http://www.businessweek.com/news/2012-08-23/apple-patent-battles-create-lawyer-boon-at-1-200-an-hour

Bloomberg News

Apple Patent Battles Create Lawyer Boon at $1,200 an Hour

August 23, 2012

Lawyers at $1,200 an Hour Booming as Apple Confronts Foes

An Apple store in Shanghai. Photograph: Xinhua/Corbis

Aug. 23 (Bloomberg) -- Apple Inc. has spent at least $32 million in one patent-infringement dispute with Google Inc. (GOOG:US)’s Motorola Mobility unit -- one among many legal fights on four continents.

Add them up and it’s clear the Cupertino, California-based company is paying hundreds of millions of dollars in its quest to prove that Samsung Electronics Co. (005930), Motorola Mobility and HTC Corp. ripped off the iPhone.

The lawsuits are a boon for patent lawyers, who bill companies as much as $1,200 an hour each for their ability to help jurors and judges understand technology and arcane rules of law. Apple has spent more than $2 million on expert witnesses alone for a trial (AAPL:US) in its case against Samsung in federal court in San Jose, California, based on a compilation of what witnesses said they were being paid. That case is in the hands of the jury.

“When you have the smartphone wars and there’s a lot at stake, no one is telling you to do a hard cost-and-benefit analysis,” said Max Grant, a lawyer with Latham & Watkins in Washington. “People aren’t making those judgments. They’re just saying, ’Do everything you can to get what you need.’”

Legal fees, like advertising, are investments in the companies’ efforts to seize and defend share in a global smartphone market that grew 62 percent to $219 billion last year. Suwon, Korea-based Samsung is the world’s biggest smartphone maker, while Apple dominates in the U.S.

Apple’s $32 million expense in the one Motorola Mobility dispute equals less than six hours of iPhone sales.

More than money, the complaints seek to use the power of patent law to force competitors to remove popular features or disrupt distribution plans. HTC was delayed in selling its newest phones in May after one Apple victory.

No Settlement

Apple contends devices using Google’s Android operating system copy features that make the iPhone and iPad tablet computer unique, and is fighting counterclaims it uses other companies’ inventions.

Apple co-founder Steve Jobs told his biographer he’d spend $40 billion if necessary on a “thermonuclear war” to prove that Android phones copy the iPhone.

The various sides have met several times with no resolution, including an Aug. 20 court-ordered talk between Jobs’ successor, Apple Chief Executive Officer Tim Cook, and Samsung’s former CEO Choi Gee Sung. HTC has said it’s willing to settle. Motorola Mobility says Apple won’t negotiate; Apple says Motorola Mobility is making unreasonable demands.

Consumers choose between Apple and Android makers for their mobile phones, then stick with that operating system for other devices, features and accessories that can build brand loyalty, Apple lawyer Mark Perry of Gibson Dunn told a U.S. appeals court Aug. 20.

Expert Witnesses

“It means more than these patents, such as leveraging cross-license deals,” said David Long, a patent lawyer with Dow Lohnes in Washington. “This is scratching the surface.”

Apple has become the world’s most valuable company, with a sevenfold stock surge since the iPhone debuted in January 2007. The iPhone generated $47 billion in sales in fiscal 2011, and the iPad tablet brought in another $20 billion.

Apple told a court in Wisconsin it has spent at least $32 million defending itself in an case at the U.S. International Trade Commission brought by Motorola Mobility and related litigation that accuses the Libertyville, Illinois-based company of abusing its patents.

A typical patent case costs each side $10 million to $15 million. That can rise to $25 million or more when a case involves a large number of patents and much at stake for a company, according to an informal survey of lawyers.

40 Lawyers

Costs are higher in cases before the ITC. The Washington agency has shorter timelines, squabbles over obtaining information from overseas companies, and no limits on how much pretrial evidence can be gathered or witnesses questioned. Forty or more lawyers may be assigned to each side in an ITC case, based on a review of dockets.

U.S. district court hearings can have 20 lawyers on either side. One or two wil take the lead, and the rest will be responsible for specific witnesses, the technology behind a single patent, or the legal arguments backing a key point.

“These big global cases, they become no stone unturned, no grain of sand unturned -- and for every one you turn over, you examine every facet,” Long said. “To do that, you need lots of people. You go down 1,000 rabbit holes, 10,000 rabbit holes, and most of them are empty but there’s one of them that’s not.”

The smartphone makers don’t disclose their total patent litigation costs. At some smaller companies, those expenses are enough to affect earnings. Computer-chip designer Rambus Inc. (RMBS:US) spent $56 million each in 2008 and 2009 when it was embroiled in trials, and chip packaging company Tessera Inc. (TSRA:US) has spent as much as $84 million in a year, based on their annual reports.

Multiple Dips

There can be big returns. Catheter maker C.R. Bard, represented by Latham’s Grant, spent at least $19 million, based on the amount it was reimbursed, to win a $185.6 million verdict that’s grown to more than $900 million with royalties and interest.

Quinn Emanuel, the firm that has become the Android protector in representing Samsung, Motorola and HTC, bills an average of $821 an hour for a partner and $448 for an associate, according to a July 22 filing in the trial in San Jose. Lawyers can bill up to 80 hours a week during trial.

Lawyers often represent clients in multiple cases. Quinn Emanuel’s Charles Verhoeven spent May 31 arguing that Samsung didn’t copy Apple designs in a case at the ITC. That trial was still going on when, a week later, Verhoeven was down the hall telling another ITC judge that Apple was using Samsung inventions without permission. By the end of July, he was in San Jose presenting opening arguments.

Steam Engine

Another lawyer with the firm, Robert Feldman, presented HTC’s arguments Aug. 8 in a trade commission trial over Apple claims involving two patents also at the heart of the Samsung case. Quinn Emanuel’s Alex Lasher filed a complaint against Apple on behalf of Motorola Mobility at the ITC on Aug. 17.

For Apple, Harold McElhinny of Morrison & Foerster opposed Verhoeven on May 31, while William Lee of WilmerHale took the lead for Apple on June 4. The two lawyers share top billing in San Jose. The median partner rate for a lawyer with Morrison & Foerster is $582 an hour and $398 for associates, the firm said in a May 7 filing.

David Kappos, director of the U.S. Patent and Trademark Office, told a House subcommittee in May that patent fights of similar scope occurred over the sewing machine and the telegraph when they were new.

William Rosen, author of “The Most Powerful Idea in the World,” about the origins of the Industrial Revolution in the U.K., said the steam engine’s development was marked by years of patent suits.

“How can you have a system that rewards innovation that doesn’t involve litigation?” he asked.

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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