So we've waited and waited and the day has finally come. We've had injunctions denied, imposed, and lifted, cases thrown out, grievances heard and all manner of other legal and trade organization proceedings in the past year or so. But yesterday was different. Now we finally have a final verdict in a jury trial […]
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Some Thoughts on Yesterday’s Apple v Samsung Verdict

Aug 25th 2012 by

 

So we've waited and waited and the day has finally come. We've had injunctions denied, imposed, and lifted, cases thrown out, grievances heard and all manner of other legal and trade organization proceedings in the past year or so. But yesterday was different. Now we finally have a final verdict in a jury trial involving Apple and an Android OEM. As I'm sure you already know, Apple won round one spectacular fashion.

 

Most of us here at iSource have mentioned legal proceedings here and there, but we haven't devoted a ton of coverage to them because, until now, there wasn't much of any real substance to talk about. Now that has all changed. Rest assured, there will be appeals from both Samsung and Apple (their only loss on iPad trade dress claims. Yes, it's insanely greedy, but they will do it), but it is unlikely that such a resounding verdict will be set aside without something more convincing than Samsung has shown, including their evidence that wasn't allowed in court. From yesterday forward, there is standing legal precedent, so that's worth talking about.

 

I have personally been following the Apple v Samsung case as it has quickly moved along over the past three weeks, and I have to admit that I am pretty surprised by the lopsidedness of the verdict. After reading over various summaries of the testimony and listening to what so-called experts had to say, I figured that both sides would end up losers in some form or fashion. Judge Lucy Koh's own warning to both sides before closing arguments seemed to predict this very outcome. I figured if anyone might be able to read the pulse of the jury, it would be her. So, while it seemed foolhardy of Apple to proceed to a verdict a few days ago, considering that they actually had more to lose than Samsung in a negative verdict, they certainly made the correct decision. Well, in legal terms, at least. More on that score in a bit.

 

The feel I got after my research was that both parties would be found guilty of various patent infringements, but that Samsung would probably suffer a bit more than Apple. Then, Apple would have some of its patents invalidated, which could be potentially very damaging to them in the future. To round things out, Samsung would get hit for trade dress violations, the only obvious violation among all the claims on either side. Despite this, they would only be forced to pay a modest fine, and that would be the end of it.


That hypothetical outcome would look like a draw on paper, but really would have been a victory for Samsung. And, if the right Apple patents were struck down, it would be open season on things like scroll bounce-back, slide to unlock, and pinch to zoom or double tap to zoom. Those features may not seem significant when considering current versions of Android in reality, but they certainly are in legal terms. In case you haven't noticed, law isn't reality, as least not as we know it.


But that didn't happen. Instead, the jury came back with Samsung's worst nightmare. I don't recall hearing any legal analyst predict this bad of an outcome leading up to the verdict, so I'm pretty sure it came as a surprise to most people. Make no mistake, even though Apple didn't get all the damages they asked for, it doesn't matter. The cash was the least important item on the table. Apple now has a clear jury verdict in its favor, and walked away with all of its patents still intact. This would have been a big win, even if they were found guilty of infringing on a couple of Samsung's counter-claims. Terms in a future cross-licensing deal would have still been heavily in Apple's favor.


However, with Apple cleared of all infringement claims, it's really open season on Samsung, now. With a win in hand, Apple will go into court in the Galaxy Nexus case, which has already started, with guns blazing. Samsung will probably be looking to settle, but Apple is probably going to try and leverage their first win into one that affects a much broader target- Stock Android. We've already seen a bit of this effect with the “update” that removed local search capability from the Galaxy Nexus.


A temporary injunction and a voluntary device update are small potatoes, however. If Apple gets that one in court, then things could get interesting. Considering that Google/Motorola also lost out on three of their first four claims in their first suit with the ITC to try and get an import ban on Apple (also yesterday), they are starting to run low on ammo. The fourth patent claim has been remanded to a judge for examination which can take up to a year. Google/Motorola filed another suit against Apple with the ITC a week ago with seven additional claims of infringement. If Apple wins the current Samsung case, and avoids import bans in the ITC cases, they will have an almost insurmountable upper hand here in the Unites States.


At the end of the day, what does all of this nonsense mean? It's hard to say right now. You have to remember that, because of the glacial pace of judicial proceedings, the OS versions and devices that many of these current suits focus on are either out of production, or are at the end of their shelf lives. Google and its OEMs have already moved on from some of the features and concepts that Apple claims infringe their patents and trade dress. Samsung was Apple's primary target in this round because of the obviousness of the trade dress claims against older phones like the Fascinate. However, one look at the S III will show that they have chosen to head in a much different design direction lately. Samsung's skin, TouchWiz, has also undergone a similar overhaul, and now bears very little resemblance to anything in iOS on the surface.

 

I would argue that these developments are actually a positive outcome of all this patent litigation. Most likely due to legal pressures, Samsung has decided to change parts of both their hardware and software design philosophies, which has lead to more differentiation between their products and Apple's. That's a good thing for the wireless industry. Unfortunately, Samsung just couldn't resist ripping off a little more of Apple's stuff in their latest round of software updates beneath the new look of TouchWiz. S-Voice? Really? Come on Samsung. You could at least try and hide the copying.

 

On that point, Apple won its verdict today, not because they claimed that Samsung copied directly, but because they convinced the jury that there was brand dilution due to Samsung infringing their trade dress. Even if Samsung's latest round of “Apple-inspired” features aren't direct copies, today's verdict proves that they don't have to be to infringe. So, even though Samsung's new hardware is now very different, the software side is likely open to more suits from Apple. You can bet on that.

 

Here are some of my guesses at possible developments, based on today's ruling:

  • Apple will go after every Samsung software feature that it can make a claim against, until all are removed from their phones.
  • Eventually, one of two things will happen because of the suits. Samsung's losses could add up enough that it begins to offset the massive amount of money they get for mass-producing chips for Apple, and the two companies will completely part ways. In this scenario, Apple would probably have to buy and run its own chip fabrication facility to insure their supply chain. They have the cash, but their stock price would take a noticeable hit.
  • Or, Samsung will get tired of losing cash to suits and legal fees and use their chip manufacturing leverage to get a tolerable, but still expensive, cross-licensing deal with Apple. Apple will finally relent to keep from having to produce their own chips.
  • Regardless of which happens, both companies will continue to sell tens of millions of phones, and basically keep on printing their own money.
  • Other Android OEMs are going to suffer, at least in the US. HTC and Motorola (viewed apart from Google) are already in bad financial shape, and Sony and LG have never gained a real foothold in the US Android game. There have already been rumors that Google will eventually sell Moto's hardware business off. If that happens, forget it. They are toast. And if HTC can't get back on their feet with a product like the One X, they may not be far behind. A few key Apple wins in court could really hurt these other, smaller players.
  • ZTE and Huawei will take advantage and gain a big foothold in the US, especially in the middle to low end of the market.
  • LG will come to a licensing agreement with Apple first. To stick it to Samsung, Apple will offer them much better terms because they aren't as threatening. In return, Apple will get an even better price on the screens they buy from LG.
  • Sony will focus even more on overseas markets. Their new “One Sony” philosophy will finally pay off, and they will become a consistent high-end Android OEM.
  • Some OEM will probably try and “fork” Android (ala Amazon with the Kindle Fire) in an attempt to differentiate themselves. I don't think this will be successful, unless Amazon goes ahead and enters the phone market with their flavor of Android. That might be interesting.
  • Court decisions overseas will continue to be more evenly balanced (similar to the South Korean verdict earlier this week), keeping Apple's power in check, at least somewhat.
  • There will be less choice in the high-end Android segment in the US once Moto and HTC are either gone or diminished. However, there will be a lot more choice at the middle and low ends, which will help to drive smartphone adoption further.
  • The major brand power and high-end segment of the US smartphone market will eventually belong to Samsung, Apple, and Nokia, the three flagships for their respective OSs.
  • Google won't lose market share because of any of this. They will probably still end up with 60-70% of the world smartphone market, even after Microsoft re-establishes itself as the solid third-place mobile OS. They will lose some money, however. They have already gotten the boot from iOS, and will lose a large majority of that previous revenue stream. Combine that with having to bolster Moto in the face of increasing legal and competitive pressure, and that's a small but still noticeable chunk of change. It won't do any real harm to the search giant's bottom line, but it will have an impact on perception.
  • Eventually we will see some major patent reforms relating to software and electronics, limiting the lifespans of patents, increasing the reach of FRAND and required cross-licensing, as well as requiring either production of patented goods, or quick sell-off of patents to prevent patent trolls from holding legitimate companies hostage. This will help to balance things out here is the US.

These are just some opinions of what could happen if Apple continues on with a string of victories. Some of my suggestions, such as Google's lost iOS revenue and Amazon entering the phone market are either already reality or widely rumored, but the rest depend on a continuation of yesterday's results.

 

This Apple v Samsung trial isn't the end of the cell phone industry. It isn't the end of consumer choice and innovation. It also doesn't mean that the US Patent system is unimpeachable, either. It was significant in that, the jury found Samsung guilty of willfully violating Apple's patents. That is where the $1 billion plus in damages came from. But, life will go on for Google and their Android OEMs, regardless. Samsung was the only one that infringed on Apple's trade dress, and even that was in the past. They clearly aren't doing it anymore. There will be suits against Samsung and the others over patent claims, but none of them will have the potential damages that this trial verdict did.

 

To be honest, I am torn in my opinions on this verdict. As someone who programs and designs for a living, I believe that we need a patent system to protect people who create and develop goods. A Wild West style free-for-all doesn't guarantee innovation in the marketplace, as some Android fans and members of the tech press seem to think. In fact, I think you would find it severely hindered if there were no protections at all. Anyway, there is a part of me that is glad that Apple won, especially where trade dress is concerned.

 

However, despite my belief in the need for a patent system, I can't say that I'm not concerned by the broad brush of this ruling. I had hoped we would have seen the more balanced verdict predicted by many experts. I think that scenario would have pushed Apple in the direction of the negotiating table sooner, and with a lot less aggression. Without the big verdict in hand to hit OEMs over the head with, I think they would have eventually tired of risking much for too little of a reward.

 

I have a bad feeling that Apple may see yesterday's overwhelming verdict not just as a single victory, but as a sweeping mandate. If so, there is no telling how far they may try to take this thing. They certainly can't destroy Android in court, but they can make life very difficult for some of the OEMs. All along, I've felt like a lot of Apple's legal maneuverings were more about creating a financial drain on their competitors than actually stopping them cold. This explains why they have kept filing suits with little to no success until now. However, if they keep winning cases outright, Apple could severely injure HTC and Moto (if Google does end up getting rid of the hardware division), and keep LG and Sony marginalized here in the US. Thankfully, Apple has shown little to no interest in bothering LG and Sony, and the same could be said of the entire Android low-end market (except for some Samsung devices in today's suit). Let's hope it stays that way.

 

At the end of the day, I don't think Apple is going to stifle innovation at either Google or Samsung, no matter what they win in court. If anything, necessity will just take its normal role as the mother of all invention. However, I also don't think that Apple beating everyone else down, and in a sense, anointing Samsung as the only top-tier Android OEM is good for anyone. That's a very real possibility here. Samsung is a huge company with a ton of money in the bank, and strong brand recognition. They aren't going anywhere just because of a couple of verdicts that don't go their way. This is just a major annoyance for them. However, neither LG or Sony has demonstrated the chops to consistently step it up to the level where the Galaxy line of phones is. If Apple puts a nail into HTC and/or Motorola in court, that's who's left. Will either one get their act together and push Samsung? Sony has possibilities if “One Sony” becomes a reality, but that's still a very big if.

 

All of what I have said here hinges on two things. First, the Apple v Samsung case regarding the Galaxy Nexus that is just getting started. From what I have read, Apple has an even better case here than they did in the one that just ended. If that bears out, and Apple wins again, it sets up the lynchpin for this whole battle of Apple vs Google. The seven allegations that Motorola made against Apple before the ITC last week could very well become Google's own version of the Alamo. It will be their last stand in the US patent wars. If they win an enforceable import ban against Apple, no matter how long it holds up, it will balance out the leverage that Apple has won in US court, and force them to enter licensing negotiations in earnest. A decision in this direction could put a swift end to the majority of smartphone patent litigation.

 

On the other hand, if Google doesn't get an import ban on Apple, then the scenarios I described above could become a reality. Many of Motorola's other patents that can be enforced against Apple are FRAND, and as such, aren't much of a bargaining chip. They've tried to sue Apple using these patents elsewhere in the world, but so far have been unsuccessful. Honestly, they shouldn't be allowed to sue over these. They have to be licensed on reasonable terms, while Apple's non-standards essential patents can be worth so much more. Just ask Samsung. So, if Google can't make Moto's non-standard patents stick with the ITC, one of their last major bits of leverage in the US is gone.

 

So then what? They can take their chances in court in the US, but they will risk invalidating their patents if a trial goes all the way to verdict. And even if Google were to win such a trial, it is doubtful they could secure the same kind of sweeping victory that Apple just did, based on the patents in question. At that point, Google can sue to enforce patents against Apple in Europe, but that's about it. Good luck getting anything in China or the developing world.

 

These next two cases will set the tone for litigation in the mobile industry for the foreseeable future. Even if Apple wins the first, and is cleared in the second, it won't spell doom and gloom. However, it will shift the balance of power in Apple's favor. They already have a dominant position in the tablet space, a leg up on the TV front, and the vast majority of both App sales profits and web surfing share. On top of those current advantages, court victories would give them the leverage to dictate their patent and licensing terms to the market. Apple would continue to aggressively patent everything they develop, and will sue anyone that comes even close to their sandbox.

 

In the long run, I don't think this would be a good outcome for fans of Apple products. In a recent article, I stated my beliefs that the company has overextended itself beyond what its current staff and infrastructure will support long-term. If Apple gets the upper hand on Google and Android OEMs in court, they won't be able to stop innovation, but they could slow the pace down a bit. I honestly think that would be to their liking, since it would allow them to maintain the status quo longer, without significant changes to their staffing or structure. If you like Apple moving at a snail's pace, possibly even slower than today, then you may be happy. Unfortunately, if like me, you are an Apple fan who would prefer to see Apple move a bit faster to improve all their products, finish and polish more of the great projects that they start (Siri, anyone?), and use their money to grow, so that they have the capacity to continue to innovate in the future, rather than just struggle to keep up on all their many fronts, then you may not be so pleased.

 

I, for one, hope that the current legal proceedings will somehow bring more balance to the situation. I was happy to see Apple's trade dress upheld, and the court system enforce the idea that patents do still mean something. However, with that out of the way, now it's time to strike a balance, because Apple shouldn't be allowed to use patents as offensive weapons against the rest of the industry. I understand that there are many reasons, both past and present, why the leadership and Board of Directors at Apple are trigger happy when it comes to patent litigation and having their IP infringed (which I'm not going to ramble on about now), but that doesn't excuse them hammering everyone with their current upper hand. I hope it doesn't require an import ban against Apple to bring all this to an end, but that be the only way at this point. Hopefully, the mobile industry patent wars will even out as a result of meaningful patent system reforms that reshape our laws for the Digital Age.

 

Whatever happens, now is the time to sit up and pay some attention to this stuff. I know it's boring. It's hard keeping up with all of the suits and injunctions and such, but now is when the real action is happening. Based on the breakneck speed of the last Apple v Samsung trial, and the fact that Judge Lucy Koh is also presiding over the current one, it should move even faster. It isn't nearly as broad as the one that just wrapped up, so we have another piece of the puzzle within a month. Then, we wait on the ITC. That may take longer, but you can rest assured that it will be big news when a decision is reached. Billions of dollars and Apple's power to shape the smartphone industry are at stake, and it could all come down to this.

 

With that out of my system, how about those iPhone 5 rumors? As important as this patent litigation may be to the industry, there's only so much one can take at a time. I'll still be paying attention, especially as the remaining trial procedes, but I'm ready to pay attention with a new iPhone and iPad Mini in my posession.

 

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