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Apple Victorious in Patent Suit Against Samsung, Could Open New Ground for Lawsuits

Source: WSJ - Jessica E. Vascellaro & Don Clark

Posted on 27 Aug 2012 by Neilson

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Apple vs SamsungApple Inc.'s sweeping court victory over Samsung Electronics Co. cements its dominance of the wireless industry and could force carriers, and even Google Inc., to re-evaluate their product plans and strategies.

Interviews with jurors and legal experts reveal that Friday's verdict in the patent dispute did much more than order the South Korean company to pay $1.05 billion to its Silicon Valley rival.

The nine jurors here also sent a signal that companies need to be much more careful in incorporating basic design elements in their electronic devices, particularly those affecting the way gadgets look and feel.

The verdict, which comes just weeks before Apple is expected to unveil its next iPhone, could complicate matters for wireless carriers already contending with Apple's market power. Apple has reaped more than $156 billion in iPhone-related revenue since 2007 and is now the world's most valuable company.

Patent lawyers predict the jury's decision will likely ratchet up an already heavy flow of patent suits in the tech sector, and could open new ground for litigation. More courtroom warfare could raise costs to makers of smartphones and tablets and reduce the number of gadgets on the market—increasing prices to consumers, some lawyers and market watchers say.

More companies are likely to emulate Apple's approach of using the court system to defend the shape and style of their products, said Alan Fisch, an intellectual-property lawyer at Kaye Scholer LLP who isn't involved in the case.

During its second day of deliberations, the jury settled a debate over whether Samsung infringed an Apple patent related to on-screen icons by holding up an iPhone and a Samsung phone in the dark to determine whether they appeared similar when the colorful rounded buttons were all that could be seen, recalled juror Manuel Ilagan. He said he also was persuaded by comparisons between Samsung's smartphone designs before and after the iPhone arrived in 2007.

It was obvious there was some copying going on," said the 59-year-old Mr. Ilagan.

Not only Samsung but Google—and other smartphone makers who use its Android mobile operating software—could decide, or be forced, to drop or modify features to avoid running afoul of patents.

"The ones that are close to the look and feel of the iPhone will suffer," said Robert J. Tosti, a partner with law firm Brown Rudnick LLP who specializes in patent law.

Some developers say the verdict could lead to higher costs for writing Android software. "We have built something for the [Android] system that may have to change," said Howard Lindzon, an angel investor and entrepreneur who heads personal-finance app maker StockTwits Inc.

Some lawyers argue just as strongly, however, that electronics makers are perfectly capable of coming up with more original products. Apple, they argue, isn't the only company that can come up with innovative designs—and its court victory could encourage more innovation by competitors.

Jorge Contreras, an associate professor at American University Washington College of Law, said the monetary damages in the case are a "painful hit" to Samsung. But he argued that Android device suppliers, with relatively little effort, can keep pumping out new products. "Apple's patents will not be that hard to design around," he said. "I don't see this verdict as an Android killer."

Shipments of smartphones running Android accounted for 68% of the smartphone market in the second quarter, according to market tracker IDC, compared with 17% for the Apple iPhone. The verdict is unlikely to change that momentum, several executives at large companies said.

Apple has chosen not to sue Google, for reasons it hasn't explained. But patent lawyers say it is easier to make a case for monetary damages against companies like Samsung that sell hardware to consumers. Google, which generates most of its revenue from online advertising, doesn't charge phone and tablet makers for its software.

A Google spokesman said in a statement that most of the patents found infringed in the case "don't relate to the core Android operating system."

"The mobile industry is moving fast and all players, including newcomers, are building upon ideas that have been around for decades," he added.

Wireless carriers, who already pay hefty subsidies to Apple have voiced concern that their investment in faster networks could be threatened if devices are taken off the market or innovation is stalled by patent disputes.

They have been silent on the impact of Friday's verdict. But they have long sought to promote the development of iPhone competitors to gain more leverage in dealings with Apple.

Verizon Wireless, the largest U.S. wireless carrier, forged a close relationship with Google and relied heavily on Android phones when rival AT&T Inc. had an exclusive on the iPhone. Now, AT&T is selling a Nokia Corp. smartphone that runs Microsoft Corp.'s software.

Lawyers for Verizon Wireless, which is co-owned by Verizon Communications Inc. and Vodafone Group PLC, have been particularly vocal on the subject of patents, saying the industry's continuing legal battles threaten to cut the number of available smartphones and hurt consumers. Verizon declined to comment Sunday.

For Samsung, there is a short-term cloud. The company, besides facing what is already one of the largest patent damages verdicts on record, could be ordered by federal Judge Lucy Koh to pay as much as three times that sum because the jury found five counts of willful patent infringement.

Apple, meanwhile, is expected by Monday to identify the Samsung smartphones and tablets that it will ask the court to block with a preliminary injunction. The products aren't the company's latest models, but Apple has another suit against Samsung in the same U.S. district court over more recent technology, as well as actions against Samsung in other jurisdictions.

"The mountain of evidence presented during the trial showed that Samsung's copying went far deeper than we knew," said Tim Cook, Apple's chief executive, in an email to employees following the verdict.
amsung filed infringement charges of its own that the jury rejected. The company vowed to fight on following the verdict—with post-trial motions and then through an appeal, if necessary.

"It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners or technology that is being improved every day by Samsung and other companies," Samsung said Friday, referring to some patents covering Apple's designs.

Ahead of the verdict in San Jose, a three-judge panel in a separate case in South Korea found that Samsung infringed only one Apple patent while

Apple infringed two Samsung patents. It said there was "no possibility" for consumers to confuse Samsung's smartphones and tablet computers with Apple's.

Such different conclusions in different courts could point to favoritism. That notion was discounted by Mr. Ilagan, a native of the Philippines who, like some others on the San Jose jury, works in the tech sector. Mr. Ilagan said the jurors talked only about the facts, not the companies themselves.

"The Apple lawyers were better at presenting their case," he said.

For example, the Apple lawyers kept showing slides that pointed to how Samsung devices changed after the iPhone came out in 2007. By contrast, Mr. Ilagan said some of the key arguments from Samsung—which argued that such comparisons were misleading—fell short.

In particular, Mr. Ilagan said the jurors easily rejected Samsung argument that Apple infringed two patents related to data transmission. They unanimously agreed with Apple's defense. Apple argued that since Intel Corp. made the chips for Apple, and that Samsung had given Intel a license for the chips, Apple couldn't be found to infringe them.

On the other hand, the jurors decided that Apple didn't prove that Samsung infringed a patent on a design for a tablet computer. They cleared Samsung because the iPad has a solid back while Samsung's Galaxy Tab had a back with two pieces, Mr. Ilagan said.

For the most part, Mr. Ilagan said, the jury of seven men and two women—including a construction worker, an engineer and a social worker—worked smoothly through its daunting task, which required filling in more than 300 fields in a 20-page verdict form.

Presiding juror Velvin Hogan, an engineer and patent holder the jurors called Vel, kept them on point, going question by question.

Mr. Hogan said he essentially ignored paid experts testifying for either side during the trial, and saw through some of Samsung's courtroom gambits.

In at least one case, he says, Samsung presented historic, related inventions that supposedly preceded Apple's innovations in a bid to diminish the perceived value of Apple's patents. But Mr. Hogan says he and other jurors were able to see that the prior art had no relationship to Apple's intellectual property.

"It was just thrown out there to cause what they perceived to be an unschooled jury, for the most part, to not understand the difference," Mr. Hogan said. "What they really weren't counting on was having several of us in the jury with technical backgrounds."

Juror David Dunn, who works in a cycling shop, organized the evidence, keeping tabs on the more than two dozen devices, Mr. Ilagan said. For the software patents, Mr. Dunn demonstrated the disputed features on a projector for all to see "because it was faster," said Mr. Ilagan. To examine issued related to the look of a device, they passed around each device one by one.

They worked around a conference room table, getting delivered roast beef, ham and turkey sandwiches to work through lunch. There was a coffee machine in the back of the room and a foosball table.

But the jurors didn't play, said Mr. Ilagan. "We only took a break if one of us had to go to the bathroom."
Soon after they began deliberating, the first question they faced—whether Samsung violated an Apple patent related to the bounceback action a touch screen makes—drew seven "yes" votes to two "no" votes, and all questions had to be decided unanimously, Mr. Ilagan said.

With the votes tallied on a white board, they decided to review the evidence, recalled Mr. Ilagan. They powered up a video of a computerized touch-screen table using technology developed by Mitsubishi Electric Corp. that Samsung asserted proved Apple didn't come up with the idea first and that its patent should be invalidated.

Mr. Ilagan said they watched the video "very, very carefully" but decided to move on when the two weren't swayed. "We didn't want to get bogged down," said Mr. Ilagan.

One of the last issues was assigning damages. The juror's final number came in more than $1 billion short of Apple's maximum request. The jurors decided Apple's calculation of Samsung's profits didn't subtract Samsung's operating cost, among other variables, Mr. Ilagan said.

Reached at home, juror Aarti Mathur, who used to work as a payroll administrator for IT start-ups, said "it was a wonderful experience" and "a crazy case." She declined to comment further.