It may be hard to believe now, but Samsung (NASDAQOTH:SSNLF) and Apple (NASDAQ:AAPL) were once equals in the smartphone market. But more recently, Cupertino has firmly pulled away from Samsung and the overall smartphone industry where it counts: profits.
For example, according to research firm Canaccord Genuity, Apple took a dominant 92% of all smartphone operating profit in the first quarter of 2015. Samsung came in second with a mere 15% (the total adds up to more than 100%, as other vendors lost money). By comparison, the two companies were nearly at parity in 2013, before Apple's iPhone 5s and iPhone 5c iteration powered Apple to higher profits while Samsung languished.
Coincidentally -- or perhaps not -- the legal battles between the two companies have become less acrimonious as the smartphone wars have abated, with the two companies even trying mediation to resolve their issues.
A dispute so big that it once required President Obama to veto a ruling that would have prevented Apple from selling certain iPhones and iPads in the U.S. has calmed. Damages that Samsung had to pay to Apple were recently reduced from $930 million to $548 million. But Samsung is disputing even that lowered amount, and it is getting help from friends in Silicon Valley.
Friend of the court and friend of Samsung
According to website Inside Sources (via The Verge), a host of tech companies -- including Facebook, Hewlett-Packard, and Google -- filed an amicus curiae ("friend of the court") brief in the ongoing appeal. Essentially, this is a filing, generally unsolicited, that parties not directly related to the lawsuit use to assist the court in making a fair and impartial decision.
In many cases, these filings exist to implore the court to consider the ramifications of the decision in a broader context. And these companies are heavily backing Samsung.
If allowed to stand, that decision will lead to absurd results and have a devastating impact on companies, including [the amicus brief filers] who spend billions of dollars annually on research and development... Under the panel's reasoning, the manufacturer of a smart television containing a component that infringed upon a single design patent could be required to pay in damages its total profit on the entire television, no matter how insignificant the design of the infringing feature was to the manufacturer's profit.
To be fair, and as Apple astutely pointed out, Google is not exactly an impartial participant in this decision. Its Android operating system provides the ecosystem for Samsung's high-end Galaxy models that are entangled in this lawsuit. But do the other companies have a point?
Patent trolls for Apple
There's still one group that's rooting for Apple: non-practicing entities. In a well-functioning intellectual property market, individuals and firms that create value-adding products, features, and technologies would be able to make money from these creations via licensing deals, selling the rights to bigger companies, or by taking their products to market. The term non-practicing entity refers to a company that plans to not do the latter, instead making money from licensing its technology.
Some large companies, Apple included, think the pendulum has swung too far. Bad actors (sometimes called patent assertion entities) routinely attempt to extort bigger companies with superfluous lawsuits concerning small pieces of technology for amounts well above their value. Earlier this year, Apple itself lost a lawsuit versus a small company called Smartflash LLC for $533 million. That company then filed a subsequent lawsuit the day after it won its first verdict.
Apple pledged to fight the company while commenting, "Smartflash makes no products, has no employees, creates no jobs, has no U.S. presence and is exploiting our patent system to seek royalties for technology Apple invented."
And while it is important to note that Apple is not a patent troll -- it does quite well turning its technology into products and profits -- the continuation of its lawsuit with Samsung could unintentionally give ammunition to these "bad actors." At least that's what many companies in Silicon Valley are saying. As the war between Apple and Samsung has now reached its pillage and plunder stage, with Apple the clear victor, maybe it should pay attention to the greater ramifications of this lawsuit.
Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). 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.