Ever since 2011, Apple (NASDAQ: AAPL) and Samsung (NASDAQOTH:SSNLF) have been locked in a patent fight, with neither party willing to budge. However, it seems as though both companies have grown weary of this debilitating fight and are in the process of sealing an agreement.
In this video segment, The Motley Fool's Dylan Lewis and Vincent Shen explain why Samsung is forking over $550 million to its arch rival, what it signals about the relationship between the two companies, and why this might just end up backfiring on Apple in the long run.
Listen to the full podcast by clicking here. A transcript follows the video.
This podcast was recorded on Dec. 4, 2015.
Vincent Shen: So are Samsung and Apple kissing and making up here, or what?
Dylan Lewis: I don't know, maybe they get into the holiday spirit a little bit, right? So early this week Samsung basically agreed to pay Apple roughly $550 million as part of this long-running patent dispute that they've had. Their patent disputes last longer than most relationships at this point.
Shen: 5 years running.
Lewis: Yeah which is insane. I mean I guess it's just a testament to how much they've dug their heels in and just fought each other on this.
Basically this dates back to 2011. Apple said Samsung was using some of its patented technologies without permission. One of the ones that was cited in some of the examples was the pinch to zoom functionality in OS. Just to give you an idea of what this case centers on.
And so this $550 million seems like a big number. The reality is, it's the fraction of what the original sticker price that Apple was asking for was, which was like $2.5 billion.
Shen: Oh, wow!
Lewis: And courts had originally awarded Apple $1 billion. Samsung through a series of appeals and things like that, talked them down to this $550 million figure.
Shen: Okay. Is this it? Is it over?
Lewis: No. That's the problem with this litigation process, right? It's never over. And of course in terms of like what does this mean for Apple, this is a drop in the bucket for their top line.
You know you look at the $200 billion plus that they made. This is nothing over the last year.
Shen: Yeah of course.
Lewis: So I kind of wanted to bring it up because I think I'm hoping that it marks more the end of this like highly litigious 6 for these two companies. You know, you look back and like the 2010 to present really period, and it's just been brutal in terms of patent attacks.
And it's something that Steve Jobs was very adamant about was protecting tech and patenting pretty much everything. And I think that there's definitely something to be said for that, but I think that this might be the two companies, in addition to some of the other things they've done, turning the corner a little bit and hopefully burying the hatchet.
Actually in 2014 the two agreed to drop their patent disputes outside the U.S. And so they had ongoing patent disputes in nine other countries at the time.
Shen: Oh, wow!
Lewis: Yeah it's just insane when you think about the scope that this runs. And I think one of the crazier stats that I came across when I was researching this story was just in 2012, New York Times had this article and they mentioned last time, last year for the first time, spending by Apple and Google on patent lawsuits and unusually big dollar patent purchases exceeded spending on research and development of new products according to public filings. Which is insane.
Shen: Just to give you an idea of how long this has been going on, how expensive it is for them to wage this battle in court against each other over such a long period of time. It's really big numbers.
Lewis: Yeah and I think some of this is just the maturation of people getting used to having this functionality on their phones and different devices. And so like if a feature's been around for so many years, at what point do you say like this is something that people are used to being able to do on their phones?
Yeah, there's definitely that element of it. So but I do think that both companies are tiring of it a little bit and maybe their mom called up and said, "You guys need to play nice so that I'll feed you guys over the holidays or something." But there's still some elements of this that need to pass through. So basically Samsung said once they received notice of invoice from Apple, they will pay it within 10 days.
Samsung is of course requesting a Supreme Court review of the case so there is an appeal in there, but they are willing to pay the fine right now. And there is a clause written into this payment that Samsung would be refunded the money should the U.S. Patent and Trade office find that the patent should not have been issued in the first place. Which is something that has come up a couple times with some of these patents.
Shen: Yeah I've heard that the USPTO has some like internal investigations right now where they're evaluating where some of those early patents that they awarded to Apple might not, should not have been awarded in the first place. So this is kind of over.
Lewis: Yeah. There will probably be a follow-up at some point but I think more than anything else, this is just kind of more like the fascinating side of tech that you don't really hear about much. There's some really interesting stuff written about the patent process and kind of arming yourself with patents.
And I kind of urge our listeners to check that out if this is something you're interested in. They get into the process that some of these big tech companies use just because they have these huge legal resources. And some of it is just resubmitting and resubmitting and resubmitting it. It's like this war of attrition kind of against the U.S. Patent Office. And so that's where you start to see these, "should these patents have been issued to begin with" type things.
But really fascinating stuff. I'm hoping that the two companies can just kind of let it go at this point and play nice.
Shen: That $550 million settlement -- I'm not saying it's a small amount of money by any means. To these companies though overall it is pretty much a drop in the bucket. But I think about it, I remember when these, when this legal battle first kicked off back in 2010, 2011, at the time when the Android-Apple war was raging full on, I felt like this was almost like a symbolic perception of which company is leading the charge in terms of developments of smartphones. Like Apple basically claiming, "We started it all. Samsung's just copying us with their devices." But honestly at this point, 5 years later there's a lot of good phones out there. I just don't think people care that much anymore.
Dylan Lewis has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. 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.