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An employee poses as he holds Apple's iPhone 4s (L) and Samsung's Galaxy S III at a store in Seoul August 24, 2012.
Credit: Reuters/Lee Jae-Won
Credit: Reuters/Lee Jae-Won
By Miyoung Kim
SEOUL | Sat Aug 25, 2012 1:33am EDT
SEOUL (Reuters) - Defeat in a bitter patent wrangle with Apple Inc, its smartphone rival and biggest customer, will dent Samsung Electronics Co's $21 billion cash-pile, but could actually help cement its leadership in the global smartphone market.SEOUL | Sat Aug 25, 2012 1:33am EDT
A U.S. court has ordered Samsung - which sold around 50 million phones in April-June, almost twice the number of iPhones - to pay $1.05 billion damages, after ruling that the South Korean firm infringed on some Apple patents.
While the verdict was a big win for Apple, the damages are less than half the $2.5 billion compensation it sought - although that could yet be increased by the judge - and are just 1.5 percent of annual revenues from Samsung's telecoms business.
That phone and tablet business is the powerhouse behind Samsung's growth, earning around 70 percent of total profit. The group had net profit of $4.5 billion in April-June.
Samsung could also see its popular Galaxy smartphone banned from sale in the United States. But its skill as a "fast executioner" - quick to match others' innovations - would likely mean tweaked, non-patent infringing devices would be on the market soon after any ban came into place.
"Samsung has already made some design changes to new products since the litigation first started more than a year ago," said Seo Won-seok, an analyst at Korea Investment & Securities. "With the ruling, they are now more likely to make further changes or they could simply decide to raise product prices to cover patent-related payments."
Also, Apple's demands for Samsung to pay it a royalty on its phone sales could hit rival phones using Google's Android operating system more than it hits Samsung. If anything, the blaze of publicity from the high-profile, high-stakes U.S. litigation has made Samsung's brand more recognizable.
CONTRADICTING VERDICTS
The California jury had only begun deliberating on Wednesday after a complex weeks-long trial. Friday's verdict on seven Apple patent claims and five Samsung patent claims suggests the nine-person panel had little difficulty in concluding that Samsung had copied some features of Apple's iPhone and iPad.
It could lead to an outright ban on sales of key Samsung products, with Apple saying it planned to file for a sales injunction within seven days and the judge in the case setting a hearing on September 20.
Because the jury found "wilful" infringement, Apple could seek triple damages.
The U.S. ruling, read out to a packed federal courtroom in San Jose, just miles from Apple's headquarters, came less than 24 hours after a Seoul court found that while the iPhone and Galaxy look very similar Samsung hadn't violated Apple's design.
Samsung issued a defiant response to the U.S. decision, which it called "a loss for the American consumer", indicating the legal tussle is far from over. "This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple's claims," Samsung said in a statement.
Nomura analyst CW Chung, speaking before the verdict, predicted it could take "many years" for Apple and Samsung to settle the case whatever the result of this round, leaving the two firmly in control of the $200 billion-plus global smartphone market.
"The litigation may end up with both parties entering a cross-licensing agreement, which should enable them to build a higher patent wall in the smartphone market," said Chung. "This would have a positive impact on the share prices of Samsung and Apple, while posing a substantial threat to other competitors."
Based on the damages ruling, Samsung is asked to pay Apple around $10 royalty per phone, a move seen aimed at slowing rival phones that run on Android - which account for more than two-thirds of the global market.
If Apple were to pursue similar legal challenges against other Android manufacturers that could squeeze profit margins as smartphone prices decline in a growing market - reinforcing the dominance of Samsung, one of the few with big enough margins to absorb the extra cost.
Handset competitors using Android include Taiwan's HTC Corp, LG Electronics, Google's Motorola, Sony Corp and some Chinese brands.
WIN SOME, LOSE SOME?
Although Samsung had been viewed as the underdog in the U.S. case, the sweeping nature of Apple's victory was something of a surprise, with many analysts having expected a mixed ruling.
Concerns over potential reputational damage, the short-term cash hit and the impact on billions of dollars of business with Apple had knocked as much as 5 percent off Samsung's shares this week in the run-up to the verdict. But the stock is still up nearly 50 percent since Apple filed its accusations.
Samsung has previously been able to move nimbly to release model upgrades by the time courts have ruled certain products infringed Apple patents and retire patent-infringing models from its line-up. It has skirted around those rulings with a few engineering tweaks and has also made some bold design changes to differentiate its devices from Apple's.
"The impact on Samsung will be quite limited, as affected models are mostly legacy products and its new products did make some design changes to avoid potential litigation," said D.J. Jung, representative patent attorney for SU Intellectual Property.
"Still ... it's a sweeping loss in the most important market. It's inevitable that Samsung's brand will be negatively affected - Samsung could be perceived as a copycat."
Even though Samsung's flagship Galaxy S III phone was not involved in the trial, the jury validated Apple's patents on features and design elements that Apple could then try to wield against that product.
It is possible Apple would not have to seek an entirely new trial against the S III, but rather include it in a "contempt proceeding" which moves much faster, said Nick Rodelli, a lawyer and adviser to institutional investors for CFRA Research in Maryland.
Seoul-based Jung predicted further appeals and fresh suits against newer products as the rivals continue to clash in court.
"It's going to be a very drawn-out battle," he said. "They will keep suing each other, appeal against unfavorable verdicts and bring in new products ... because the stakes are too high. They don't want to lose their initiative in the fast-moving smartphone market."
OUTSIDE THE BOX
In a research note before the verdict, UBS analysts said an Apple win could, in the long-run, hurt the U.S. firm "as the real threat is not a competitor beating Apple at its own game, but instead changing the game.
"The likelihood of Apple being leapfrogged or a rival creating a new category (of device) is greater if they have to think out of the box. If they just copy Apple, like Coke, Apple can claim to be 'the real thing'."
Samsung also looks to be staying ahead of the curve - by reviving the stylus function, derided by Apple's Steve Jobs, in its latest tablets and by creating the hybrid phone-cum-tablet, or phablet, category, with its 5.3-inch Note.
Apple, which has largely stood by its original form and design, is taking note, with speculation that the next iPhone will have a bigger screen and new iPads may be smaller.
In China, set to become the world's biggest smartphone market this year, Samsung has almost twice Apple's market share, and the iPhone slipped to fourth in the market in April-June, overtaken by both Lenovo Group Ltd and ZTE Corp, according to latest data from industry research firm IDC. [ID:nL4E8JO1SB]
Despite, or because of, the publicity from the U.S. case, and more than a dozen pending cases elsewhere around the globe, the Samsung brand has gained recognition - as an equal to Apple rather than merely a supplier.
In a recent Campaign Asia-Pacific brand ranking, Samsung came top ... ahead of second-placed Apple.
($1 = 1135.9500 Korean won)
(Additional reporting by Dan Levine in SAN FRANCISCO; Editing by Ian Geoghegan and Alex Richardson)
While the verdict was a big win for Apple, the damages are less than half the $2.5 billion compensation it sought - although that could yet be increased by the judge - and are just 1.5 percent of annual revenues from Samsung's telecoms business.
That phone and tablet business is the powerhouse behind Samsung's growth, earning around 70 percent of total profit. The group had net profit of $4.5 billion in April-June.
Samsung could also see its popular Galaxy smartphone banned from sale in the United States. But its skill as a "fast executioner" - quick to match others' innovations - would likely mean tweaked, non-patent infringing devices would be on the market soon after any ban came into place.
"Samsung has already made some design changes to new products since the litigation first started more than a year ago," said Seo Won-seok, an analyst at Korea Investment & Securities. "With the ruling, they are now more likely to make further changes or they could simply decide to raise product prices to cover patent-related payments."
Also, Apple's demands for Samsung to pay it a royalty on its phone sales could hit rival phones using Google's Android operating system more than it hits Samsung. If anything, the blaze of publicity from the high-profile, high-stakes U.S. litigation has made Samsung's brand more recognizable.
CONTRADICTING VERDICTS
The California jury had only begun deliberating on Wednesday after a complex weeks-long trial. Friday's verdict on seven Apple patent claims and five Samsung patent claims suggests the nine-person panel had little difficulty in concluding that Samsung had copied some features of Apple's iPhone and iPad.
It could lead to an outright ban on sales of key Samsung products, with Apple saying it planned to file for a sales injunction within seven days and the judge in the case setting a hearing on September 20.
Because the jury found "wilful" infringement, Apple could seek triple damages.
The U.S. ruling, read out to a packed federal courtroom in San Jose, just miles from Apple's headquarters, came less than 24 hours after a Seoul court found that while the iPhone and Galaxy look very similar Samsung hadn't violated Apple's design.
Samsung issued a defiant response to the U.S. decision, which it called "a loss for the American consumer", indicating the legal tussle is far from over. "This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple's claims," Samsung said in a statement.
Nomura analyst CW Chung, speaking before the verdict, predicted it could take "many years" for Apple and Samsung to settle the case whatever the result of this round, leaving the two firmly in control of the $200 billion-plus global smartphone market.
"The litigation may end up with both parties entering a cross-licensing agreement, which should enable them to build a higher patent wall in the smartphone market," said Chung. "This would have a positive impact on the share prices of Samsung and Apple, while posing a substantial threat to other competitors."
Based on the damages ruling, Samsung is asked to pay Apple around $10 royalty per phone, a move seen aimed at slowing rival phones that run on Android - which account for more than two-thirds of the global market.
If Apple were to pursue similar legal challenges against other Android manufacturers that could squeeze profit margins as smartphone prices decline in a growing market - reinforcing the dominance of Samsung, one of the few with big enough margins to absorb the extra cost.
Handset competitors using Android include Taiwan's HTC Corp, LG Electronics, Google's Motorola, Sony Corp and some Chinese brands.
WIN SOME, LOSE SOME?
Although Samsung had been viewed as the underdog in the U.S. case, the sweeping nature of Apple's victory was something of a surprise, with many analysts having expected a mixed ruling.
Concerns over potential reputational damage, the short-term cash hit and the impact on billions of dollars of business with Apple had knocked as much as 5 percent off Samsung's shares this week in the run-up to the verdict. But the stock is still up nearly 50 percent since Apple filed its accusations.
Samsung has previously been able to move nimbly to release model upgrades by the time courts have ruled certain products infringed Apple patents and retire patent-infringing models from its line-up. It has skirted around those rulings with a few engineering tweaks and has also made some bold design changes to differentiate its devices from Apple's.
"The impact on Samsung will be quite limited, as affected models are mostly legacy products and its new products did make some design changes to avoid potential litigation," said D.J. Jung, representative patent attorney for SU Intellectual Property.
"Still ... it's a sweeping loss in the most important market. It's inevitable that Samsung's brand will be negatively affected - Samsung could be perceived as a copycat."
Even though Samsung's flagship Galaxy S III phone was not involved in the trial, the jury validated Apple's patents on features and design elements that Apple could then try to wield against that product.
It is possible Apple would not have to seek an entirely new trial against the S III, but rather include it in a "contempt proceeding" which moves much faster, said Nick Rodelli, a lawyer and adviser to institutional investors for CFRA Research in Maryland.
Seoul-based Jung predicted further appeals and fresh suits against newer products as the rivals continue to clash in court.
"It's going to be a very drawn-out battle," he said. "They will keep suing each other, appeal against unfavorable verdicts and bring in new products ... because the stakes are too high. They don't want to lose their initiative in the fast-moving smartphone market."
OUTSIDE THE BOX
In a research note before the verdict, UBS analysts said an Apple win could, in the long-run, hurt the U.S. firm "as the real threat is not a competitor beating Apple at its own game, but instead changing the game.
"The likelihood of Apple being leapfrogged or a rival creating a new category (of device) is greater if they have to think out of the box. If they just copy Apple, like Coke, Apple can claim to be 'the real thing'."
Samsung also looks to be staying ahead of the curve - by reviving the stylus function, derided by Apple's Steve Jobs, in its latest tablets and by creating the hybrid phone-cum-tablet, or phablet, category, with its 5.3-inch Note.
Apple, which has largely stood by its original form and design, is taking note, with speculation that the next iPhone will have a bigger screen and new iPads may be smaller.
In China, set to become the world's biggest smartphone market this year, Samsung has almost twice Apple's market share, and the iPhone slipped to fourth in the market in April-June, overtaken by both Lenovo Group Ltd and ZTE Corp, according to latest data from industry research firm IDC. [ID:nL4E8JO1SB]
Despite, or because of, the publicity from the U.S. case, and more than a dozen pending cases elsewhere around the globe, the Samsung brand has gained recognition - as an equal to Apple rather than merely a supplier.
In a recent Campaign Asia-Pacific brand ranking, Samsung came top ... ahead of second-placed Apple.
($1 = 1135.9500 Korean won)
(Additional reporting by Dan Levine in SAN FRANCISCO; Editing by Ian Geoghegan and Alex Richardson)
Jury:
Samsung violated Apple patents, owes more than $1B
By Scott Martin and Jon Swartz, USA TODAY
A federal jury in San Jose late Friday ruled that Samsung infringed on multiple Apple patents, awarding the Cupertino, Calif., maker of the iPhone and iPad more than $1 billion in damages and rewriting the rules for mobile technology patent disputes.
Apple shares rose 1.8% to $675.04 in after-hours trading after the news.
The $1.05 billion in damages is the largest surviving verdict in patent history. Two larger verdicts were reversed, according to Stanford University law professor Mark Lemley.
"It's a huge win for Apple," says Lemley, who specializes in technology. "But this is one lawsuit among 50 in the smartphone market, and Apple's real target may be the Android ecosystem."
Apple's nearly clean sweep is likely to blunt momentum for Samsung — which recently passed Apple as the world's largest seller of smartphones — and will probably force it to redesign its mobile devices, Lemley says.
The bigger question is whether Apple's resounding victory "scares off" Google-Motorola and others in the smartphone wars, he says.
Jurors found that on the screen bounce-back patent, Samsung infringed on all phones and tablets. On patent 915, pinch and zoom, the jury found Samsung infringed with all but three devices.
Samsung violated the design patent for the front of the iPhone for all but one phone, according to the jury. On the home screen patent, Samsung violated with all phones, the jury found. Samsung did not violate one particular Apple iPad patent that covers its design, the jury found.
Samsung said in a statement: "Today's verdict should not be viewed as a win for Apple, but as a loss for the American consumer."
After the verdicts were read, the judge sent the jury back to deliberate further on two inconsistencies involving about $2.5 million in damages awarded to Apple based on products jurors found didn't infringe Apple's patents. Those deliberations were continuing.
The technology titans battled for more than three weeks in court over allegations that Samsung copied Apple's mobile device designs and software.
"If Apple patents are upheld long-term, it will force the industry toward innovation and differentiation," says Gartner analyst Michael Gartenberg. "That's not a bad thing for the market and for consumers."
U.S. District Court Judge Lucy Koh presided over the San Jose courtroom. Last month, she awarded Apple a preliminary injunction that could force Samsung's Galaxy Tab 10.1 tablet computer from stores pending the outcome of the trial.
"I think she's going to grant an injunction and a fairly broad one," says Lemley, indicating Samsung's Galaxy Tab 10.1 could be yanked from the market.
Apple presented hundreds of pages of documents, as well as the testimony of scientists, executives and engineers, to support its claims that its iPad and iPhone were being copied by Samsung. Apple wanted products pulled and $2.5 billion in damages.
In closing arguments on Tuesday, Apple attorney Harold McElhinny alleged that Samsung documents show that in three months, it was able to copy four years of Apple development. He said they show "hundreds of pages of copying directions" for icon design and functions such as tap-to-zoom that were put into the Galaxy phone and tablet line.
He also said Samsung met with Google, which advised the company to change Galaxy designs, but Samsung declined.
"The damages in this case should be large, because the infringement was massive," McElhinny said.
Samsung lawyer Charles Verhoeven, in closing, shot back that the documents don't show what Apple claims. "It's a shell game for counsel trying to mislead you," he said. "They have to prove to you with their evidence that consumers will be deceived, there's a likelihood of deception. This doesn't meet the burden of proof."
Much is at stake over patents that cover Apple's graphic user interface patents for touch screen functionality. Samsung, in effect, serves as a proxy for Google because the search giant's Android software powers the Samsung devices in question. The outcome could have implications for patent cases worldwide and for other makers of Android-powered devices.
Samsung was seeking royalties for specific wireless technologies used by Apple.