Quick Thoughts: Samsung Takes a Beating in the First Round of a Long Fight

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–          In a shockingly fast decision, the San Jose jury found that Samsung had willfully infringed 6 of Apple’s patents in 14 of its older products and awarded more than $1B in damages.

–          Judge Koh will next rule on injunctions and the legality of the verdict, but appeals will hold up resolution for years and could change the verdict dramatically.

–          Android licensees should have technical work arounds available in weeks – a minor expense to OEMs and a small annoyance to customers used to the Apple patented approach.

–          Apple’s leverage has increased, should it negotiate licensing terms in good faith.  Longer term, the verdict will feed political debate on the appropriateness of software and design patents.

The Apple v. Samsung jury took just 3 days of deliberation to deliver an unequivocal and potentially expensive rebuke to Samsung that will have Apple fanboys gloating for months.  However, taken in longer perspective, the verdict is really a first step in a multi-year slog toward either legal resolution or negotiated settlement.  Sometime this fall, Judge Lucy Koh will hear Apple argue for injunctions against the 14 infringing products and asking that the Judge triple the $1B+ damages awarded, as is her prerogative given the jury’s findings that the infringement was willful.  Samsung will ask that the verdict be thrown out on procedural issues.  Thereafter, assuming the almost certain case that Judge Koh affirms the jury’s decision, Samsung will ask a stay of any injunctions granted and the payment of damages pending the resolution of its appeal.

Meanwhile, Samsung and Google have undoubtedly been burning the midnight oil behind the scenes on  engineering work-arounds to the infringed upon patents for “bounce-back scrolling”, “double tap zooming”, and “pinch to zoom”.  The first two are trifles, but “pinch to zoom” is a bear, as it has become a well-established habit amongst both Android and iOS users and even an exceptionally clever and intuitive alternative will require future users to unlearn this basic gesture.  That said, a good alternative is far from impossible – “twist to zoom”, “two-finger drag to zoom”, and “hold and tilt to zoom” have all been suggested on the “The Verge” forums.  At worst, work arounds will slow down product introductions for a month or two and create a very minor annoyance for users accustomed to the now verboten “pinch to zoom” gesture.  The design patents – governing the shape, materials and lay-out of the products – are even easier to work around.  An injunction against the Samsung Tab 10.1 tablet in Germany prompted a minor change in the metal bezel in a revised and non-infringing model that hit the shelves just two months after the ruling.  In the US case, it helps Samsung that the verdict focused on older products nearing the end of their useful lives and did not address its newer and more important models, such as the Galaxy S III and Note lines, giving the company more slack in getting the work arounds to market.

Back in the legal realm, Samsung’s appeal will likely hit appellate court sometime in the next 12 to 24 months, typically to be heard by a three judge panel.  The recently concluded jury trial was extremely complicated, even by patent trial standards, and there were innumerable points of contention around rules of law that will constitute the arguments of the appeal.  History suggests that Samsung stands a decent chance of some vindication – about half of jury verdicts on patent cases are at least partially overturned by appellate courts – and that the process will take a long time.  For example, in February 2007, a jury found Microsoft liable for infringing Lucent’s patents on MP3 and awarded damages of $1.5B.  In August, the Judge vacated the judgment and limited Lucent’s claims, and a year later the appeals court upheld the decision.  A subsequent new jury trial on revised claims resulted in a $513M damages award to Lucent, but this too was overturned on appeal, and a third trial in 2011 resulted in $70M in damages, which was subsequently reduced to $26M on appeal.  Earlier this year, the now 5 year old legal odyssey was brought to a merciful close with an undisclosed private settlement between the two companies.

The Samsung appeal plays into a larger debate over the patent system in general, with many legal scholars questioning the appropriateness of awarding patents for broad product concepts.  In a similar dispute between Apple and Motorola, influential appeals court Justice Richard Posner purposely requested assignment to a lower court to hear the case and subsequently dismissed it with prejudice.  At the heart of his dismissal, which is under appeal, is a finding that Apple did not establish that there were any damages to its business at all.  Essentially, Posner believes that, amongst the 300,000 or so patents touching the modern smartphone, it is difficult to show that any one of them is important enough to justify an injunction or a substantial damage award.  Arguments along these lines, unimportant in a jury trial will be important at the Appellate level and front and center should the Apple v. Samsung case make to the Supreme Court, which many observers believe is possible.  The larger debate will also play at the political level, with calls for patent reform growing louder as the IPR litigation trend snowballs.

In this context, this stunning court room rout falls far short of Steve Jobs’ vow of thermonuclear war against Android.  Android licensees will implement the necessary work-arounds, bearing some delays and costs which are unlikely to have much effect on the demand for products based on the standard.  Newer versions of Android have avoided many of the specific patents used by Apple in its IPR holy war, rendering most newer devices less vulnerable to the sort of whupping that was administered to Samsung.  The damages will not be paid until the appeals process is exhausted, but looming behind the scenes they will give Apple considerable added leverage should it intend to negotiate licensing terms in good faith.  To that end, the 3-5% royalty that most OEMs have reputedly agreed to pay Microsoft for its even more extensive patent library becomes a model for realistic agreements.  The other threat to Android may be in the court of public opinion, where being branded as stolen copycat technology could sway consumers against the platform, although I suspect that any such effect would be fairly short lived.

Overall, my conclusion is that the verdict will have far less effect on Apple and Android, or for that matter, Microsoft, than most of the published trial post-mortems are suggesting.  Apple gets bragging rights and negotiating leverage, while the debate around software patents becomes more concrete and the appeals process proceeds.  Google will adapt, updating Android to avoid Apple’s patented flourishes and better establishing its own distinctiveness.  Samsung will continue to thrive, but will bear the short term costs of adapting its older models and will take a wider berth around Apple’s design cues in its new products, all under the long term risk that the appeals process could affirm Apple’s claims .  Microsoft benefits from its distinctiveness and proactive IPR cross-licensing program, but will still need to win over consumers increasingly tied to iOS and Android with compelling products based on its platforms.

For our full research notes, please visit our published research site.

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