Apple's (Nasdaq: AAPL) Patent Wars: This Little-Known Swedish Company is the Key
Or the tech giant could blow its chance and wind up paying billions of dollars in licensing fees.
The outcome hinges on how Apple deals with a little-known company based in Sweden.
This micro-cap just happened to file a patent for the "swipe-to-unlock" touchscreen gesture in 2002 – three years before Apple filed its patent.
The company, Neonode (Nasdaq: NEON), received its U.S. patent in January.
Neonode holds a number of touchscreen-related patents that could become decisive in several of Apple's mobile computing patent cases.
Already the "swipe-to-unlock" patent helped Samsung defeat Apple in a recent patent case in the Netherlands. Samsung said the patent, as well as a phone Neonode released in 2005, represented "prior art."
"Apple just shot itself in the foot and all the blood is going to go to NEON," Jim Altucher, managing director of Formula Capital and well-known investor, wrote in a blog post Tuesday evening.
Insiders told The Wall Street Journal in April that Samsung plans to use the Neonode patent in a similar but much more crucial case in San Jose, CA, scheduled for a July trial.
And Altucher added a scarier prospect for Apple.
If Neonode does indeed hold the patent trump card for "swipe-to-unlock," it could gun for a cut of Apple's profits by filing its own patent case.
Should Apple be forced to fork over licensing fees to Neonode, it could cost the Cupertino, CA, company billions of dollars a year.
So far all this sounds like a big mess for AAPL and a big opportunity for its patent war rivals. Not just Samsung, but also for such titans as Google Inc. (Nasdaq: GOOG) and Microsoft Corp. (Nasdaq: MSFT).
Yet if Apple acts boldly, it could gain a crucial advantage on its mobile computing competitors.
The Gloss is Coming Off the Eurozone
Europe, Europe, Europe…
I know, you're sick of hearing about problems in the Eurozone.
But the problem with Europe is that it won't go away. And if it does go away, we'll have even bigger problems. What a mess.
Of course, I'm talking about the Euro-currency zone and the European Union, not Europe itself.
I love Europe. I love every country in Europe. I love the different cultures. I love the different languages. I love the different societal models. I love the history of Europe.
And no doubt all the Europeans love all the same things about their Europe – except maybe some of their history.
But even more than loving Europe, Europeans love their own countries. Why? Because they have different cultures, languages, societal models, and differing views of their history. Vive la différence!
So, whose bright idea was it to gloss over (with shiny promises and, later, a shiny new currency) thousands of years of differences and shove all Europeans into a funnel in the hopes that they'd all come out the other end as one homogeneous mass of humanity?
Oh, that would be the bankers and financiers who wanted a United States of Europe so that the free flow of goods and services payable with a common currency would make everyone better off, and make themselves better, better off, by a lot of betters.
And now, what a surprise! There are differences all across Europe about, well, Europe and what it has become and where it has to go to get out of the mess it's created for itself.
How that's going to end is playing out right before our eyes.
Gold Prices: How to Climb the "Golden Staircase'
When U.K. subscriber John M. wrote in this week, he got right to the point.
Asked John: "What's happening to gold prices? Why are they dropping?"
For an answer, I speed-dialed Real Asset Returns Editor Peter Krauth - our resident expert on mining and precious metals.
Peter is based in Canada, which keeps him close to the natural-resource companies that proliferate north of the border. He gave me a detailed and insightful answer to John M.'s question.
And he recommended three ways to profit – including an ETF he says is perfect for first-time gold investors.
To explain what's happened with the "yellow metal" – and to project where gold prices will go next – Peter invented a pricing theory that he christened the "Golden Staircase."
"The bottom line, Bill, is that the price of gold has simply entered a consolidation phase – much like it has done numerous times since it entered this secular bull market back in 2001," he told me.
Gold futures were at $1,662.40 an ounce yesterday – well off the yellow metal's high. Here's why.
"If you think back, when gold hit its all-time high of $1,900 last August, we were in the midst of wild speculation that the U.S. government wouldn't resolve its debt-ceiling crisis," Peter explained. "A deal in Congress was reached in time, but Standard & Poor's went on to downgrade the nation's credit rating for the first time in history. Since then, there's been considerable apathy towards gold by the general investing public, pushing its price down about 13%. What's more, government-calculated inflation looks benign, taking away from gold's luster."
And here's where it gets interesting.
Investing in the “New China” with this Telecom Market Stock
How would you like to get in on the ground floor of the telecom market in a country I've dubbed the "New China"?
It's a country that boasts:
- 6% annual GDP growth before, after and during and the global economic meltdown.
- The fourth largest population on the planet. It is also one of the youngest (median age is 28).
- A centuries-long social and economic connection to China and every strategic Southeast Asian economy.
- Foreign Direct Investment that has grown exponentially in the teeth of the global crisis.
- A bigger economy than the Netherlands or Turkey.
I'm talking about Indonesia.
It's a place usually found in the back of the mind of most Western investors. It only crops up if there is an earthquake, a tsunami or political unrest in a far flung province.
But the truth is, Indonesia is nestled in one of the most strategic locations on the emerging market map. It neighbors India, Malaysia, Australia and Thailand.
It also has long historical and economic ties to China.
About 3%-4% of the population is Chinese/Indonesian, and they represent a powerful but quiet voice in the Indonesian economy. That influence, which was buried for many years, is now a highly prized asset.
Investing in the "New China"
From the 1970s until recently, Chinese influence in Indonesian society was largely muted by Indonesian politicians. The Chinese language wasn't taught in schools and Chinese history was stricken from textbooks.
But things are changing rapidly.
France May be the Domino that Causes the Euro to Collapse
Commentators are wringing their hands again, worried the troubles in Spain could cause the whole euro project to collapse.
As a result, all eyes are now on Spanish 10-year debt yields, which went above 6% last week as the threat of euro-chaos returned.
But it's not Spain the markets should be worried about.
The reality is that Spain is not in too bad a shape and that a rescue would be affordable for the European Central Bank even if it was needed.
The real tottering European domino to worry about is France.
After all, it would be impossible for the remaining solvent members of the EU to bail out France if it began to fall.
The larger reality is that France's fiscal position is considerably worse than Spain's.
The country's debt-to-GDP ratio was 85% at the end of 2011, while Spain's was only 66%. What's more, France's public spending is 56% of GDP, according to the Heritage Foundation, compared to Spain's 45% of GDP.
Spain's current government has also instituted a stiff austerity program, mostly comprised of cuts in public spending, which will reduce its deficit below France's by 2013.
Meanwhile, France's austerity has so far consisted almost entirely of tax increases on the rich -not actual spending cuts.
Investing in Japan: Three Choices One Year after the Disaster
Like it has been for other Japanese families, this past year has been a tough one in my household, too.
Perhaps not surprisingly, Sunday's one-year anniversary brought long-buried emotions to the surface 12 months to the day after the horrific earthquake and the tsunami it spawned devastated Japan.
The tragedy haunts it still. I don't know a single Japanese who isn't affected.
And I still struggle to process the enormity of what's happened in a country where I've spent much of the last twenty years as a businessman, a husband, and a father.
How do you explain a 9.0 earthquake or a 65-foot high wall of water moving at 80 miles an hour?
Or come to terms with the friends and families who were literally wiped from existence
I couldn't explain that to my youngest son, Kazuhiko, when we visited Kamigamo Jinja, our ancestral family shrine to pray shortly after the disaster.
He wanted to know how the spirits of those departed would find their way home each August for Obon, a more than 500-year-old annual celebration when ancestral spirits make their way back to family altars.
My wife, Noriko and our boys, Kunihiko and Kazuhiko, return home to Kyoto this Friday so we'll see if they've made peace in their young lives as so many other children have.
It is through their young eyes that the future does indeed live, as is the case in so many cultures.
The Aftermath of the Japan Disaster
To that end, I'm sure you've seen the many before and after pictures of Japan making the rounds in recent days.
They're staggering and impressive.
But at what cost?
So far Japan has scraped millions of tons of debris from disaster-hit areas into monstrous piles. Only 6% has been burned or otherwise disposed of. You don't hear about that from U.S. news sources.
Nor do you hear about the additional 130 million to 150 million cubic meters of soil that have yet to be scraped, processed or otherwise remediated to eliminate everything from toxic chemicals to radioactive contamination.
That's enough to fill the Empire State Building floor-to-ceiling 143 times.
In the aftermath, only two of Japan's 54 nuclear reactors are online and running. The rest are down for "inspections" and disaster preparedness drills.
There is a good probability that many may never be restarted, especially with anti-nuclear protests building not only in Japan but around the world as a result of this mess. Most are decades old and of questionable design given what we know about nuclear power safety today.
While I used to be a staunch advocate of nuclear power, today I am now firmly against it.
Cleaning up Fukushima is especially problematic on a couple of levels and estimates suggest it may be 40-50 years before the plant is completely decommissioned.
Not only does the Japanese government have to figure out how to contain the mess, but things are so badly mangled on the ground that the Tokyo Electric Power Company (TEPCO) isn't even sure it can locate the melted nuclear fuel rods at the moment!
An estimated 100,000-275,000 people remain in temporary or modified housing according to various sources. The Japanese government is telling people that it may be a decade or more before they can return home — if ever.
To its credit, the government has gone to great lengths to keep neighbors and families together as a means of preserving the cultural groupism that has played such a vital role in Japan's society for more than 1,000 years.
Separating people would have broken that bond and weakened recovery efforts.
So what now?…
With Putin in Power It's Laughable Russia is One of the BRICs
The re-election of Vladimir Vladimirovich Putin last week means even more crony capitalism in Russia.
With Putin in power nothing will change.
In fact, it's laughable that Russia is still even considered among the group of the world's most glamorous emerging markets – otherwise known as the "BRICs."
The truth is Russian prosperity will last only as long as the price of oil keeps rising by 25% a year, and not one second longer.
Of course, that hasn't stopped one of Russia's boosters, Moscow broker Prosperity Capital Management from claiming that Russia is the third fastest growing economy in the world.
But since Russian growth is only expected to be 3.2% in 2012, according to The Economist, Prosperity's definition of the word "world" is as little suspect.
Presumably Prosperity is only including the wealthy countries, most of which are much richer than Russia and should be expected to grow more slowly.
The Economist actually ranks Russia 18th of the 58 countries it surveys, based on projected 2012 growth rate.
That looks reasonably impressive, until you realize that this modest growth is being achieved in a period of sharply rising oil prices. Oil is Russia's largest export.
After all, one of the countries that beat Russia, with a 4.2% growth rate, is Venezuela. Needless to say, few people outside Hugo Chavez' immediate family would claim that country was economically well run.
Apart from corruption and cronyism, Russia's main problem is its state budget, which depends crucially on oil revenues and hence on the oil price.
Before 2008, its budget was balanced at an oil price of around $90 per barrel, already up from a break-even of $30 per barrel earlier in the decade. Now according to the Finance Ministry as reported in Atlantic Monthly, today the oil price must be $117 per barrel for Russia to balance its budget.
In reality, since Putin announced $260 billion of spending programs during the election, plus a defense program totaling $763 billion, the oil price needed for balancing next year's budget is likely to be around $140 a barrel, rising continually thereafter.
Needless to say, the rest of the world is likely to be tipped into recession by any oil price that will make Russian budget managers happy.
In terms of oil, Russia is playing a game that will never add up.
The Greek Bailout, the CDS Market, and the End of the World
A not-so-funny thing happened on the way to the latest Greek bailout.
The terms and conditions of the bond swap Greece agreed to before getting another handout constitutes a theoretical default – but not a technical default.
That's not funny to CDS holders.
Greece hasn't defaulted (so far), but some of the buyers of credit default swaps, basically insurance policies that pay off if there is a default, claim the terms and conditions of the bond swap constitutes a "credit event" or default.
If it is, they want to get paid.
While on the surface this looks like a fight over the definition of a default, underneath the technicalities, the future of credit default swaps and credit markets is at stake.
In other words, the ongoing Greek tragedy is really becoming a global tragedy of epic proportions.
The Next Act in the Greek Bailout?
Here's the long and short of it.
Crisis in the Eurozone: The Reality of the European Downgrades
It turned out to be a ruinous Friday the 13th for Europe last week.
After the close, Standard & Poor's downgraded nine of the sovereign states in the European Union (EU).
That included dropping Austria and France to AA+ status from their formerly lofty AAA rating.
While the decision was expected, and will most likely be followed by additional downgrades from the other rating agencies such as Moody's Corp. (NYSE: MCO) and Fitch Ratings Inc., it's the knock-on effects that will have larger implications for investors around the world.
In the Wake of the European Downgrades
The first and most obvious effect was the downgrade of the European Financial Stability Facility (EFSF) that followed on Monday. In the wake of Friday's bad news, the EFSF was also dropped to a AA+ rating.
According to the S&P:
"We consider that credit enhancements that would offset what we view as the now-reduced creditworthiness of the EFSF's guarantors and securities backing the EFSF's issues are currently not in place. We have therefore lowered to 'AA+' the issuer credit rating of the EFSF, as well as the issue ratings on its long-term debt securities."
The S&P also warned more EFSF downgrades would follow if the ratings of other individual states dropped in the future.
In a warning the EFSF could fall below AA+ the S&P said:
"Conversely, if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'."
So where do we go from here?
S&P to Eurozone: Fix It or Else…
By timing its downgrade threat to the same week as a key European Union (EU) summit on the debt crisis, Standard & Poor's is essentially telling Europe's leaders to "Fix it or else."
The ratings agency said late Monday that it had put the credit of 15 Eurozone countries, including AAA-rated Germany, on a 90-day watch. The move means each affected country has 50% chance of a downgrade.
European leaders are scheduled to meet in Brussels Dec. 8 and 9 to discuss EU treaty changes that would mitigate the debt crisis, such as restrictions on budget deficits. German Chancellor Angela Merkel and French President Nicolas Sarkozy unveiled an outline of the plan Monday.
The timing of the S&P warning "could hold leaders' feet to the fire and force them to go through with a comprehensive solution," Peter Jankovskis, co-chief investment officer at OakBrook Investments, told Reuters.
Reaction of the world's stock and bond markets was muted, with investors apparently looking ahead to the summit.
Money Morning Capital Waves Strategist Shah Gilani said it was "about time" the ratings agencies started to get serious about credit ratings in the Eurozone, saying they were behind the curve on such problems as mortgage-backed securities.
"Now they're pushing their new "ahead of the tsunami' PR campaign," he said. "Their PR agenda aside, they're right to be knocking these credits down to reality."
They Had it Coming
S&P listed several reasons for its warning.
"After a good two years of trying to manage the crisis, the political efforts have not been able to arrest matters," Moritz Kraemer, head of European sovereign ratings at S&P, told the Financial Times. "It is our view that this is a systemic stress, a confidence crisis that affects the Eurozone as a whole."
Those "stresses" include tightening credit, rising government bond yields, squabbling among Eurozone leaders about how to cope with the crisis and the rising risk of a Eurozone recession next year.
"We are approaching a very important moment where the crisis could take a very significant turning point for the worse and we want to warn investors," Kraemer told The FT. "Considering how the crisis has deepened and the challenges that they are facing, [the summit] is the last good opportunity that policymakers have."
Although the S&P said it would take the results of this week's summit into consideration, no one should doubt the agency's resolve. This past summer S&P followed through on a similar threat to cut the credit rating of the United States to AA+ from AAA following the debt ceiling crisis debacle.
"S&P's view is that the political outcome will also drive creditworthiness, and I don't think anyone in their right mind would dispute this point," Ashok Parameswaran, an emerging-markets analyst at Invesco Advisers Inc., told Bloomberg News.
More Turmoil Ahead
Should this week's Eurozone summit fail to go far enough to please the S&P, the real fireworks will begin.