Last week, a leading mobile manufacturer scored an important legal victory on its home turf. Actually, both of the litigants did. But the mobile war won't be won on patent claims and sales injunctions. Its ending can only be delayed in the courts, and then not by much. Instead of delving too much into the details, let's step back and look at the big picture. What really happened in Apple (Nasdaq: AAPL ) v. Samsung last week, and what does it really mean to you as a consumer and an investor?
It's easy to get lost in the details of this complex case. Here are the big numbers on Apple's win in Northern California's District Court: just over $1 billion in damages, the result of Samsung's violation of three technical patents and three design patents in a total of 21 different devices.
Meanwhile, in Tokyo, three judges ruled against Apple's comparatively modest request for just over $1 million in damages from Samsung for infringing a rather technical streaming sync patent. A South Korean patent case broke down the middle for both parties just before Apple's American victory. Other international cases continue.
The details don't really explain the story. All Apple really won last week was a temporary victory over the shape of last year's phones by appealing to nine people too dumb to get out of jury duty.
What happens next
If any Apple v. Samsung jurors are reading this, I'm sorry I called you "too dumb to get out of jury duty," but it has to be said. You may be very nice people, but you don't seem to be trained in the intricacies of patent analysis, and significant mistakes made in the verdict lead me to think you were all in over your heads. Your jury foreman didn't challenge that impression during his post-verdict Bloomberg TV interview. Is the following garbled interpretation of "prior art" how the nine of you decided that Apple deserved $1 billion?
The software on the Apple side could not be placed into the processor on the prior art, and vice versa. That means they are not interchangeable. That changed everything right there.
Got that? Yeah, neither did I. Techdirt, a blog covering the legal side of technology, picked up on this interview and noted that the jury's instructions included a definition of prior art, which is supposed to show "that the invention has already been done or even explained somewhere else." If the Internet can poke holes in the jury foreman's explanatory gibberish, you can bet Samsung's lawyers will. After all, poking holes in gibberish is a big part of their job.
At any rate, many of Samsung's offending phones are already past their shelf life. Apple has a second California case against newer Samsung phones, including the recently released Galaxy S III, but it won't go to trial until 2014. As the "first smartphone designed by lawyers," the S III is a lot less likely to run afoul of Apple's infringement claims, but it already looks like a winner in the current infringement case. One analyst's post-verdict channel check of mobile retailers found many locations completely sold out of the S III.
Technology moves faster than the law. Remember that the next time you pin your hopes on patent claims.
Who really gets hurt?
Post-verdict, analysts picked out winners and losers as if they were drafting fantasy sports teams. Apple for quarterback! Trade Samsung's suppliers! Microsoft (Nasdaq: MSFT ) and Nokia (NYSE: NOK ) at wide receiver! Let's demote Google (Nasdaq: GOOG ) to the bench. Apple and Samsung have by now combined to file 50 patent lawsuits around the globe, and one Stanford Law School professor estimates that the California case alone amounts to a $500 million stimulus package to the American legal industry. Maybe we should be drafting patent lawyers instead of smartphone manufacturers.
My fellow Fool Travis Hoium pointed out last week in the aptly titled "Apple Won! So What?" that "Apple's win over Samsung has more to do with Samsung's stupidity than Apple's great patent protection." Had Samsung been less brazen in its copycat efforts, the jury might have decided in its favor -- and even so, you can never underestimate the ability of juries to apply straightforward instructions in profoundly stupid ways.
If Apple was planning to do something "insanely great" with the upcoming iPhone 5, this might not matter. The first iPhone earned that label, but each successive release seems to set the bar a bit lower. Apple went from redefining the smartphone to defending beta-mode voice-activated personal-assistant software that some Apple insiders claim would have made Steve Jobs lose his mind, in a bad way. There's still time to make the iPhone 5 live up to Steve's standards, but the biggest change rumored so far is that it's a little longer:
Here are two more shots, this time with the iPhone 3 joining the family photos:
It's certainly possible that something big is coming, but -- as Siri's shown -- "something big" doesn't necessarily make for a game-changer. Siri's gotten the marketing push, but Google and Microsoft have their own speech-recognition engines, while Apple contracts with Nuance Communications (Nasdaq: NUAN ) for Siri's recognition capabilities. Google and Microsoft haven't made speech recognition central to their ad campaigns, while Apple's battling a class action suit over Siri. Those star-studded Siri commercials may not have been the best idea. Promising sci-fi accuracy and delivering software that actually works only two-thirds of the time is a good way to disappoint a lot of excited customers.
Meanwhile, it's no longer quite so easy to call the iPhone the best smartphone in the industry. Reviewers have drooled over the Galaxy S3 and its "gorgeous screen," as Henry Blodget put it. The iPhone actually looks a little bland by comparison:
Source: In Entertainment.
Source: In Entertainment.
Even if you don't care for Nokia's Windows Phone-backed Lumia 900, it's tough to argue that the visually arresting hardware and software design combination won't draw at least some curiosity from consumers bored with the iOS/Android duopoly:
Yes, both Samsung and Nokia's designs do resemble the iPhone, but in the way that most pre-iPhone smartphones looked like BlackBerries. Overarching designs that work are always widely copied, and there's nothing Apple can really do about it now.
Smartphone manufacturers, Samsung included, have had more than enough warning time to alter any devices or OS features that might run afoul of Apple's legal team. Any company that continues to make deliberate choices to ape Apple now will be too slow to succeed in an industry where new smartphones seem to come out every week.
Apple isn't a scrappy upstart anymore, but this extended patent jousting reveals (at least to me) a mindset stuck in the combative Mac vs. PC, us vs. them era. Widespread news reports that involve having the world's largest company suing its competitors over rectangles and the color black make Apple look like a vindictive bully. Combine that with timid progression in Apple's iconic phones, and once-eager consumers may start to look elsewhere.
The last time Apple found itself Jobs-less, it fell into the habit of protecting its margins at the expense of real innovation. Steve Jobs isn't around to help Apple should it eventually stumble again. The company has to get over its defensiveness and be insanely great instead of just insanely litigious.
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