Apple's victory in patent battle boosts Microsoft as Asian vendors scramble

27 Aug, 2012

Apple Inc's decisive triumph over Samsung Electronics in the most closely watched patent trial in years could open the door for Microsoft Corp to finally hop on board the mobile boom as manufacturers of Android-based smartphones and tablets weigh their legal risks.

Microsoft sounded a challenge to Apple and Samsung in July when it took the wraps off its Surface tablet, a showcase for the revamped Windows software that it hopes will pave the way for its entry into the mobile space.

It remains to be seen if the new touchscreen-friendly and cloud computing-ready Windows 8 can prove a serious rival to Android, the world's most-used mobile software, or Apple's iOS. But mobile industry executives who had been cautiously considering Windows as an alternative to Google's Android say Friday's ruling that Samsung had copied Apple's designs and software features had intensified their interest in a Microsoft alternative.

The key reason: fear of patent lawsuits from Apple.

TV- US jury finds for Apple.

The California company's battle with Samsung was in large measure a proxy war against Google Inc's Android software, which is used by many manufacturers to run its mobile devices. The verdict could empower Apple to file more such lawsuits.

"Some of the other manufacturers of Android products like ourselves are prepared to face similar lawsuits from Apple," a senior executive with a major Chinese mobile maker told Reuters on condition of anonymity as he is not authorized to talk to the media.

"The Apple-Samsung lawsuit has given us some reference point on our future innovation. We'll focus on developing our own unique user interface based on the Android platform.

"Even though the bulk of our shipments run on Android, the trend is to diversify into other products running on Windows," the executive added, predicting that the percentage of Windows-based smartphone shipments would increase significantly, from less than 10 per cent now to around a third over the next few years.

Consumer appeal

Windows 8 and Windows RT - a version of the software made for the ARM Holdings chip designs that are employed in the vast majority of phones and tablets - ship in October.

Some analysts are skeptical that Microsoft can produce a device that the mobile consumer will love.

"Microsoft has been the beneficiary of this whole fight as the other non-Android option," said Ron Laurie, a Silicon Valley-based specialist in IP and investment banking and co-founder of Inflexion Point Strategy. "But safety (from lawsuits) by itself is not enough. You have to appeal to consumers."

And so far the market has seen that consumers want phones and tablets that look like Apple's devices, he added.

Hardware manufacturers, mostly based in East Asia and known in tech industry jargon as original equipment manufacturers or OEMs, are weighing their options.

"From an OEM perspective, the verdict alone, and certainly an injunction on sales of any kind, levels the playing field between Android and Windows Phone," said IDC analyst Al Hilwa. "At this point, the two platforms would have to fight on features and developer ecosystems to win."

Wall Street thinks Microsoft still stands a chance of reclaiming its former glory, with investors citing a promising pipeline for 2013. But they will want hard reasons to pay more than $30 for a stock that hasn't traded above that for any extended period of time since 2000.

The verdict in Apple-Samsung was closely watched at Microsoft's headquarters in Redmond, Washington.

"Windows Phone is looking gooooood right now," tweeted a clearly enthusiastic Bill Cox, senior marketing communications director for the firm's phone division, soon after Friday's verdict.

Homegrown operating systems

Asian manufacturers now need to invest in further customization of the Android platform, much as Inc has done with its Kindle Fire device, industry officials say.

ZTE 000063.SZ and Huawei HWT.UL, China's two largest handset makers, declined comment. Both have announced plans to launch Windows-based phones to supplement their Android products.

"Smaller Android phone makers like (Taiwan's) HTC , (Google's) Motorola and Sony will have challenging times ahead," said Seo Won-Seok," a Seoul-based analyst at Korea Investment & Securities. "They'll face increasing production costs and rising entry barrier to the Android ecosystem. They now face a great risk of similar litigation from Apple."

Manufacturers may also look at other mobile operating systems beyond Windows, analysts said. Samsung, for example, also has phones that use proprietary software called Bada.

Chinese manufacturers also have the option of homegrown operating systems such as those developed by Baidu and Alibaba, but Jane Wang, a Beijing-based analyst from Ovum, doubted they would be adopted in a big way because the ecosystem of applications and services around them remains limited.

"Chinese handset makers are a practical bunch in that they will weigh the costs and benefits when coming up with products running on a different operating system," said Wang, "It may not be worth their while."

Some manufacturers are particularly exposed. The smartphone portfolio of Korea's LG Electronics Inc, for example, is entirely composed of Android devices, leaving it vulnerable should Apple take legal action against it.

And HTC, once the Android market leader, has also struggled in lawsuits with Apple and lacks its own strong patent portfolio, making it vulnerable to further legal challenges. It has tried to rebuild market share with new models, the One series, that incorporate high-level photography functions and audio technology from US firm Beats, in which it bought a stake.

"For all these manufacturers it's a risk management game," said Andrew Milroy, Singapore-based vice president of Frost and Sullivan, a consulting company. "They don't want to put all their eggs in one basket."

With Samsung win on Galaxy Tab, judge may reconsider US ban

Apple Inc's legal victory on Friday over Korean rival Samsung Electronics Co Ltd was crushing but for one key front in its global smartphone and tablet patent war: Samsung's Galaxy Tab 10.1.

The jury in San Jose, California federal court awarded the iPhone and iPad maker $1.05 billion in damages and said Samsung had copied critical features in the US company's products.

However, it declined to side with Apple on one patent, covering design elements on the iPad. That put the jury directly at odds with the judge in the case who, only two months earlier, had sided with Apple over allegations the Galaxy Tab 10.1 tablet ripped off Apple's design.

US District Judge Lucy Koh issued a pretrial order barring Samsung from selling the Galaxy Tab 10.1 in the United States.

Samsung is expected to file within days to dissolve that injunction against its tablet, a person close to the case said on Sunday. Representatives for Apple and Samsung could not be reached immediately for comment.

Samsung's Galaxy touch screen tablets, powered by Google's Android operating system, are considered by some industry experts to be the main rival among larger tablets to the iPad, although they are currently a distant second to Apple's device.

Normally, when a preliminary injunction based on one patent becomes inconsistent with a subsequent verdict, the party subject to the injunction asks the court to lift it, said Mark McKenna, a professor at the University of Notre Dame's Law School.

Yet while the jury absolved Samsung on allegations the Galaxy Tab violated Apple's design patent, it did say the device infringed some of Apple's software patents. That could complicate Samsung's pitch, McKenna said.

"If Samsung or Google could design around those patents, use features that didn't infringe, then they could sell the devices without violating the injunction," McKenna said.

Additionally, Koh can overrule the jury's decision and issue a verdict saying the Galaxy Tab infringed Apple's design patent.

"Judge Koh appears to be of the mindset that the accused Samsung tablet easily meets the 'substantially the same' infringement standard -- so much so that the facts lead to one and only one conclusion -- infringement," said Christopher Carani, a partner at Chicago-based intellectual property law firm McAndrews, Held & Malloy.

"Thus, Apple has a greater chance than usual to succeed in convincing Judge Koh to play this extraordinary trump card."

If the sales ban is ultimately dissolved, Samsung could go after Apple for damages for the wrongful imposition of the injunction, legal experts said.

Samsung, which has various tablet line-ups with different sizes from 7 inches to 10.1 inches (17.8-25.7 cm), introduced the Galaxy Tab 10.1 in June last year and recently unveiled an upgraded version, the Galaxy Tab 10.1 II.

The company said that Koh's injunction would not affect the updated Tab 10.1 II.

The case in US District Court, Northern District of California, is Apple Inc v. Samsung Electronics Co Ltd et al, 11-1846.

Samsung loses $12B market value after defeat

Samsung Electronics shares tumbled more than 7 per cent on Monday, wiping $12 billion off the South Korean giant's market value, as Apple Inc's sweeping legal victory in their US patent battle raised concerns about its smartphone business - its biggest cash cow.

A US jury found Samsung had copied critical features of the hugely popular iPhone and iPad and awarded Apple $1.05 billion in damages in the most closely watched patent trial in years.

Shares in Samsung - the world's biggest technology firm by revenue - tumbled as much as 7.5 per cent, its biggest daily percentage drop in nearly four years, to 1.183 million won, versus a 0.5 per cent drop in the broader market.

Trading volume was heavy, more than doubling the last week's daily average by early Monday trade.

"An adjustment in the next few days is unavoidable as the damage amount was much bigger than market expectations, and there are further uncertainties such as the possibility of a sales ban," said John Park, an analyst at Daishin Securities.

Analysts estimate Samsung's earnings will be reduced by 4 per cent this year due to increased patent-related provisioning.

The jury at a federal court in San Jose, California, found on Friday that Samsung infringed on six of seven Apple patents. The verdict, which came after less than three days of jury deliberations, could lead to an outright ban on sales of key Samsung products and will likely solidify Apple's dominance of the exploding mobile computing market.

Eyes on galaxy S III

Apple plans to file for a sales injunction against Samsung, its lawyers said, and the judge in the case set a hearing date for September 20.

Top executives at Samsung, led by vice chairman Choi Gee-sung and head of its mobile division JK Shin, held an emergency meeting on Sunday.

The biggest concern for Samsung remains whether its latest flagship product the Galaxy S III, which was not included in the case, will be also targeted by Apple and included in the list of products banned in the US market. The model is Samsung's best selling smartphone, with sales topping 10 million since its late May debut.

But Samsung's skill as a "fast executioner" - quick to match others' innovations - would likely mean tweaked, non-patent infringing devices would be on the market soon after any ban came into place, analysts said.

"The ruling is a costly lesson for Samsung - but also an opportunity for a true alternative to Apple's well-known hardware with more innovative thinking and imaginative products ahead," Morgan Stanley analysts said in a note.

"There are more ways to build a touch screen smartphone and thanks to its fast execution capability, Samsung could quickly work around design changes, upgrading models and introducing new technology such as flexible displays, Galaxy S III and Galaxy Note to differentiate its devices from Apple."

Samsung was disappointed by the verdict and plans to keep the legal fight to have its claims accepted, according to internal memo sent to its employees, that was seen by Reuters.

"We've sought to settle this through negotiations, as Apple is our customer but had no choice but to counter sue," the memo said. "There's no firm in history which has sustained growth by trying to stifle competition with legal fights on patents, rather than fairly compete with innovation in the market place."