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2012: A year of patents, mobile fights, and one big IPO

commentary Facebook finally went public, Windows 8 arrived, and Samsung topped Apple in smartphone sales. But nothing dominated the news like the fight over intellectual property.

The tech industry's biggest story in 2012 was a courtroom drama.
Sketches by Vicki Behringer

Believe it or not, few in the business of suing people for patent infringement or defending against patent suits believe 2012 brought more patent litigation than any other year.

That's right. The tech industry is worked into a lather about something that's always been a problem and probably always will be a problem. Despite Facebook's giant initial public offering, the heated and often entertaining competition among smartphone makers, and Microsoft's new operating system, one story dominated them all this year: the U.S. patent system.

So why are people so upset?

Let's start with this: It's because we all finally know what patents mean and how easily the process can be abused. We saw how competition among big smartphone manufacturers may be decided by who owns the rights to rounded corners of equal angles rather than who has the product most preferred by consumers. We saw big companies spending billions to acquire patent portfolios rather than investing in research and development or new factories.

We saw how startups could get crushed by a lawsuit from some obscure "patent troll" who in the mid-'90s won the rights to something that seems painfully obvious now. And we saw how giant, "nonpracticing entities" like Intellectual Ventures can hoover up patents by the thousands and generate revenue without actually building a product.

Josh Long/CNET

We saw how patents can affect the technology we use... and we didn't like it.

"The patent wars have come down to something that millions of consumers have in their pocket," said Thomas Duston, a litigation partner at the law firm Marshall, Gerstein & Borun in Chicago, who specializes in patent law. "They see behind the curtain."

Welcome to 2012, when an arcane discussion went mainstream. In a year in which Apple, Google, Microsoft, and Facebook gathered those proverbial ecosystems of smaller companies around them, barely a day passed without news of a patent lawsuit or a big-dollar patent acquisition.

Topping annus litigiosus, Apple and Samsung went toe-to-toe in a federal courtroom in San Jose, Calif., over the question of Samsung's alleged infringement of Apple patents. It was the tech industry's Scopes Monkey Trial, when the right to imitate great ideas (Or was that steal?) was sent to jurors.

Imitation, of course, is how the tech industry works. Intel imitated Fairchild Semiconductor. Apple imitated work at Xerox PARC (yes, there were some licenses involved), and Microsoft imitated work at Apple (Or was that stole? It does get confusing.) Netscape imitated the Mosaic browser and Microsoft imitated Netscape and drove it out of business (and landed in hot water with the Justice Department). Google imitated and improved on a whole bunch of search engines that, let's face it, weren't all that good. Facebook imitated and improved on MySpace and a whole bunch of other social sites that, let's face it, were tacky. Imitation... it's what comes after innovation.

Lest you think Apple is abusing the patent system and trying to end a long and glorious reign of tech copycats, keep this in mind: Apple was sued 48 times by nonpracticing entities last year and currently has 74 NPE-related suits pending, according to RPX, a San Francisco company that's trying to be a neutral, nonlitigating patent clearinghouse. This is a fight where nearly every big tech company (and some of the smaller ones) are both culprit and victim.

Apple won the day in San Jose. But saying Apple won the war is like saying the San Francisco Giants won the World Series after the first game. Samsung has vowed to appeal, there's another trial between the two companies scheduled for 2014, and others spread around the globe. And for the record, Samsung claims the iPad Mini, and the latest iPad and iPods violate its patents. So there.

The other competition
Thankfully, there was more to life in tech than patents this year. After all, Apple may be winning in the courtroom, but it appears to be losing in the marketplace.

Samsung topped Nokia for overall leadership in cell phone sales. It now controls 29 percent of the cell phone market and 28 percent of the smartphone market, according to an IHS report released yesterday. In smartphone sales, Samsung also pulled ahead of Apple. Apple had 20 percent of the smartphone market and 10 percent of the overall market.

Nokia's flagship store in Helsinki, Finland. Roger Cheng/CNET

So how'd that happen? It's painfully clear by now that Google and its Android operating system are doing to Apple and its iOS what Microsoft and its Windows did to Apple and its Macintosh two decades ago. Year by year, the lower-cost, more readily available OS steals share, making Apple's island of high profits a little smaller. Is it any wonder that Apple is fighting back in the courtroom?

And what of the rest of the smartphone makers? We tend to forget everyone else because Apple and Samsung are inhaling most of the profitsand attention. But Microsoft did release a very interesting new operating system for smartphones. Not many people are using it, but critics seem to like it, and Nokia is betting the bank on it. Poor Nokia. Like Research In Motion, it's struggling to overcome several years of missteps. In one year, its market share tanked. Nokia's overall share fell to 24 percent from 30 percent in 2011, and its smartphone sales collapsed, from 16 percent last year to 5 percent this year.

The good news is Nokia has some nifty products with its Lumia phones. We'll see if enthusiasm can overcome the odds. But we're still in a holding pattern with RIM: We'll have to wait until next year to see the next version of the BlackBerry operating system. Will it be too late?

Foxconn operates factories in several Chinese cities, including two campuses in Shenzhen. This is the gate of the Shenzhen factory complex. Jay Greene/CNET

Yes, just like last year and the year before that, Apple dominated tech news. It released new Macs, a new iPhone (and candy-colored iPods) and new, smaller iPads. But Apple was also in the news for the wrong reasons. The faulty maps of the latest iOS were an embarrassment, and CEO Tim Cook was right to apologize for them. Unfortunately, longtime executive Scott Forstall didn't want to apologizefor anything and was shown the door.

And there was Foxconn. Attention to labor conditions at the Chinese factories of the contract manufacturer, which does work for Apple and many other consumer-electronics makers, isn't going away. Sure, a serial exaggerator went on national radio and made up stuff. But the riots at one plant and explosions at another weren't fiction. And Apple's supply chain groaned under the demand for the iPhone 5. There are worse problems than popularity, but was this the year Apple started to show some cracks?

Wait, there's more than Apple?
If you thought CNET, like most of the tech press, had an obsession with Apple, you'd probably be right. But like chugging coffee, we like to think it's a functional addiction, and we'd add defensively that we did write about plenty of other things.

We're still not sure if 2012 is the year Microsoft got its consumer business back on track, but the folks in Redmond certainly did try very hard. Windows 8 was a dramatic change for Microsoft, and the new Surface tablet was an aggressive and for Microsoft stunning new approach to customers. Ballmer & Co. made it clear they're moving past that iterative approach to upgrades. Was it too much of a stretch?

Steven Sinofsky talks up Microsoft's Surface tablet at the company's unveiling event at Chelsea Piers in New York. Seth Rosenblatt/CNET

One thing that doesn't seem to change much at Microsoft is the musical chairs in the executive suite. Steven Sinofsky was the man most responsible for fixing Microsoft's OS development mess after the disaster that was Windows Vista. And he was the man most responsible for making sure Windows 8 was relatively bug free and on time. He was also a controversial exec, sharp-elbowed with his colleagues and unapologetically protective of his fiefdom. And last we heard from him, he was no longer with Microsoft (by mutual consent), vacationing in Africa, and looking forward to a stint at Harvard Business School.

Was this the year the less-than-cuddly executivebecame less-than-popular in tech? If so, no one bothered to tell Facebook's Mark Zuckerberg, who in accounts both fictional and factual has never been described as the warm-and-fuzzy sort.

Zuckerberg managed to offend Wall Street during the run-up to his company's historic IPO. It seems Wall Street has a dress code and likes visiting young executives to be deferential, necktied, and unhoodied. Who knew? And then Nasdaq managed to have the trading network equivalent of a 404 error on the day of Facebook's IPO, when many people held their breath while waiting to see just how wealthy Zuckerberg would become.

Was the lukewarm reception to Facebook's IPO a classic case of schadenfreude? Well, no. Insiders still got wealthy, and the fact that Facebook shares traded down (and then way down) mostly hurt the people who bought on the market. After dropping into the teens in the summer, Facebook shares climbed back. Not back to IPO levels, mind you, but back. One thing's for sure: Thanks to the IPO disappointment and the collapse of companies like Zynga and Groupon, Wall Street's love for social-media stocks has cooled.

Too casual for Wall Street? James Martin/CNET

We defend Zuckerberg's right to wear a hoodie, but sometimes his company makes decisions that aren't so easy to defend. In April, Facebook shocked most everyone when it dropped $1 billion on the young but fast-growing social photo site Instagram. It shocked everyone again when it changed Instagram's terms of service to say it has the right to sell the photos you've posted on Instagram to advertisers. In less than a day, Instagram said it had heard from customers and was tweaking the tweaks so users could be assured their photos were their own and not up for sale.

Yes, when we use a free service, we're the product being sold to advertisers. Fortunately, as that product, we are cattle that needs to be kept happy.