Apple Wins Big -- Cue Samsung's Appeals

The smartphone world has been on pins and needles for the past couple of weeks. Apple (Nasdaq: AAPL  ) and Samsung crossed legal swords in a California District Court, sparks flying sky-high at every slash and riposte. The case was pivotal, not only to the Apple-Samsung rivalry but also to the future of patents, innovation, and competition in America.

What's the big deal?
Patent lawsuits can make or break a company, and I don't think the "too big to fail" principle applies here. Memory-chip maker Micron Technology (Nasdaq: MU  ) would have been in serious trouble if Rambus (Nasdaq: RMBS  ) had won its decade-long patent and antitrust suit against the company, hit by billion-dollar damages and other sanctions. But that case went the other way, and now Rambus teeters on the brink of extinction instead.

The jury deliberations in the Rambus-Micron case dragged on for weeks as the jurors sorted through complex technical questions. I expected nothing less from the Apple-Samsung jury -- but the case ended after less than three days of jury deliberations.

Apple was awarded $1.05 billion in damages while all of Samsung's counterclaims were slapped down. The rapid verdict only rubs salt in Samsung's considerable wounds. The only salve on Samsung's fresh sores is that the jury found the South Korean company not guilty of unfair competition under antitrust laws.

Apple was asking for as much as $2.5 billion, so it's not a total victory. But it's one of the largest patent-related awards in history, and one that will set strong precedents for upcoming battles.

Sure, Samsung will probably appeal all the way to the Supreme Court in a multiyear process, and by the time it's all over, the products under examination will be used as doorstops and bookends. But early decisions do set the tone for coming procedures, particularly when the courts put so much investigative effort into them.

The jury members made significant mistakes in filling out their 20-page verdict forms, in one instance saying that one of Samsung's devices didn't infringe on a particular patent but awarding $2 million in damages on that claim nonetheless. The foreman asked Judge Lucy Koh to clarify which items needed amendments and then returned an amended version before even getting an answer.

This makes me wonder whether jurors weren't more interested in getting back to their lives than in handing out proper justice, and Samsung will probably attack from this angle in the appeals process.

That's just more reason to believe that this case will bounce around the judicial system for years to come.

What's next?
The monetary damages being established, Judge Koh will follow up with more filings and a hearing on Sept. 20. This one's for determining whether any of Samsung's products should be slapped with injunctions or outright sales bans until the company can redesign its phones and tablets to avoid Apple's patents.

Samsung simply cannot afford to have its future products removed from the American market, especially since the rest of the world would be likely to follow suit. Expect Samsung to bend over backwards to keep its products flowing into America, whatever it takes.

If that means updating the Galaxy S3's software to avoid pinch-to-zoom actions and elastic graphics that bounce off the edge of the screen (two of the Apple patents in question), then so be it. The company may even have to change the physical design of its handsets to make them less similar to iPhones, and that would be a more costly project.

Can't we all just get along?
Judge Koh asked the two sides to kiss and make up on several occasions, even ordering phone conferences between the CEOs. She slapped sanctions on Samsung's lawyers at one point; at another, she wondered whether Apple's representation was "smoking crack." In the final days of the trial, she urged another settlement conference because "I see risks for both sides."

Given the judge's repeated instructions to work out a settlement, plus the considerable influence she has over the final verdict by shaping her jury instructions, I expected a far less extreme outcome than this. I agree with the honorable judge that the world would be better off if these companies just sat down, broke some bread, and cross-licensed one another's patent portfolios to Kingdom Come. Steve Jobs would never have agreed to this, but Tim Cook is a more practical leader. Nothing is impossible -- but Cook stayed on the warpath long enough to score a big victory.

This verdict will change the smartphone game in more ways than we can imagine right now. Samsung is the world's largest maker of Android devices, so this outcome gives Cupertino a strong leg to stand on if it wants to persecute smaller players like HTC, LG, or even Google (Nasdaq: GOOG  ) subsidiary Motorola Mobility.

You can keep up with all things Apple by signing up for The Motley Fool's brand-new research service just for the smartphone leader. You'll get regular updates on new developments as we monitor Apple -- so you don't have to. Sign up today.

Fool contributor Anders Bylund owns shares in Micron and Google but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended have recommended buying shares of Google and Apple and creating a bull call spread position in Apple. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 26, 2012, at 3:41 PM, nyc314 wrote:

    "...Android devices, so this outcome gives Cupertino a strong leg to stand on if it wants to persecute smaller players like HTC, LG, or even Google..."

    You mean "prosecute" right? You aren't persecuting people or companies by pursuing legal redress in the court system. Prosecute is the wrong word, too, though. Apple lawyers aren't prosecutors. I think you mean "pursue litigation against" or something in that vein.

  • Report this Comment On August 26, 2012, at 4:02 PM, TMFZahrim wrote:

    Mmm, no, I do mean "persecute." There's no better word to describe Apple's atitude to honest competition.

    Anders

  • Report this Comment On August 26, 2012, at 4:04 PM, ravens9111 wrote:

    I don't see how Google can be sued when they are only providing android, which I don't think has patent disputes with Apple. If you recall, Oracle sued Google for java patent infringement. Google prevailed since it was declared open source. Now if Google manufactures their own smartphone and tablet when the Motorola Mobility deal is final, then they could open themselves up for possible litigation. However, a big reason why Google bought them out in the first place was for their own patents. It will be interesting to see what Google does when they begin production and integrate with the Google Glasses.

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