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The Peninsula

Is Apple’s Win a Major Blow Against Samsung?

Published August 28, 2012
Category: South Korea

By Chad 0’Carroll

In light of a California jury ruling Friday, Samsung now looks set to have to pay Apple more than $1 billion in damages for violating hardware and software patents following the conclusion of what may well be seen as a landmark case.  With the verdict seen as a big win for Apple, Samsung shares took an immediate dive of nearly 7.5% on the news, despite their reported intention to appeal the ruling.  But with the U.S. case representing just one of over fifty lawsuits being pursued in ten countries across four continents, what are the implications of the California judgment and what will be the consequences for the two companies and smart phone industry as a whole?

What the U.S. Ruling Means

The California jury found that Samsung infringed upon Apple’s physical design and user interface patents, often willfully, and that several of its products replicated Apple’s trade dress, especially with regarding the iPhone product series.  While Samsung had argued that Apple infringed several of its own patents related to utility and design, the court instead found that its products actually infringed Apple patents in those areas. As such, the jury rejected all of Samsung’s claims against Apple while upholding all of Apple’s patents. The implications for the South Korean conglomerate are therefore substantial.

Most damning of all, of 21 Samsung smartphone and tablet designs raised in the case by Apple, 100% of them were found to breach Apple’s patent 381 (pertaining to a “bounce-back” scroll feature). And on Apple’s two other main claims, an overwhelming majority of Samsung products were shown to have breached patents, with just a handful in each category escaping the breach.

In Samsung’s marginal favor, it was established by jurors that the Galaxy Tab 10.1 tablet (recently banned in the American market by the same judge – Ms. Koh) did not infringe on any physical design patents.  This means Samsung will now be allowed to sell the Galaxy Tab 10.1 on the U.S. market.  But while Samsung may be able to recoup some lost sales profit from Apple, the amount will likely be extremely low in comparison to the $1billion it now owes.

The bottom line is that in the eyes of one patent expert, Samsung has been shown by the outcome of this case to be a “reckless copycat”.  And because some of the infringement is related to Google’s Android operating system, it seems the jury agreed with Steve Jobs’ claim that Android is a “stolen product”.

Reports now suggest that both sides will file for a preliminary trial injunction, which is set for 20 September. That will decide the fate as to which products, if any, will face a ban.  Apple has already outlined 8 Samsung products that they want banned as a result of the California ruling. But as an immediate consequence, Samsung will at the very least be required to pay out $1 billion dollars – although this could potentially be tripled due to Samsung having willfully infringed the patents.

What the ROK Ruling Means:

Before the announcement of the California jury ruling, a Seoul court ruled Friday on a case brought to it by Apple regarding Samsung cell phone and tablet designs.  In contrast to the U.S. case, the South Korean court said that Samsung’s cell phone and tablet computer designs did not copy the look and feel of Apple products, adding that Apple had in fact infringed on several of Samsung’s wireless technology patents.  However, reflecting the unanimity of one element of the California court’s decision, the Seoul court did rule partly in Apple’s favor, saying that several Samsung devices had infringed Apples “bounce-back” scroll feature.

In contrast to the vast volumes of money involved in the California case, as a result of the Seoul ruling Apple will pay 40 million won ($35,400) for infringements while Samsung will pay 25 million won for violating just the one patent.  More cumbersome for both companies is the fact that the court also ordered a ban of a handful of Apple and Samsung cellphone and tablet devices implicated in the patent infringements.  However, given that none of the two manufacturer’s latest devices were implicated, the impact of this development could prove minor.

It is nevertheless of interest that this case result occurred in South Korea, Samsung’s home territory. Patent attorney Jeong Woo-sun said,  “Out of nine countries, Samsung got the ruling that it wanted for the first time in South Korea.”  Some experts have since expressed concern that the ruling might invite a trade war in which South Korean consumers could ultimately lose out.  If Samsung and LG now move to block rivals’ entrance to the ROK market if they do not agree to licensing terms related to some of the standard patents involved in this case, then those companies would either have to bow to the demands or abandon the South Korean market entirely.

What’s Happening Around the World

While developments in the U.S. and South Korea last week reflect two important territories involved in the dispute, there are similar cases taking places across a total now of four continents.  According to Florian Mueller of FOSS Patents, there are over 50 cases open in ten countries, meaning that things could still change in dramatic ways depending on the countries involved.  As of now, the next Apple vs Samsung case set to take place will be in Mannheim in Germany, on September 14.

The evidence so far shows Samsung losing the vast majority of its offensive cases against Apple, having lost three times in Germany, and once in France and Italy.  In the Netherlands it won a tiny amount of damages, but not an injunction, while in the U.S., all claims Samsung raised have now been lost. As indicated above, the only country Samsung has prevailed in cases against Apple has been South Korea.

But Samsung has nevertheless overturned a number of legal challenges raised by Apple, with one notable case in the UK in which the judge said Samsung could continue selling its Galaxy 10.1 tablet because its design wasn’t as “cool” as Apple’s (meaning it could not be confused with the iPad series).

Whether the outcome of the U.S. or ROK decisions will influence other open cases around the world remains to be seen, but right now things do look to be moving in Apple’s favor on a global basis.

Moving Forward

The immediate effect of both cases, should appeals by either company prove unsuccessful, will be payment of the immediate fines as issued by both courts.  But even $1 billion is nevertheless small peanuts for the South Korean conglomerate.  More important is the lasting effect on Samsung’s share price as a result of the legal action in California.  Having lost 7.5% on Friday, should Samsung continue to suffer in the mid to long-term, then investors may lose confidence in the South Korean firm.  One issue that may cause longer term losses is whether or not Apple succeeds in getting Samsung devices banned from sales in the U.S.

Should Apple succeed in banning products from the U.S. or other national markets, then Samsung will have to either update software or even change design elements to ensure their products do not violate Apple patents. Samsung has a proven history in rapidly working around patents, having redesigned software to ensure its products can stay on shelves after the cases that have shown them to have infringed on Apple’s patents. However, in the case of hardware redesign obligations, it can be extremely costly to make the necessary alterations to make a product acceptable for sale, for example by changing the casing or packaging design.  As such, if Apple succeeds in banning some of Samsung’s better selling cell-phones in the U.S. market from a hardware perspective, it could take significant resources for Samsung to get those same products back on shelves.  But Samsung can still take comfort in the fact that its newest models are not on the Apple ban “hit-list” and that it has a strong history in rapidly releasing revised products (unlike Apple’s slow iPhone release pace).

From a more general perspective, moving forward one can expect Samsung to be a lot more careful in the design of its cell phone and tablet devices as a result of the Californian ruling.  Forms of Samsung phones will likely be a lot rounder than Apple devices moving ahead, and from a software perspective we can expect increasing differences between functionality. On the flipside, it is likely Samsung will become even more protective about their own technology, raising the potential for even more litigation between the two companies in future.

In terms of the broader industry, many have been viewing the Apple vs. Samsung case as a proxy war between Apple and Google.  With Android accounting for over 85% of the smart-phone market, consumers currently have few options between iPhone and Android cell-phones.  Confident from this legal win, Apple may now be at pains to prove Steve Jobs’ allegation that Android is a “stolen” operating system, something that if they succeed in proving from a legal perspective, could open up a whole can of worms with regards to the myriad hardware manufacturers that use the Google Android system in their phones.   This could be especially troubling for Samsung, as a legal battle over operating systems could be crippling. While Microsoft’s new Windows Phone has been praised for its innovation, few customers have adopted the phone’s running Microsoft’s platform.  So, was this case really Apple vs Samsung, or the successful start of Apple vs everyone that uses Android? Interestingly, Google is already trying to distance itself from Samsung to avoid just that possibility.

Chad 0’Carroll is the Director of Communications for the Korea Economic Institute. The views represented here are his own.

Photo from Siddartha Thota’s photo stream on flickr Creative Commons.

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