
But Samsung was gaining. By the end of 2010, the electronics maker was the fastest-growing smartphone maker. Its 7.6 percent market share was still about half of Apple’s, but the company had increased its shipments by 318 percent from 2009. Apple couldn’t afford to sit by and let Samsung take the market with a phone that was, at minimum, heavily inspired by the iPhone. The whole premise of Apple’s business was that it was a product, design, and thought leader. The unique way it pulled together the overall package was what allowed the company to charge a premium. If it let others copy them, then it would lose its distinctiveness, and its business model would crumble. Apple had to strike before it was too late. In April 2011, it sued Samsung in the U.S. District Court for Northern California, its home court. In a thirty-eight-page complaint, the company accused Samsung of copying the look, product design, packaging, and user interface of its products as well as violating its patents and trademarks.
“Instead of pursuing independent product development,” the complaint alleged, “Samsung has chosen to slavishly copy Apple’s innovative technology, distinctive user interfaces, and elegant and distinctive product and packaging design, in violation of Apple’s valuable intellectual property rights.”
To prove the point, Apple’s lawyers included side-by-side comparisons of the two companies’ phones.
“The copying is so pervasive, that the Samsung Galaxy products appear to be actual Apple products—with the same rectangular shape with rounded corners, silver edging, a flat surface face with substantial top and bottom black borders, gently curving edges on the back, and a display of colorful square icons with rounded corners,” it said.
Apple also pointed to similarities in packaging and icons for applications like music, phone, texting, and contacts. The phone icon, for example, was an image of a white handset on a green background at virtually the same angle. The background of its photo app appeared to be sunflower petals, the same flower that represented the photo app on the iPhone.
By this time, Jobs was on what would be his final medical leave, placing Cook in charge of juggling Apple’s various interests.
Cook was careful to draw a line between Samsung the supplier and Samsung the rival. When, during a quarterly earnings call less than a week after Apple filed its lawsuit, a financial analyst asked about how the lawsuit could impact its supplier relationship, Cook told him, “We are Samsung’s largest customer, and Samsung is a very valued component supplier to us, and I expect the strong relationship will continue. Separately from this, we felt the mobile communication division of Samsung had crossed the line. And after trying for some time to work the issue, we decided we needed to rely on the courts.”
The animosity between the companies would get worse. In the days following, Samsung sued Apple in Korea, Japan, and Germany. It also responded in California with a countersuit. Samsung saw Apple’s actions as an attempt to restrain it. In the Korean electronics maker’s opinion, the company was merely competing.
Samsung’s chairman, Lee Kun-hee, recited a well-known Asian adage to reporters: “A nail that sticks out gets pounded down.”
Like Apple, Samsung prized secrecy. The Korean conglomerate had once been described as a fortress from which no information was supposed to reach the outside world. Still, enough facts had slipped through the cracks for Apple to know that it faced a formidable adversary.
Chairman Lee was especially intimidating. Almost seventy, Lee still ruled Samsung with an iron will. In many ways, he was similar to Steve Jobs. Some thought of him as Samsung’s “wise emperor.” After inheriting Samsung from his father, Lee had led the push to reshape the company into a giant of global communications and electronics. He spoke Korean, Japanese, and English and had taken MBA classes at George Washington University. Sometimes referred to as the King of Korea, he was the country’s richest man, with an estimated personal wealth of about $8.6 billion around the time Apple sued Samsung.
According to reports that had found their way past Samsung’s walls over the decades, Lee saw himself as a visionary whose calling was to foresee the challenges and opportunities in his company’s future. Much of the day-to-day running of the business he left to others. Like Jobs, Lee had earned a reputation for promoting internal competition among his lieutenants. Like Jobs, he was also famous for nurturing a corporate culture of constant and often nerve-racking transformation.
Lee had distilled his beliefs into sayings that he etched into the minds of the thousands who worked beneath him. One motto declared:
“I must be the one to change first in order to survive.”
Another:
“Change everything, except your wife and kids.”
At an age when other CEOs had retired, Lee would arrive at Samsung’s headquarters in Seoul at dawn, or earlier. His lieutenants arrived by 6 a.m.
Lee was the third son of Samsung’s founder, Lee Byung-chul, who had started the company in 1938 as an export firm that sold dried fish, vegetables, and fruit to China and Mongolia. The elder Lee had turned to technology to stay ahead of the competition. His drivers transported their wares in a motorized truck, while his rivals relied on oxcarts. As the decades passed, the founder diversified his company’s holdings, opening his own factories and acquiring multiple insurance companies. Samsung—the name meant “three stars” in Korean—grew into a sprawling multinational conglomerate, all of it run by the Lee family.
The younger Lee became the chairman in 1987, two weeks after his father’s death. By then, he was already encouraging the electronics division to enter the burgeoning field of mobile phones. From the start, copying was key to Samsung’s advances, beginning with efforts to reverse engineer Japanese car phones and then moving on to Motorola phones. Determined that his company would eventually add its own innovations to these early imitations, Lee kept up the pressure. By the end of 1994, the company had developed enough generations of mobile phones that the chairman felt confident enough in their quality to give thousands of the latest model away to Samsung employees as a New Year’s gift. When many of the gifts proved to be shoddy, Lee responded with a gesture that would be talked about for years to come.
That March, the chairman summoned his board to the Samsung factory where the phones had been made, in an industrial city called Gumi in south-central Korea. The factory’s two thousand workers were ordered to don headbands that read Quality First and then called to a courtyard where they found the factory’s entire inventory—nearly $50 million worth of cell phones, fax machines, and other equipment—piled into a heap near a banner that declared Quality Is My Pride. Underneath the banner, Lee sat with his board of directors. At his command, a team of workers smashed the inventory with sledgehammers and then set it on fire. As the flames rose, many of the factory’s employees were so chastened that they began weeping.
Haunted Empire: Apple After Steve Jobs Page 20
