Apple seeks quick ban on eight Samsung phones

28 Aug, 2012

Apple Inc is seeking speedy bans on the sale of eight Samsung Electronics phones, moving swiftly to translate its resounding court victory over its rival into a tangible business benefit.

The world's most valuable company wasted no time in identifying its targets on Monday: eight older-model smartphones, including the Galaxy S2 and Droid Charge. While Apple's lawsuit encompassed 28 devices, many of those accused products are no longer widely available in the world's largest mobile market.

Although Samsung's flagship Galaxy S III phone was not included in the trial, the jury validated Apple's patents on features and design elements that the US company could then try to wield against that device. Apple may not have to seek a new trial over the S III, but can include it in a "contempt proceeding" that moves much faster, according to legal experts.

Many on Wall Street believe Apple now has momentum behind it in the wake of its near-complete triumph over the South Korean company on Friday.

"The evidence and weight of the case are heavily in Apple's favor," said Jefferies & Co analyst Peter Misek. "We expect there's a two-thirds chance of an injunction against Samsung products."

An injunction hearing has been set for September 20. If US District Judge Lucy Koh grants sales bans, Samsung will likely seek to put them on hold pending the outcome of its appeal.

Samsung said it will take all necessary measures to ensure the availability of its products in the US market. A source familiar with the situation said Samsung has already started working with US carriers about modifying infringing features to keep products on the market should injunctions be granted.

Apple's win on Friday strengthens its position ahead of the iPhone 5's expected September 12 launch and could cement its market dominance as companies using Google Inc's Android operating system - two-thirds of the global market - may be forced to consider design changes, analysts say.

Apple was awarded $1.05 billion in damages after a US jury found Samsung had copied critical features of the iPhone and iPad. The verdict could lead to an outright ban on sales of key Samsung products.

Apple's stock scored another record high on Monday.

While the victory does not cover new Samsung products including the Galaxy S III, Apple will push its case on these products in the near-term, Evercore Partners analyst Mark McKechnie said.

"While a ban would likely increase Apple's leading smartphone share in the US market, we believe this verdict could lead to Samsung also delaying near-term product launches as it attempts to design around Apple's patents," Canaccord Genuity analysts said in a note.


Apple's shares gained 1.9 per cent to close at $675.68, tacking on another $12 billion-plus to its already historically leading market value. Samsung lost about the same amount in market capitalization as its shares slid 7.5 per cent in Seoul.

Samsung shares rebounded 1.8 per cent on Tuesday.

"The ruling marks an important victory for Apple against Android. Competitors may now think twice about how they compete in smart mobility devices with the industry's clear innovator," Barclays analyst Ben Reitzes wrote on Monday. "If Apple forces competitors to innovate more, it could take longer for competitive products to come to market, and make it more expensive to develop them."

The victory for Apple - which upended the smartphone industry in 2007 with the iPhone - is a big blow to Google, whose Android software powers the Samsung products found to have infringed on patents. Google and its hardware partners, including the company's own Motorola unit, could now face legal hurdles in their effort to compete with the Apple juggernaut.

Google shares closed 1.4 per cent lower at $669.22. Microsoft Corp, a potential beneficiary if smartphone makers begin to seek out Android alternatives, ended up 0.4 per cent. Nokia, which has staked its future on Windows phones, gained 7.7 per cent.

Even Research in Motion - which has hemorrhaged market share to Apple and Google - climbed more than 5 per cent, before ending 2 per cent higher.

"The mobile industry is moving fast and all players, including newcomers, are building upon ideas that have been around for decades," Google responded in a Sunday statement. "We work with our partners to give consumers innovative and affordable products, and we don't want anything to limit that."

The verdict came as competition in the device industry is intensifying, with Google jumping into hardware for the first time with the Nexus 7 and Microsoft's touchscreen-friendly Windows 8 coming in October, led by its "Surface" tablet.

Samsung, which sold around 50 million phones between April and June - almost twice the number of iPhones - will have to pay damages equivalent to just 1.5 per cent of the annual revenue from its telecoms business.

"The verdict does not come as a surprise," wrote William Blair & Co analysts. "From Apple's perspective, Samsung's market position and its leadership in the handset world was something the company could no longer overlook, and viewing this as another 'imitation is a form of flattery' was not possible."

"Companies such as Samsung, who we categorize as fast followers, have been viewed by the industry for their ability to quickly adopt the latest handset trends ... rather than their ability to introduce fundamental innovation."

Apple's win dents Android's standard-essential patent hopes

Standard-essential patents aren't providing as much leverage in the smart-device wars as Google may have hoped when it paid $12.5 billion to acquire Motorola Mobility.

Apple scored big on Friday in its offensive against Samsung, with a $1.05 billion damages verdict and a finding of willful infringement that could lead to three times as big an award. But that wasn't Apple's only victory.

The company and its lawyers at Morrison & Foerster and Wilmer Cutler Pickering Hale and Dorr also turned back Samsung's counterclaims, including assertions that Apple infringed two patents that Samsung said are essential to standard wireless technology.

The federal jury found that Apple hadn't infringed those supposedly standard-essential patents, which means that they weren't essential after all. That is the latest indication those patents aren't the strong hand Google had sought.

Essential patents are adopted by the bodies that set international standards for developing technology. Everyone has to use them, which is why holders of standard-essential patents must agree to license their intellectual property on fair and non-discriminatory terms.

Last year's conventional wisdom was that after Apple and Microsoft teamed up to lead the coalition that acquired Nortel's wireless tech patents, Google countered effectively with the Motorola deal. Those Motorola patents, as well as Samsung's standard-essential intellectual property, were supposed to give Google and its Android partners leverage against Microsoft and Apple in the patent wars, creating a stalemate.

But for Google and its Android partners, the last year has raised a lot of questions about the power of standard-essential patents in the smart-device litigation.

Regulatory issues

In April, complaints by Microsoft and Apple prompted the European Union to open an antitrust investigation of Motorola's demands for licensing fees. At the end of June, the Federal Trade Commission joined the fray, issuing subpoenas on Motorola's licensing demands, while Bloomberg reported the Justice Department began investigating Samsung for the same alleged misuse of standard-essential patents.


Meanwhile, standard-essential patents have taken a beating in smart-device litigation in the United States. Judge Richard Posner of the 7th Circuit Court of Appeals demolished Motorola's argument that it was entitled to a licensing fee of 2.5 per cent of iPhone sales based on Apple's alleged infringement of a single standard-essential patent.

In federal court in Seattle, US District Judge James Robart sided with Microsoft in holding that Motorola's agreement with standard-setting bodies in the United States and Europe require it to license its standard-essential patents to third parties, including Microsoft.

Earlier this month, US District Judge Barbara Crabb in Madison, Wisconsin, endorsed Robart's ruling, concluding that Apple is a third-party beneficiary of Motorola's agreements with the standard-setting bodies and therefore Motorola must license Apple its intellectual property on reasonable terms.

So far, Android partners have avoided a finding that they breached their contracts or violated antitrust law in asserting standard-essential patents. In the Wisconsin case Crabb threw out Apple's antitrust allegations earlier this month, and neither she nor Robart in Seattle has issued a final judgment on breach of contract claims against Motorola.

In the Samsung trial, Apple responded to Samsung's counterclaims with antitrust assertions, arguing that Samsung had deceived standard-setting bodies and demanded unreasonable licensing fees from Apple. Apple lawyer William Lee of Wilmer made that pitch to jurors in closing arguments.

" said that when their patents became public, they would license the world, all of you, all of us, on FRAND terms -- fair, reasonable and non-discriminatory terms. They promised that," Lee said, according to a transcript of closing arguments. "But they didn't. They made a demand to Apple of 2.4 per cent of Apple's entire selling price, but only after they got caught copying. It wasn't fair because it's based upon the entire selling price. It wasn't non-discriminatory because they had never gotten it from anybody else, and it wasn't reasonable because Samsung has never been paid a penny, not one red cent vertically, for any of its declared essential patents."

Samsung counsel Charles Verhoeven of Quinn Emanuel Urquhart & Sullivan responded that Apple hadn't put on a single witness who testified that Samsung breached its agreements with, or otherwise misled, the standard-setting bodies. Samsung, he said, opened licensing negotiations with Apple and Apple chose to ignore the offer and launch its products without a license.

Samsung counsel John Quinn of Quinn Emanuel did not immediately respond to an emailed request for comment on the standard-essential patent issue.

The jury sided with Samsung and voted no on Apple's antitrust and breach of contract claims against Samsung, although it's not clear from the verdict form whether that's because they concluded Apple hadn't infringed Samsung patents anyway.

Nevertheless, it's clear that Samsung's supposedly essential patents -- which Samsung asserted only after Apple accused the South Korean company of copying its design and utility intellectual property -- didn't give Samsung the leverage it needed to force Apple into a cross-licensing deal, nor the jury a reason to side with Samsung and against Apple.

By their nature, standard-essential patents have long-lasting power, since (unlike patents on nifty smart-device utilities) engineers can't design around them. That's why they're essential. It's also why holders of standard-essential patents must pledge to license their intellectual property on reasonable terms.

The ultimate power of standard-essential intellectual property in the smart-device patent wars is yet to be determined, especially because European courts and regulators will also have a say in how those patents are asserted, interpreted and enforced. In the long run, Google and its Android partners may get the leverage and long-term revenue stream they're hoping those patents deliver.

But so far, that doesn't seem to be the case.