Apple Inc. says the whole thing is about playing fair and square, about a competitor unfairly enriching itself after spending a few months “copying” designs and features that took years to imagine and about the validity of the U.S. patent system.
In Apple versus Samsung, jurors, entering Day 2 of deliberations, will decide whether iPhone design... [+]
Samsung Electronics Co. says it’s about free competition, about “form following function” as new technologies enable new designs and about a marketplace in which rivals routinely seek “inspiration” from each other to develop better products.
Unless Apple and Samsung agree to a last-minute settlement in their more than year-long patent dispute, it’s up to the nine-member jury, now sequestered in a San Jose federal courthouse after listening to three weeks of testimony, to decide the fate of the world’s top-selling smartphones and tablets.
Legal experts agree that the jury -- seven men and two women entering their second day of deliberations -- will also determine the future of innovation. They differ, though, on who should prevail.
Cupertino, California-based Apple filed suit against Samsung in April 2011, accusing the Korean electronics maker of copying the designs for the top-selling iPhone and iPad. Apple wants at least $2.5 billion in damages for infringement of four design patents, which cover the way its devices look and feel, and three utility patents, which describe how they work. Samsung countersued in June 2011, saying Apple has infringed seven patents it holds for wireless communications and camera phones. It’s asking for about $400 million in royalty fees.
Chris Marlett, CEO of MDB Capital Group LLC, an investment bank that maintains an intellectual property database, applauds Apple for bringing the patent dispute to court and says it’s an important case for anyone who has a great idea and wants to profit from their invention. “Apple is saying if we invent something, we want to own it,” Marlett says. “That is effectively what makes our patent system stronger and makes innovation stronger. That gives new people the incentive to invent. When you look at our country as whole, it’s the last thing we have. If we don’t protect innovation, we’ve relegated ourselves to a second-rate nation.”
Pierre Yanney, a patent litigation partner with Stroock & Stroock & Lavan in New York, says a Samsung victory will lead to more choice for consumers. “If Apple wins, and if they win big -- i.e., the billions they are seeking-- then in the long run you will have less competition from the more solid companies which would otherwise provide alternative products -- Samsung, Motorola, etc. -- since they will conservatively choose less risky product offerings,” Yanney says. “If Samsung wins, then in the long run IP (intellectual property) will have less value, and more companies at all different price and quality points along the spectrum will be more confident to offer alternative products, leading to more consumer choices and lower prices all around.”
The case is being tried in the U.S. District Court, Northern District of California, a short drive from Apple headquarters in Silicon Valley. Judge Lucy H. Koh, who was appointed to the court in 2010 by President Barack Obama and is a former IP lawyer herself, has encouraged Apple and Samsung’s CEOs to meet and settle. Last week, she told lawyers that she believes both sides are “at risk” if the jury delivers a verdict.
The day before each side was slated to present two-hour closing arguments, Samsung told Judge Koh that top executives from the companies had spoken though no agreement was reached.
“The World Is Watching”
When former CEO Steve Jobs introduced the iPhone on January 9, 2007, he said Apple believed it had come up with something entirely different. "We’ve been innovating like crazy for the last few years on this, and we filed for over 200 patents for all the inventions in iPhone, and we intend to protect them," Jobs said. "I think we’re advancing the state of the art in every aspect of this design. So iPhone is like having your life in your pocket. It’s the ultimate digital device."
In the past five years, the iPhone has become Apple's top-selling product, accounting for almost half of revenue.
“If you render judgment for Apple in this case, you will reaffirm the American patent system,” Apple’s lead counsel Harold McElhinny of Morrison Foerster told a packed courtroom in his closing argument on Aug. 21. People in Silicon Valley will continue to take chances and make investments because they know their technology will be protected, he said. “The world is watching. You will, with your decision, get to determine the rules for competition for a long time to come in this country.”
Charles Verhoeven, representing Samsung, the world’s leading maker of smartphones, countered that Apple was seeking to thwart competition. “If you go Apple’s way, you could change the way competition works in this country. Is this country going to have vigorous competition between competitors or giant conglomerates with thousands of patents that block competitors?" Verhoeven asked. “Consumers deserve a choice. Sure Apple has great products. We don’t deny that. But competition is what built this country.”
Jurors began deliberating Aug. 22 and are meeting every day from 9 a.m. to 4:30 p.m. until a verdict is reached. Judge Koh presented them with 84 jury instructions, spread out over 109 pages, that describe how to evaluate the patent claims and trade dress infringements at issue in the case. They will then have to answer 33 complex, multi-part questions in the 20-page verdict form. Apple has called out more than 20 Samsung smartphones and tablets -- including its popular Galaxy devices -- as “knockoffs” of iPhone and iPad designs. Jurors will have to decide which patents apply to which devices, and if they find infringement, how much the damages related to each device will be.
Most patent disputes are settled out of court, with only three to four percent of such disagreements ending in a trial. In addition to depositions and witness testimony, the jurors may also review the hundreds of pages of confidential documents, including emails, competitive analysis, customer surveys and product teardowns that were presented as evidence by each side.
Apple and Samsung are also providing real phones and tablets for jurors to examine.
‘Common Sense’
“Jurors will rely heavily on their common sense about the parties' behaviors in developing their product lines even though patent litigation verdict forms focus a great deal on the language in the patents. The company who did a better job telling the story of theft or innovation will likely come out the winner,” said Karen Lisko, a senior litigation consultant with Persuasion Strategies, which advises clients on jury selection and courtroom issues. “A great possibility exists that both parties will ‘win some and lose some’ across the myriad of questions on the verdict form, making it possible that a post-verdict appeal could end in a settlement that allows the companies to get on with business.”
Apple's focus on the "big picture" in closing argument, says Lisko, will appeal to those jurors “who are desperate to simplify their way to a verdict.”
Those big picture arguments included Apple noting that one of Samsung’s top designers testified she spent three-months working furiously on the icons for the Galaxy smartphone. In contrast, Apple’s design team, including the 16 or so industrial designers responsible for its products, spent years working on the icons created for the iPhone. “"No one is trying to stop them from selling smartphones," said William Lee, another Apple lawyer. "All we're saying is: make your own. Make your own designs, make your own phones, and compete on your own innovations."
“Based on our patent jury research over the years, those ‘simplifying jurors’ are more likely to favor Apple -- a company with a strong public image that initiated this lawsuit and holds the patents at the center of the case,” Lisko adds. “While Samsung will have some sympathetic ears on the jury with its strong appeals to the need to protect competition in the marketplace, Apple's simple position that copying is not competing will rally the ‘fairness faction’ on the jury.”
“If Apple wins, companies will have to be much more careful about where they find inspiration for their new products,” says David Swift of Kinsella Weitzman Iser Kump & Aldisert LLP in Santa Monica, Calif. “If Samsung wins, we will see a lot more of companies borrowing key features from each other – likely leading to a much more homogenous market for phones and tablets.”
Swift says Apple may have the upper hand given that many of the accused Samsung phones do look remarkably similar to the iPhone. “However, in light of the requirement for a unanimous verdict in federal court, all Samsung needs is a single juror to hold out – certainly a realistic possibility.”
Big Damages
A key factor in determining the winner and loser in the case will depend on how the jury views damages. Apple’s McElhinny said that Samsung will win even if the jury sides with Apple but compromises on damages. “They will not change their way of operating if you slap them on the wrist,” McElhinny said this week.
The legal experts agree. "If Apple succeeds in keeping Samsung at bay, industry designs will diverge and strengthen Apple’s market advantage,” says Cheryl Milone, founder and CEO of Article One Partners, a patent research firm. “Even with the case trending to support design patent infringement by Samsung, success requires proof on damages as well. If Apple’s damages case falls short, designs will become more uniform in the smartphone market.”
The case doesn't end with the verdict. No matter what the jury decides, there are likely to be be appeals that could go on for years.
Marlett of MDB Capital thinks that anyone who believes in the value of patents will side with Apple. “Samsung is going to try to obfuscate – ‘We’re losing and it’s unfair that big bad Apple is muscling its way around,’” he says. “You get patents to protect your inventions. Some people don’t’ think it’s fair that Apple makes so much money and is so successful. But I think when someone invents something so well and they market it well, they should be successful. Everyone wants to be the next Apple. I don’t think anyone wants to be the next Samsung.”
