Friday, 7th September, 2012
Apple v Samsung – Apple wins big in US patent war
Matt Adams and Scott Sonneman look into the recent US$1bn verdict found in Apple's favour in the US Apple v Samsung patent trial and its effects for New Zealand and Australia.
The jury in the US Apple v Samsung patent trial reached a unanimous verdict on 23 August 2012, awarding Apple a massive US$1.05 billion in damages - the largest patent award ever.
The US litigation between Apple and Samsung is part of a long-running, global dispute between the world's two biggest smartphone and tablet makers about intellectual property rights. So far outside of the US, we have also seen litigation in Australia, France, Japan, Italy, the Netherlands, Korea, and the United Kingdom.
In the US, Apple sued Samsung, alleging Samsung's devices infringed three of Apple's US patents and four of Apple's US design patents. A US design patent protects the appearance of a product, like a design registration in Australia or New Zealand. Apple also alleged trade dress infringement.
Samsung counter-sued, alleging Apple's devices infringed five of Samsung's US patents. Samsung argued that two of these patents cover technology essential to implementing 3G telecommunications standards.
Apple essentially won on all fronts. The jury found Samsung's devices infringed Apple's three US patents and three of Apple's four US design patents. The jury also found Samsung infringed Apple's trade dress.
Correspondingly, Samsung did not do well. The jury found none of Samsung's patents were infringed.
The non-infringement finding in relation to Samsung's standards-essential patents was interesting. Even if Samsung's standards-essential patents were infringed, the jury held Samsung was barred from enforcing these patents because any patent rights were effectively exhausted. Apple bought its chips from Intel, and Intel manufactured the chips under licence from Samsung. The jury therefore did not need to consider whether Samsung had failed to make the patented technology available to Apple on fair, reasonable and non-discriminatory (FRAND) terms.
The jury found that all of the contested patents and design patents were valid.
Why were the damages so large?
US patentees who successfully sue for infringement are normally only able to recover their own lost profit or reasonable royalties. In the instance of infringement of US design patents, however, patentees have a third option. Patentees can recover the defendant's profits. This goes some way to explaining the US$1.05 billion in damages, which is the largest patent award in history. In an interview afterwards, the jury foreman indicated the award was roughly based on Samsung's revenue from sales of infringing devices (around US$8 billion) multiplied by the jury's estimate of Samsung's profit margin (around 14%).
Where to from here?
The story could yet get worse for Samsung. The US District Court judge may change the amount of damages. The jury found Samsung wilfully infringed all but two of the design patents. For wilful infringement, the judge may award up to three times the amount found or assessed by the jury.
Apple has already applied for a preliminary injunction to stop Samsung selling eight of its smartphones in the US. A hearing to discuss the application is set down for 20 September 2012.
The result has also added to Apples' considerable war chest to go after other companies who are active in the US smartphone market. The result is likely only a first, albeit significant, step in Apple's 'thermonuclear war' on Google's Android operating system.
Samsung, for its part, has indicated that it will appeal the decision. US commentators have criticised the judge's handling of the trial, which has likely provided several grounds for an appeal. Samsung is also likely to appeal at least the jury's findings in relation to the standards-essential patents and the amount of damages.
Samsung will no doubt also focus on continuing to develop workarounds that avoid infringement. Apple's infringed patents relate to enhancing the user-experience. US 7469381 relates to the bounce back or rubber band scrolling feature of Apple's devices, US 7864163 relates to the of tap to zoom feature, and US 7844915 relates to the pinch to zoom feature. Of these, the pinch to zoom patent (US 7844915) appears to be Samsung's most commercially significant hurdle.
Effects of the US litigation in New Zealand and Australia
The effects of the US litigation in Australia and New Zealand, at least in the short term, are likely to be minimal. A US injunction on Samsung's smartphones will only be effective in the US.
In Australia, the dispute between Apple and Samsung is currently playing out in the Federal Court of Australia. For several years Apple has been preparing for such litigation with an aggressive patent filing strategy that has made unparalleled use of Australia's second-tier innovation patent system. Given the complex nature of the proceedings, an initial decision is not expected before early 2013.
In New Zealand, Apple and Samsung are very unlikely to face off in court. A search of the Intellectual Property Office of New Zealand's database indicates that Apple has no (published) pending applications or patents. While Samsung does have New Zealand patents, New Zealand's small population makes the litigation being seen in the US and elsewhere unlikely.
If the US verdict is upheld on appeal, long term effects for consumers in Australia and New Zealand may include higher prices and reduced competition. Samsung may seek to push the costs of the US litigation back onto global customers, or absorb the costs internally by cutting back on research and development.