By way of disclosure, let me say that I own a Samsung Galaxy II and I love it. But others may not get the same opportunity after Apple won a $1.05 billion verdict in what was described in technology circles as the trial of the century. The jury in San Jose, California, not far from the Apple campus in Cupertino, ruled that Samsung violated a series of features from the iPad and iPhone for its smart phones and tablets. More important, a ruling by Judge Lucy Koh on September 20 could lead to the banning of several Samsung products from stores, including the Galaxy phone line, due to patent infringement. One product, the Samsung Galaxy 10.1 tablet, has already been banned.
Ultimately, Samsung will be fine. $1.05 billion represents less than 1.5% of annual revenues for the company. And Samsung plans to appeal to the DC Circuit Court, which routinely lowers monetary damages. Even if it remains the same, Samsung won’t be paying out to Apple for years.
The jury said Samsung’s Galaxy Tab products did not infringe on Apple’s technology, so they’re free to resume in that iPad-competing space. They dominate the smart phone market by 2-1 over the iPhone currently. And it’s likely that future smart phone updates will be able to get around the infringement; in fact, the company has already moved in that direction. The products that would potentially get banned are the legacy products that may no longer be in current production anyway.
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.
The big loser will be consumers, who will pay more for phones across the Android line due to licensing fees. Moreover, companies will find greater hurdles to enter the smart phone space with innovations, fearful of Apple’s patent stranglehold. It’s not like there are that many ways to organize a graphical interface for a smart phone. In fact, one possible outcome is that Samsung and Apple enter into a cross-licensing agreement, making it virtually impossible for any other competitor to enter the market (the two companies already have a large supply relationship, so this wouldn’t be too surprising). At that point, Apple and Samsung divvy up the profits. Companies like HTC, LG, Motorola and Sony could end up having to drop their phones if the Android licensing fees imposed by Apple become too great for them to maintain their profit margins.
Maybe Samsung suffers some reputational risk, but I doubt it. If you’re looking for a loser here, it’s clearly the smart phone consumer. The choices in the market will be constricted, the patent-based fees will climb higher, and innovation will be chilled, because instead of building on designs, an upstart would have to completely design around these landmine patents. This is another example of rent-seeking by large corporations who sit on a market and take every opportunity to control it. Patent expert and author Leah Shaver told Wired, “When companies turn to litigation rather than innovation, consumers lose.”
In a separate case, a South Korean court ruled against both Apple and Samsung for copyright infringement, banning the Samsung Galaxy S II and the iPhone 4 from the country.