Apple’s Win Against Samsung — The Far-Reaching Effects
Apple’s win over Samsung is drawing battle lines for other patent showdowns that will ripple far into the tech industry, ultimately costing the South Korean company far more than the $1 billion a judge ordered it to pay.
Settlement Management
Both Apple and Samsung can both manage the blow of the settlement, and realistically, Samsung’s officers could just write a check, pay the bill and call it a day.
Jury Verdict
The California jury, though, did far more than just fine Samsung last Friday: it agreed with Apple — and its late CEO Steve Jobs — that the South Korean company violated Apple’s patents in its highly profitable Galaxy line.
More Than Money
And if it were just the money, Samsung would likely ante up. After all, it sells much more than $1 billion a year in components to Apple to use in the iPad, as part of the tech giants’ symbiotic relationship that neither likely wants to dissolve.
But the settlement is more than about money, or even bragging rights, and it sets the stage for much-larger tech battles — especially if Apple CEO Tim Cook shares his predecessor’s appetite for fighting battles out in courts instead of boardrooms.
What Happened
Apple’s battles against Samsung have raged worldwide for the past couple of years, with both sides winning smaller victories against each other.
But the California battle was the big match the tech world was waiting for, since both companies enjoy their largest markets in the U.S., and the federal court and jury had the power to make or destroy either company.
The jury’s ruling came after just three days of deliberations, and asserted Samsung infringed on six of seven Apple patents, essentially solidifying the Cupertino, Calif.-based company’s domination of the mobile market.
And on Monday, Apple gave the federal court a list of smartphones it wants banished from the U.S., naming the Galaxy S 4G, Galaxy S2 for AT&T and T-Mobile, Epic 4G, Droid Charge, Galaxy S Showcase and Galaxy Prevail.
What Really Happened
The federal jury’s ruling proclaimed to the world that Samsung’s Galaxy devices are nothing original and could jeopardize its catalog of products.
Samsung’s biggest worry likely isn’t for the fate of the phones and tablets discussed in the lawsuit. After all, many of those devices are older ones and obsolete at this point. However, the Galaxy S3, not included in the case, is Samsung’s top-seller, netting more than 10 million units shipped since May. A ruling against the S3 would slam Samsung, costing millions, if not billions, more in lost sales. The recent ruling gives Apple ammunition to target the South Korean company’s newly released model in its Galaxy line, which Apple is already seeking to disrupt in a sales injunction hearing, set for September 20.
The verdict also came a week before Samsung unveils its Galaxy Note at the IFA consumer electronics conference in Berlin. It’s vital that Samsung protect those devices from further lawsuits from Apple — or risk a loss that could destroy the company.
In addition, Apple’s lawsuits against Samsung are only part of its battles against the competition. There is a long-awaited battle between Apple and Google on the way, a fight only hastened by the federal judgment against Samsung, and the jury’s findings will boost Apple’s patent infringement claims.
Google is already gearing up for the battle, issuing a quick statement Monday denying the case against Samsung has anything to do with Android.
“Most these don’t relate to the core Android operating system, and several are being re-examined by the U.S. Patent Office,” Google said. “The mobile industry is moving fast and all players — including newcomers — are building upon ideas that have been around for decades. We work with our partners to give consumers innovative and affordable products, and we don’t want anything to limit that.”
What’s Next
Samsung isn’t taking the ruling lying down. It can’t afford to. In an internal memo Monday, Samsung vowed to appeal the judgement, and acknowledged the verdict “has caused concern amongst our employees, as well as our loyal customers.” But those people aren’t the only ones concerned, as investors rushed to dump their stock upon learning about the verdict.
On Monday, Apple’s shares hit their highest price ever, at $680, after closing at around $660 before the verdict. Meanwhile, Samsung’s stock plummeted 7.5 percent on the Korean Stock Exchange, equaling a loss of about $12.5 billion in market capitalization, according to Reuters.
Meanwhile, investors didn’t buy Google’s claim that Apple’s win is meaningless in the pair’s separate dispute. The search giant’s stock fell Monday by 2.4 percent to around $660, showing a market nervous about the Android’s future, and cowering under the might of iOS.
Samsung, meanwhile, emphasized it wanted to negotiate all along, but Apple wouldn’t deal. Moreover, the company said the California verdict strongly contrasts other decisions made in worldwide courts, including in the U.K., the Netherlands, Germany and Korea, and eventually, the courts and market will side with it as a company that prioritizes “innovation over litigation.”
The Takeaway
This isn’t the end of the Samsung and Apple battles, and Apple’s claims against Android can’t be too far behind. There is too much at stake in the mobile market, and Apple has a tradition of going after companies it believes violate its patents and design ideas.
CEO Cook said in the past he’s willing to negotiate agreements, a far cry from Jobs’ philosophy of filing lawsuits and letting the courts settle the arguments. And, in some measure, it would benefit Apple to talk, as the components deals it has with Samsung could be jeopardized by continuing court battles.
“Apple needs Samsung to make the iPhone and iPad,” James Song, an analyst at KDB Daewoo Securities in Seoul told Reuters. “Samsung is the sole supplier of Apple’s processing chips and without Samsung, they can’t make these products.”
Further, Apple going elsewhere for its components would be a devastating blow for Samsung. According to a Morgan Stanley estimate, Samsung’s component sales could hit $13 billion next year, bringing in $2.2 billion in operating profit, or nearly eight percent of the tech company’s estimated group operating profit for next year.
Continuing court battles could threaten Samsung’s plans, announced last week, for a $4 billion investment in its U.S. chip plant’s output, where it makes Apple components. So Apple is in a tricky position in wounding the competition and at the same time, hobbling their own vital supply chain.
Samsung can’t afford to lose its agreements with Apple, so it will be inclined to pay the $1 billion, a drop in the bucket compared to what the company is worth and what it’s spending on the plant renovations.
Google is also likely watching the proceedings carefully and beyond its own pending legal battles with Apple. After all, Samsung is the primary user for Android’s OS, and Google’s growth will depend on Samsung’s continued success. While Android is in many phones, only Samsung’s devices come close to competing with the iPhone and iPad.
Not to be left out, Microsoft and its Windows Phone 8 line are waiting in the wings to take over if Android or Apple show any weakness — and Microsoft is no stranger to legal action. The company has a string of wins on its hands, after successfully forcing several companies to settle out of court, earning lucrative licensing contracts as part of the bargain.
In the long run, it may just be best for everyone if Samsung just gets out its checkbook, pays the judgment and girds itself for further looming battles against its newer phones and tablets, because in the technology world, this kind of judgement doesn’t have a singular effect, and the ramifications are subtle and far-reaching. And it likely wouldn’t hurt Google to line up some lawyers as well.
