In 2012, Apple won a landmark victory over Samsung in the U.S., which required Samsung to pay $1.05 billion for violating six patents. Subsequent appeals reduced that figure, mainly on the basis that "aesthetic" design elements (like the shape of the case or of app icons) shouldn't count as violations.
But the courts upheld the decision to award Apple damages based on the full value of the iPhone, requiring Samsung to give all of the profits from sales of infringing Galaxy products to Apple. That decision, in the court's view, would reimburse Apple for the profit it lost to sales of infringing Galaxy devices.
In June, Samsung filed a plea to reduce or eliminate that charge completely, arguing that upholding the ruling would "invite overprotection and overcompensation of design patents" and lead to "an explosion of design patent assertions and lawsuits."
Surprisingly, Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Facebook (NASDAQ:FB), eBay (NASDAQ:EBAY), Dell, and Hewlett-Packard (NYSE:HPQ) all supported Samsung in a "friend of the court" brief with the U.S. Court of Appeals for the Federal Circuit. What prompted this united move against Apple, and does this swing the patent pendulum back in Samsung's favor?
The four-year battle
Samsung has always been one of Apple's largest suppliers. By 2010, Apple was paying Samsung $6 billion per year for components. But that same year, Samsung launched its first Galaxy S smartphone, which closely resembled Apple's iPhone 3GS, which arrived a year earlier. Apple sued Samsung in 2011 for copying its iPhone designs. Samsung countersued, claiming Apple used its wireless networking technologies without its permission.
The relationship between Apple and Samsung warmed up again after overseas litigation was dropped, and Samsung agreed to provide displays, application processors, storage devices, and other components for new Apple devices. But the unresolved payment issue in the U.S. has cast a shadow over that relationship.
The "ripple effect"
At first glance, Google, Facebook, eBay, HP, and Dell's support for Samsung might not make sense. Google owns Android, but it no longer manufactures any smartphones or tablets. Facebook is more interested in displaying ads on phones than making them, and eBay's mobile interests only go as far as its mobile app. HP and Dell have barely made an impact with their poorly received smartphones.
But these companies are concerned that "minor" patent infringement claims could expose them to similar lawsuits. The companies state that if the ruling against Samsung stands, the manufacturer of a smart TV could be forced to pay the total profit on the entire TV in damages if just a single component violated another company's patents.
In Silicon Valley, where tech companies horde thousands of patents, that could result in a massive escalation of patent litigation. For example, a company could sue eBay, Google, and Facebook for huge sums based on a single component of their websites, or similarly sue Dell and HP for just one part of their PCs. Therefore, the five companies warned that letting the charges stand would "have a devastating impact on companies" that "spend billions of dollars annually on research and development for complex technologies."
The waiting game
Half a billion dollars certainly isn't much for Samsung, which generated $180 billion in revenue last year. But agreeing to pay Apple would expose its Galaxy smartphones, Gear smartwatches, smart TVs, and other products to similar litigation.
That's why Samsung is dragging this case out for as long as possible. Samsung did the same thing to Microsoft, which sued it for refusing to pay royalties on its Android patents last year. Samsung countersued, claiming that Microsoft's acquisition of Nokia's handset division nullified that agreement. The two companies eventually reached a settlement for undisclosed terms. Samsung subsequently agreed to preinstall Microsoft apps on its phones, presumably as part of that settlement.
In my opinion, Samsung might want to strike a similar deal with Apple. After all, the two companies have already dropped these lawsuits overseas, and are working closely together in the production of Apple's next-gen devices. Gaining the support of Silicon Valley's top companies was a smart move by Samsung, but it's unclear if it will force Apple to change its tune.
Leo Sun owns shares of Apple and Facebook. The Motley Fool recommends Apple, eBay, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, eBay, Facebook, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.