Bloomberg News

Samsung Gets Review of Loss to Apple in U.S. Patent Case

November 20, 2012

Samsung Given Renewed Chance to Make Patent Claims Against Apple

Samsung, with 140,000 patents worldwide on items including light-emitting diodes, computer-memory chips and televisions, filed its complaint at the trade agency in June 2011 as a counterstrike against Apple’s accusations that its rivals are copying its technology. Photographer: Brent Lewin/Bloomberg

Samsung Electronics Co. (005930), the world’s biggest maker of smartphones, will get another chance to convince a U.S. trade agency that Apple Inc. (AAPL:US)’s iPhone and iPad infringe its patents.

The U.S. International Trade Commission said yesterday it will review “in its entirety” a trade judge’s Sept. 14 findings that cleared Apple of claims the company violated four Samsung patents. The commission, which has the power to block imports of products that infringe U.S. patents, is scheduled to make a final decision on Jan. 14.

The case is part of a global dispute between the two biggest makers of mobile devices as they fight for increased share of a $219 billion smartphone market. Samsung needs a victory to help drag out litigation while it designs around the Apple patents, said Erin-Michael Gill, managing director of MDB Capital Group LLC, a Santa Monica, California-based investment bank that specializes in patent issues.

“An exclusion order would be lose-lose for them,” Gill said. “Samsung suppliers are being pushed to ensure their innovations are beyond what Apple has patented.”

Samsung is a major supplier (AAPL:US) of iPhone components, so it wouldn’t benefit from an import ban, he said. At the same time, Gill said, Samsung wants to avoid having to pay high royalties, such as those HTC Corp. (2498) has reportedly agreed to pay under a 10- year licensing agreement with Apple.

“We remain confident that the commission will reach a final determination that affirms our position that Apple must be held accountable for free-riding on our technological innovations,” said Adam Yates, a spokesman for Samsung.

Copycat Allegations

Kristin Huguet, an Apple spokeswoman, said the Cupertino, California-based company had no comment.

Apple, which dominates the U.S. market, has its own case against Samsung at the trade agency that’s being considered by the commission. It also won a $1 billion jury verdict against Samsung in August in San Jose, California. While the companies have each racked up victories and losses elsewhere, Apple has been mostly successful in the U.S.

Samsung, with 140,000 patents worldwide on items including light-emitting diodes and televisions, filed its trade complaint in June 2011 as a counterstrike against Apple’s accusations that its rivals are copying its technology.

Apple’s lawyers argue that their company revolutionized the smartphone industry when it introduced the iPhone in 2007, only to see Samsung and other companies offer handsets that imitate the iPhone’s look and unique features. Apple is targeting devices running on Google Inc. (GOOG:US)’s Android operating system.

Patent Claims

Samsung has been selling mobile phones since the 1980s. During the third quarter, the Suwon, South Korea-based company had 28 percent of the U.S. market to Apple’s 34 percent, said Alex Spektor, an analyst with Strategy Analytics in Boston.

In addition to the settlement with Android-handset maker HTC reached this month, Apple said Nov. 15 it is negotiating an agreement with Google’s Motorola Mobility unit for binding arbitration of their disputes over how to license patents relating to technical standards all device makers must follow.

A HTC-like resolution of the Apple-Samsung fight doesn’t appear to be coming anytime soon. Shin Jong Kyun, the head of Samsung’s mobile unit, was quoted in Korean media last week as saying the company wasn’t going to negotiate with Apple.

U.S. Trade Judge James Gildea sided with Apple in the September ruling now facing review by the commission. Notice of the agency’s move was posted on its website yesterday.

Samsung Claims

Samsung contends Apple infringes four patents, including two that relate to how phones transmit data. Gildea said Apple didn’t infringe any of the patents, and that one, for a way to detect movement on a touch-screen, was invalid. The fourth patent in the case is for a way to detect phone numbers in e- mails so they can be dialed or stored in the phone’s contact list.

Apple can again argue that Samsung shouldn’t be allowed to seek an import ban on the data-transmission patents because they relate to industry standards, and Samsung has agreed to license those patents on fair and reasonable terms.

The case targeted all models of the iPhone 4S, the iPhone 4, the iPhone 3GS, the iPad 2, the iPad, and the iPod Touch. Gildea recommended that the ITC issue an import ban of the products if it finds Samsung’s patent rights were violated.

In addition to winning the preliminary round in Samsung’s complaint, Apple has been successful so far in its own ITC case against Samsung.

Trade Judge Thomas Pender said Oct. 24 that Samsung infringed four Apple patents, including one for the design of the iPhone and one for touch-screen technology co-invented by Steve Jobs, Apple’s late co-founder.

Next Steps

Pender said that Samsung products that were designed around Apple patents weren’t in violation. The commission is scheduled to announce the next steps in that case on Jan. 9.

The iPhone generated $80.5 billion in sales (AAPL:US) for the fiscal year ended Sept. 29, or 51 percent of Apple’s revenue, according to data compiled by Bloomberg. Its iPad brought in $32 billion, and the iPod generated $5.6 billion.

U.S. Patent and Trademark Office Director David Kappos said today a patent dispute over breakthrough technologies is “not only understandable, it is appropriate.”

“In the end, as history has shown time and time again, the players ultimately end up agreeing to pro-consumer solutions,” Kappos said at the Center for American Progress in Washington.

Samsung’s case against Apple is In the Matter of Electronic Devices, Including Wireless Communication Devices, 337-794, and Apple’s case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, both U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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