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Apple Scores a Win in the Smartphone Wars [Research Technology Management]
[December 28, 2012]

Apple Scores a Win in the Smartphone Wars [Research Technology Management]

(Research Technology Management Via Acquire Media NewsEdge) After several failed attempts, Apple's latest salvo in the smartphone patent wars seems to have hit home. On August 24, after less than 24 hours of deliberation, a California jury decided that Samsung had, in fact, infringed on six Apple patents, to the tune of just over $1 billion in damages-one of the largest patent infringement awards ever.

Once the initial excitement subsided, however, the real meaning and likely effect of the verdict became murky. First came hints that the jury hadn't been thorough in its consideration of the issues leading to the verdict. The decision came much too fast, some said, given the length (109 pages) and complexity of the jury instructions. Worse, the original verdict sheet bore some clear mathematical and logical errors that forced the court to issue a corrected sheet. And interviews with jurors have revealed that their deliberations veered into extralegal territory, for instance suggesting that the amount of the award was intended to punish Samsung when established law (and the jury instructions) clearly indicates that damages should be calibrated to restore the losses of the plaintiff, not to punish the defendant.

And, in the same week, similar lawsuits in Japan and South Korea concluded with very different results. A Tokyo judge ruled against Apple, deciding that Samsung hadn't infringed on Apple patents, and a South Korean judge offered a decision that was, essentially, a draw, acknowledging that Samsung products did closely resemble Apple's designs but not finding a clear case for infringement.

Post-decision statements from the two companies were predictably extreme: Apple applauded the verdict as a validation of values, characterizing it as "a loud and clear message that stealing isn't right"; Samsung asserted that the decision "should not be viewed as a win for Apple, but as a loss for the American consumer." But analysts found little to agree about, either. Indeed, various sources concurred on only one essential truth: that Samsung is absolutely correct that "this is not the final word in this case" or in the raging patent war. It remains to be seen how many Samsung products will be pulled from U.S. shelves, and there will certainly be appeals of the decision and of the associated damages, which many see as extreme. The case is unlikely to see a final decision for months, if not years.

Some observers see the Samsung suit, and the suit against HTC that Apple lost last year, as proxy wars against Google's Android operating system, which Steve Jobs saw as a blatant knockoffof Apple's iOS. Jobs told his bio grapher, Walter Isaacson, shortly before his death in 2011, "I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this." Indeed, the Samsung decision may represent a significant challenge for hardware manufacturers as they create the next generation of Android phones. With Apple's right to key elements of the smartphone experience backed up by a successful, and costly, lawsuit, manufacturers of Android handsets will have to find new ways to accomplish key tasks- and then convince consumers to adopt them.

But Apple would be advised to remember that no one truly wins a thermonuclear war. The decision may give the company a temporary advantage, locking competitors out of key technologies and user interface features, but given the speed of change in the industry, it's unclear how long that advantage may last. And the decision may also kick offa new round of innovation that could eventually knock Apple offits pedestal. Even before the Samsung decision, UBS industry analyst Steve Milunovich suggested that a win in the case might actually be bad for Apple over the long term. In a widely quoted research report, Milunovich argued that a win "could hurt Apple because the real threat is not a competitor beating Apple at its own game but instead changing the game. The likelihood of Apple being leapfrogged or a rival creating a new category is greater if they have to think out of the box." In other words, forcing competitors to avoid its patents could backfire on Apple, if the move motivates the competition to outinnovate the company. Given Apple's own reputation as a game-changing innovator, such an outcome would be ironic indeed.

Taking too punitive a line with Samsung and other companies could have other repercussions for Apple as well. Although Apple, and some analysts, believe that the win in court brings with it an advantage in the court of public opinion, IAM Magazine editor JoffWild suggests that too much focus on "blowing [competitors] out of the water" could irreparably damage Apple's brand. This is an argument worth considering, especially given the way in which Apple has traded on the emotional appeal of its products to build customer loyalty. Having its brand associated with a heavyhanded vindictiveness could taint that experience, breaking the emotional bond that keeps many consumers returning to Apple. Steve Jobs once declared, "Good artists copy, great artists steal. And we have always been shameless about stealing great ideas." In this context, the company's declaration of "thermonuclear war" may seem hypocritical, and Apple itself has trained its customers to be attuned to such con siderations.

Instead, many suggest, Apple should consider offering Samsung and other Android handset manufacturers a set of cross-licensing agreements, which would also defuse impending infringement suits against Apple filed by Motorola and others. It may also help to mend fences with Samsung, a major supplier of components for the iPhone. At the same time, it would give Apple a stake in every Android smartphone sold and moderate competition by forcing Android makers to account for those licensing fees in their pricing. (Smartphone manufacturers already pay licensing fees to Microsoftfor some elements of the Android OS. As Roger Chen, writing for CNET, put it, "Google's free operating system isn't as free as it used to be.") The wider impact of the decision remains to be seen. A number of parties, including Google general counsel Kurt Walker, have expressed concern that the patent wars may stifle innovation in the industry and shut out newcomers who don't have the resources to protect themselves. This decision may accelerate the patent arms race, building the barriers to entry even higher. It may also inflate the value of patent portfolios even further, which could be good news for RIM, Kodak, and others contemplating patent sales. Whether consumers will see a rush of new designs as companies seek ways to work around Apple's patents, or less choice and higher prices, will depend on a whole array of factors yet to be determined. Apple has won this battle, but the war, it seems, is still up for grabs.

DOI: 10.5437/08956308X5506001 Samsung's Galaxy S III, right, and Apple's iPhone 4S on display at a mobile phone shop in Seoul, South Korea, August 24. (AP Photo/Ahn Young-joon) MaryAnne M. Gobble , Editor (c) 2012 Industrial Research Institute, Inc

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