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Apple v. Samsung: Three Lessons From the Smartphone Patent Fight


Apple v. Samsung: Three Lessons From the Smartphone Patent Fight

Photograph by SeongJoon Cho/Bloomberg

Ding, ding! Boxers, return to your corners. Samsung won the latest round in the never-ending smartphone Fight of the Century. The Korean Crusher did not, however, land a knock-out blow against the Cupertino Kid.

As Bloomberg News reports: “Apple Inc.’s first loss against Samsung Electronics Co. in a U.S. patent case could mean a ban on imports of some older devices including the iPhone 4. … With dozens of lawsuits spread across four continents in their battle for a greater share of the $293.9 billion market for smartphones, each side can now claim a victory in the U.S.”

Apart from giving Apple (AAPL) and Samsung (005930:KS) loyalists the thrill of watching their favorite brand bash its rival, what can we learn from the latest round in the intellectual property slug-fest?

1. Launching a patent war can lead to backlash.

In a Bloomberg Businessweek story in March 2012, I observed:

By pushing the launch button on his legal ICBMs, [the late Apple founder and Chief Executive Officer Steve] Jobs bequeathed a significant risk to his successors. Apple may succeed in forcing competitors to deactivate a few phone features, or maybe even yank an entire model or two from a major market. But Apple has many rivals: If one falters, others will step in. Samsung’s website lists no fewer than 134 phone models. Apple, by contrast, has only two core products at issue in the patent war: the iPhone and iPad. Unlikely as it might seem, if a competing manufacturer manages to persuade a judge or a trade commission somewhere in the world that Apple has relied on a faulty patent for something important, the Cupertino (Calif.)-based juggernaut could suffer profound reputational damage and—more important to stakeholders—market-share erosion.

Assuming it survives on appeal, Tuesday’s decision by the U.S. International Trade Commission illustrates that Apple may have started a conflict it will come to regret.

2. This is still a battle between Apple and Google.

More from the 2012 story, entitled “Apple’s War on Android”:

Beyond Samsung, Apple’s notable antagonists include Motorola Mobility and HTC (2498:TT). As Silicon Valley sophisticates underscore, however, the phone and tablet makers are mere proxies for another foe—Android, the operating system Google (GOOG) gives away to manufacturers. Google employs a come-one, come-all business model radically at odds with Apple’s and, in the late Steve Jobs’s view, existentially threatening to his company.

As vicious as Apple v. Samsung seems, it is not a death match. Samsung remains a major Apple supplier. The two companies can, and in the future will, coexist. First, however, they will have to work through the fallout from Jobs’s monumental sense of personal insult over Google’s daring to challenge the iPhone. Jobs’s successor, Tim Cook, has signaled that he doesn’t share the founder’s ambition to lay waste to all foes.

3. Apple’s setback could hasten a grand settlement.

Will Stofega of the research firm IDC told Bloomberg News that Samsung’s victory will make it more difficult for the two companies to resolve their differences out of court: “There’s too much skin in the game now. It’s almost so ugly, I don’t think they’ll come to any agreement. Both companies have a lot of cash and are generating a lot of money. It’s not like they have to worry about paying the legal bills.”

Stofega makes a good point, but I think he’s wrong. It’s certainly true that these manufacturers are swimming in cash and, as a result, their law firms are making out like bandits. Still, Samsung’s win serves as a counter-balance to Apple’s $1 billion victory last year in federal court in California, a judgment that has since been cut to about $600 million. In the California case, a jury found that Samsung devices copied the look and unique features of the iPhone and iPad.

As litigators on both sides will privately concede, the litigation is actually an extremely expensive form of negotiation over a cross-licensing deal that one of these days—maybe this year, maybe next—will end the courtroom histrionics and allow Apple and Samsung to turn their full attention to improving their respective products.

“It’s like Ford and GM—they should approach some rapprochement or they’ll end up weakening each other’s market share,” Scott Daniels, a patent lawyer with Westerman Hattori, wisely told Bloomberg News. “At some point they just need to resolve it because they just hurt themselves commercially if they don’t.”

Barrett_190
Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, tells the story of the Chevron oil pollution case in Ecuador.

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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $117.6 USD
    • -1.02
    • -0.87%
  • 005930:KS
    (Samsung Electronics Co Ltd)
    • $1195000.0 KRW
    • 5000.00
    • 0.42%
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