Apple v. Samsung: Is the $1.05 Billion Verdict the Beginning or the End?

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One Billion Dollars (and change).  In just 21 short hours a jury awarded Apple more money than either of this year’s presidential candidates has been able to raise in almost two years of campaigning.  A jury verdict of such magnitude undoubtedly serves as a wakeup call to not only the parties involved, but also to the fairly young smartphone industry.  While two mammoth corporations have been slugging it out in the consumer space, a battle has raged in courtrooms across the globe.  Tech blogs and commenters alike can, and will, argue to no end about which current smartphone is the best – iPhone 5, Galaxy SIII, Lumia 920, to name a few.  But in the end, it is quite possible the constant barrage of litigation will have a greater impact on which company will win the battle for industry supremacy.

It did not have to be this way.

First, a little background on how we got here.  The smartphone industry, while currently seeming to be an integral part of daily life, is fairly young.  Other “smart” phones were for sale in the local Verizon or AT&T stores, but in 2007 it took a hip company from Cupertino, California to kick off the massive appeal of having the Internet in your pocket.  The cell phone industry has come a long way in just a short time – most certainly for the best, unless you are Research In Motion, manufacturer of the former industry-leading Blackberry line of phones.  Smartphones now account for over 50 percent of all cell phones in the United States.  The era of the Zack Morris phone is long gone. ⁹

The jury’s verdict in August provided a moment for reflection.  Samsung is one of Apple’s principal suppliers and the two have worked well together for all intents and purposes over the years.  The relationship appears to be more of a “keep your friends close, but keep your enemies closer” type of relationship.  The larger battle, of course, is Apple versus Google, but the various Android manufacturers like Samsung are on the front lines.  Steve Jobs, now infamously, said he would go “thermonuclear” and destroy Android (Google’s market-leading operating system). Fortunately for Apple, their legal foresight was as strong as their ability to research and develop the new technologies the world now takes for granted.

The battle rages on.

The focus of media coverage in the future will turn to other pending lawsuits between Apple and Google’s Android partners, but for now the fight is over just how big Apple’s win against Samsung should be, or if it should have even won in the first place.  Apple has requested a ban on some of the Samsung devices the jury found to be infringing its patents, as well as an additional $707 million in damages. ¹⁰ The injunction against Samsung’s iPad-competitor, the Galaxy Tab 10.1, was recently lifted by US District Court Judge Lucy Koh, resulting in Apple forfeiting its $2.6 million bond. ¹¹  However, this is a moral victory at best for Samsung who must wait until December for Judge Koh to rule on its motion for a new trial.  Samsung’s motion largely focuses on the conduct of the jury foreman – asserting that he not only withheld full answers during the jury selection process, but that he also impermissibly used his patent-holding experience to guide the jury to their verdict. ¹²

In the meantime, it is important to keep in mind Judge Koh had ordered the CEOs of each company to talk one last time before the jury came back with a verdict.  Obviously those last ditch settlement negotiations were to no avail and Samsung was the clear loser.

Almost any other company would see this as an incentive to work out a deal for the future—but not Samsung.  The company publicly announced, prior to the release of the iPhone 5, it would file a lawsuit against Apple over its use of 4G technology that Samsung presumed would be implemented in the newest iteration of the iPhone.  Samsung holds a good number of standards essential patents for 4G technology, and has since made good on its promise by formally requesting to add the iPhone 5 to an already existing lawsuit pending between the two parties, scheduled for trial in 2014. ¹³  Such a filing may be a mere posturing in the ongoing legal battle, but examining the current state of the litigation across the globe it is simply just another step that Samsung likely felt it must take.

Will the verdict spur on change in the patent system?

Returning to Apple’s foresight, quotes from each side demonstrate which company was thinking about patents long before the other.  On one side is Steve Jobs’ promise to go “thermonuclear” combined with his emphatic declaration at the original iPhone’s unveiling that “boy, have we patented it.” ¹⁴  On the other side is Google’s Vice President for Corporate Development, David Lawee, who recently told Bloomberg TV that Google was not, “patenting things as aggressively as we should have been … [and] didn’t buy into that notion of protecting your IP.” ¹⁵  No stretch of the imagination is necessary to decide that Apple knew what to expect and Google did not.

So is the verdict just a crowning achievement for a top-notch litigation team?  Or rather, is it a “crossing of the Rubicon” for highly publicized patent litigation verdicts that will serve as a wakeup call for reform?

The indomitable Richard Posner, Judge for the US Court of Appeals for the Seventh Circuit, recently authored a blog entry on his thoughts regarding the current state of the patent system. ¹⁶ Posner primarily focuses on why he feels the issue of excessive patent protection is best illustrated by the software industry.  In his critique, Posner makes reference to current issues, such as defensive patents and “patent trolls,” while succinctly comparing the importance of patents in the pharmaceutical industry to the lesser need for patents in the software industry. Posner goes on to discuss the copyright system as well, but his concluding thoughts on the patent system leave no doubt as to what he feels: “My general sense, however, bolstered by an extensive academic literature, is that patent protection is on the whole excessive and that major reforms are necessary.”

Bring on the lawsuits or bring on the mediators?

So is the verdict the beginning or the end?  The answer is likely a big question mark.  Each party has motions scheduled to be heard in December which could greatly increase, or negate, Apple’s victory.  Apple has lawsuits pending against every single major Android manufacturer, but many of those same manufacturers have 4G-related patents in their arsenal and have already begun to use them.  The iPhone continues to be the single best-selling phone; and, in spite of the $1 billion verdict, Samsung has continued to increase its market share and maintain its position as the top overall seller of smartphones in the world.  Moreover, a valid answer to the continuing battle between the two parties – cross-licensing of patents, a not unheard of solution (see Apple and Microsoft) – has failed to come to fruition with each side making serious demands.

Both Apple’s and Samsung’s immense success has led them on a colliding path.  Apple won this time, but could easily lose in a future case under the right set of circumstances.  Perhaps most importantly, Apple will be hard-pressed to find another manufacturer who presents such a perfect target.  The size of the verdict has drawn more attention than ever before to the various legal battles between the world’s largest tech companies.  But no matter the ultimate result in the present case, the race to win the smartphone war will, for the time being, continue to be fought on both the street and in the courtroom.