Apple vs. Samsung Thoughts

The technology trial of the century (Apple vs. Samsung) is over and has concluded with a pretty big victory for Apple. Considering the stakes (Apple asking for $2.5 billion) the trial was quite short at only about three weeks and the jury only took three days to decide that Samsung did violate Apple’s patents and trade dress and owed Apple $1.049 billion in damages.

Now that it is over, here are my thoughts about the trial, the decision, and what it means to the industry.

Was the jury’s decision right?

Samsung got slammed in the decision, but was it the right one?

This all gets down to “did Samsung deliberately copy the iPhone with its Galaxy products?” After the trial the jury foreman said “the evidence was overwhelming” so it seems that they sure thought so.

I believe that the decision came down to two key points. First, the Galaxy S looks very much like an iPhone in terms of hardware and software. In terms of hardware, the Galaxy S looks very much like an iPhone 3G (and 3GS). Despite Samsung’s arguments that Apple cannot patent a black rectangle, there are ample examples of other touchscreen phones that do not look just like the iPhone 3G. In terms of software, Samsung’s TouchWiz interface makes Android look more like iOS than other Android flavors. Even the icons were remarkably similar.

Second, Samsung internal documents were presented showing that Samsung wanted to modify their product to be more like iPhone to the last detail. I think this really hurt as it showed Samsung very deliberately and willingly copied iPhone. (As a side note, I am amazed that companies email such information knowing it could later be used as evidence.)

Interestingly, the jury decided that Samsung tablets did not copy iPad designs. That surprised me because just after Apple unveiled the iPad 2, Samsung pulled their thick Galaxy Tab 10.1 tablet and re-released it shortly afterwards to be as thin as the iPad 2.

Another interesting note is that the jury did not find Apple in violation of any of Samsung’s patents. Since Samsung owns a patent on key technology for 3G cellular communication, it seems unlikely that Apple could have skirted around it. I do not know why the jury discarded this.

So the jury did believe that Samsung copied Apple’s designs but how did they assign damages? Apple used 20 people and spent $1.75M to compute the $2.5B figure they asked for so how did the jury get to $1B in just three days? It sounds like the jury had a checklist of products and went through each to see if each one violated each contested patent. It also sounds like they didn’t do a great job as there are several inconsistencies throughout the decision (which I’m sure will be the basis for Samsung’s appeal). When that much money is on the line you’d think extra caution would be used.

So I don’t really know if the damages was correct or not but it is a large enough value to send the message that Samsung was in the wrong here.

How does the ruling affect Samsung?

Samsung took a pretty big risk letting this trial go to jury. Samsung’s lawyers must have been confident the result would help Samsung negotiate future agreements with Apple meaning they expected to win outright, their counter suit would cancel out any loss on Apple’s claims, or that the penalty would be so small that it would be inconsequential. It looks like they bet wrong.

Obviously, this puts Samsung is a bad position. They will certainly appeal the decision so they don’t have to write that big check just yet, but an appeal hardly guarantees future victory. They may lose an appeal or maybe the appeal won’t be heard at all. In fact, since the jury found that Samsung willingly copied Apple’s designs they may be liable for triple damages, but that’s unlikely.

Although Samsung and Apple have tried to work out a licensing agreement before the decision (and several times during the trial at Judge Koh’s request) Samsung now needs that agreement to prevent future cases from ending with similar results. And there are future cases already scheduled. Unfortunately for them, they are now in a much weaker position to negotiate than they were before. Samsung has not agreed to Apple’s terms before because Apple is asking for a very hefty fee (on the order of $30) per phone shipped. Since margins on these devices are thin, $30 per device would require a significant price hike passed on to consumers. I think we can expect more expensive Samsung phones in the future.

With the decision Apple is now moving to ban sales for eight Samsung devices. Most of these devices aren’t on the market any longer, but the Galaxy S II is still being sold and Samsung will need to do something to keep them on the market. That means either a licensing agreement or software changes.

The news isn’t all bad for Samsung. Even if they do have to pay Apple $1 billion and they have to pay Apple a licensing fee, that can be considered a good investment for making Samsung the largest smartphone maker in the world and establishing its brand. It can be argued that if they did not copy the iPhone they would not have risen to their current status. Not only do they ship more smartphones than any other rival (including Apple) but they make more profit than any other (except for Apple).

How does this affect other smartphone OEMs?

With this win Apple is empowered to tell all other smartphone OEMs “It isn’t worth it to copy our designs. Sign a licensing agreement with us.” While Samsung can surely afford the millions to litigate and pay $1 billion in damages, not every smartphone maker can. I expect every Android phone maker is evaluating what they need to do to avoid being sued by Apple.

Overall, I do think this will force more innovation as the cost of duplication has now become very high. That’s good for consumers as we will have better products to choose from. However, in the meantime we may see higher prices as companies are forced to pay expensive licensing fees until they can create new products. That’s bad for consumers.

There has been speculation that this decision was particularly good for Microsoft as Windows Phone is protected by a cross licensing deal with Apple and therefore is immune to legal attack. Could this lure OEMs toward Windows Phone and away from Android? It is unlikely in the short term but I expect conversations will be had as it may end up being financially advantageous in the long run. Many Android OEMs already make Windows Phones (Samsung, HTC, LG) so there shouldn’t be a technical issue but in the end I think sales will determine changes in strategy. If Windows Phone continues to not lure buyers the lower cost will not matter.

Why didn’t Apple just sue Google?

Why go after Samsung if Android is the problem? I don’t think Apple was confident enough in a victory to take on Google yet. Suing smartphone makers, such as Samsung, is a less risky and less expensive tactic. Also, a loss against Samsung would be less costly than a loss against Google, and a victory gives them a stronger position against Google.

Now that Apple won, will they go after Google and fulfill Steve Jobs threat of thermonuclear war?

Well, it looks like Apple’s and Google’s CEOs are now talking, and that’s a good sign. I do not think that an iOS vs. Android trial will do a lot of good for either company regardless of the outcome (unless you are on Apple’s or Google’s legal staff, of course). It’s clear to me that Android’s visual design was inspired by iOS, in their current forms iOS and Android are sufficiently different that there should not be any customer confusion. People who buy an Android phone today know they are not buying an iPhone and vice versa. Spend the money on innovating and beat your competitor in the market, not the courtroom.

The trial itself

With the importance of this trial, the amount of money on the line, and the amount of money each legal staff was being paid (which I’d guess would easily be in the tens of millions of dollars), I would expect some degree of professionalism in how the trial was handled. From the start this trial was a circus, almost like you’d expect from some bad TV drama.

Samsung’s defense didn’t waste much time going off the rails. At the very beginning of the trial they released to the press evidence the judge had banned. This naturally angered the Judge and Apple’s lawyers demanded sanctions and immediate judgment in their favor. (they got neither.)

During the trial Samsung’s lawyers confused their own products during cross examination of Apple’s executive management (see here at 11:13). They accused Apple of doctoring photos, and then submitted their own photo instead which the judge noticed was altered and threw it out. This is just sloppy work for a very expensive legal staff.

Worst of all they had to know that the most damaging of Samsung’s internal documents (like a 132 page comparison of iPhone and Galaxy phones) would be made public. How could they let these documents out? Why didn’t they advise Samsung to settle before trial?

Apple’s counsel wasn’t without their own craziness. You knew this when the judge asked Apple’s attorney if he was “smoking crack” as he tried to squeeze in 22 more potential witnesses.

Although entertaining, I was hoping that a matter this important would be settled in a decisive manner without the sideshows.

That’s about it. For more detailed information you can find full coverage of the trial at the Verge.

 

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About Lee J.

Mobile Guy!
This entry was posted in Analysis, Opinion and tagged , , , , , . Bookmark the permalink.

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