Bloomberg News

Apple-Samsung Damages in Play After Sales Ban Rejected

December 18, 2012

Apple Loses Bid for Sales Ban on Samsung Devices in U.S.

“Samsung may have cut into Apple’s customer base somewhat, but there is no suggestion that Samsung will wipe out Apple’s customer base, or force Apple out of the business of making smartphones,” Koh said. Photographer: SeongJoon Cho/Bloomberg

Apple Inc. (AAPL:US)’s request for additional damages against Samsung Electronics Co. for patent infringement remains to be decided after the iPhone maker lost its bid to block U.S. sales on 26 of the Galaxy maker’s devices.

Apple failed to establish that consumer demand for Samsung products was driven by technology it stole, U.S. District Judge Lucy H. Koh in San Jose, California, said in her ruling yesterday. While a jury found Samsung infringed six Apple patents, it isn’t in the public interest to ban Samsung’s devices because the infringing elements constituted a limited part of Samsung’s phones, Koh said.

The jury said Aug. 24 at the end of a trial that Samsung should pay $1.05 billion. Apple asked Koh to increase the damages by $536 million, while Samsung says they should be reduced by more than $600 million. Koh, who held a hearing on the matter Dec. 6, has yet to issue a ruling.

“There’s not going to be any knockout punches between these two competitors,” Carl Howe, a Yankee Group analyst, said in a phone interview. “Injunctions can be knockouts. This is going to be a war of money.”

Samsung and Apple, the world’s two biggest smartphone makers, have each scored victories in their patent disputes fought over four continents since Apple accused Asia’s biggest electronics maker of “slavishly copying” its devices. The companies are competing for dominance of a global mobile-device market estimated by Yankee Group at $346 billion this year.

Apple Products

Hours after Koh’s ruling on the sales ban, Samsung, which faces an antitrust probe by European regulators, said it will halt efforts to block sales of Apple products in Europe. The developments in the U.S. and Europe may move the companies closer to settling their global litigation.

“There will be some settlement of some sort and all this stuff is just going to dictate who’s going to provide a bit more money than the other,” said David Long, a patent lawyer with Dow Lohnes PLLC in Washington who’s not involved in the case. “All this court stuff is just posturing.”

After the verdict in San Jose, Apple argued Samsung bet that the benefits of using intellectual property from the iPhone and iPad would outweigh the money damages the jury awarded. Apple urged Koh to approve the sales ban and award additional damages because Samsung took market share from Apple by “deliberately copying the iPhone design,” according to a court filing.

Jury’s Calculations

Kathleen Sullivan, a lawyer for Samsung, contended at the Dec. 6 hearing that the damages should be reduced by more than $600 million. Sullivan said that while the jury’s calculations were precise, the nine-member panel was hampered by a verdict form that, against Samsung’s wishes, wasn’t “particularized” enough to permit jurors to properly arrive at damages on a product-by-product basis.

“You should reverse engineer” to make sure the damages are “causally connected to the evidence,” Sullivan told the judge.

Koh said at the hearing that while the jury was precise and consistent in calculating infringement damages for 28 different Samsung products, the method used by the panel may have been mistaken.

“If there is enough evidence in the record to justify that damage award then that verdict should be upheld,’ Harold McElhinny, a lawyer for Apple, argued to the judge.

Galaxy Smartphones

The patent disputes began when Samsung released its Galaxy smartphones in 2010. Apple’s Jobs, who died Oct. 5, 2011, initiated contact with Samsung over his concerns that the Galaxy phones copied the iPhone, according to testimony from the trial in August.

Jobs later vowed to wage ‘‘thermonuclear war” to prove that phones running on Google Inc. (GOOG:US)’s Android operating system copy the iPhone. Samsung devices use Android.

Apple’s 2011 suit claimed Samsung products infringe four design patents and three utility, or software, patents. While finding infringement of six patents, the jury concluded that Samsung didn’t infringe one patent covering the design of Apple’s iPad tablet computer.

In weighing the sales ban request, one test that Koh considered was whether Apple has been harmed by the infringement, and whether customers buy Samsung devices specifically because they have features patented by Apple. Apple’s evidence doesn’t establish that its three design patents cover a feature that drives customer demand, Koh said. Apple doesn’t have patents for certain iPhone features, such as the general concept of a two-finger pinch or flick.

‘Consumer Demand’

“Though evidence that Samsung attempted to copy certain Apple features may offer some limited support for Apple’s theory, it does not establish that those features actually drove consumer demand,” she said.

An injunction would prevent consumers from gaining features on Samsung phones because a few such features infringed Apple’s patents, Koh said.

“The potential for future disruption to consumers would be significantly greater if this court were to issue an injunction, and such disruption cannot be justified,” she said.

Only three of the 26 products that Apple sought to block in the U.S. are still being sold, according to Samsung: the Galaxy S II by T-Mobile, Galaxy S II Epic and Galaxy S II Skyrocket.

2014 Trial

Newer smartphones made by both companies, including Samsung’s Galaxy S III and the iPhone 5, already have been added to a related lawsuit in which Apple and Samsung accuse each other of copying products. That case is also before Koh and is scheduled for trial in 2014.

Kristin Huguet, a spokeswoman for Cupertino, California- based Apple, said in an e-mail that the company declined to comment on yesterday’s ruling by Koh.

Samsung said in an e-mailed statement it was pleased the judge denied “Apple’s move to limit consumer choice” in denying the sales ban. The Suwon, South Korea-based company said it would review the court’s orders before deciding whether to take “further measures.”

The latest decision implies that the total damages award isn’t likely to go higher and may even be reduced, according to Lee Sun-Tae, an analyst at Seoul-based NH Investment & Securities.

“The final ruling on the penalty isn’t likely to be overturned,” Lee said.

Apple, the world’s most valuable company, rose 2.9 percent to $533.90 at the close of trading in New York. Samsung, the world’s 15th-biggest company, gained 0.8 percent in Seoul after two days of losses, extending its gain for the year to 43.2 percent.

The case is Apple Inc. v. Samsung Electronics Co. (005930) Ltd., 11- cv-01846, U.S. District Court, Northern District of California (San Jose).

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net; Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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