Why Apple escalated its war on Samsung – and won
Apple, Samsung battle began two years ago and devolved into a fundamental disagreement over the importance of design patents. Samsung now faces huge damages and a potential ban on sales of its Galaxy smartphones and tablets.
In August 2010, just a few months after Samsung Electronics launched its Galaxy smartphone, a team of Apple Inc lawyers flew to South Korea.Skip to next paragraph
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Apple's late co-founder, Steve Jobs, had already told Samsung executives at a meeting earlier that summer that he considered the Galaxy S, based on Google's Android operating system, an illegal copy of the iPhone. But given the extensive business ties between the two companies - Samsung is one of Apple's key component suppliers - a negotiated solution seemed most likely.
The Apple attorneys were blunt: "Android is designed to lead companies to imitate the iPhone product design and strategy," read the second slide in their presentation.
But the meeting did not go well, according to a person familiar with the case. Samsung attorneys bristled at being accused of copying, and produced a set of their own patents that they said Apple was using without permission.
The meeting brought to the fore a fundamental disagreement between the two companies, and set the stage for a bitter, multi-country patent dispute that led to Friday's U.S. jury verdict that Samsung had violated Apple's patents. The jury awarded Apple $1.05 billion in damages, which could be tripled as the jury found Samsung acted willfully.
Samsung could now face a costly ban on sales of key smartphone and tablet products. Shares in Samsung - the world's biggest technology firm by revenue - tumbled more than 7 percent on Monday, set for its biggest daily percentage drop in nearly four years, wiping $12 billion off its market value.
Samsung says it will seek to overturn the decision, and the worldwide patent battles among tech giants are hardly over. But for now at least the decision in what was widely seen as a critical case promises to re-set the competitive balance in the industry.
The vast majority of patent disputes settle before trial, particularly between competitors. In this case, though, the stakes were just too high - and the two companies ultimately had very different views of the often murky legal issues.
Samsung believed its wireless communications patents were strong and valuable, and would serve as a counter-weight to any Apple showing of infringement, people close to the case say.
The South Korean company also didn't believe Apple could or should be allowed to claim patent protection on design elements like the form of a rectangle, or the front flat surface embodied on the iPhone.
Apple, for its part, considered its feature and design patents to be very high up on the intellectual property food chain - and demonstrating their validity was critical to a much wider war against Android.
The two companies never came close to settling their differences, according to courtroom testimony, trial evidence and interviews with several sources close to the case.
And when it came to the trial, Samsung's lawyers miscalculated in arguing that a verdict for Apple would harm competition in the marketplace. The jurors, led by a foreman who holds his own patent, were more persuaded by Apple's pleas to protect innovation. For them, it ultimately wasn't even a close call.
A spokesman for Samsung in Seoul had no immediate comment.
CORDIAL BUT ADAMANT
Apple launched the iPhone in 2007, revolutionizing the mobile phone market. But later that year Google, then still an ally of Apple's, unveiled the Open Handset Alliance, with the aim of distributing its Android smartphone software to all-comers.
Google's open approach quickly caught on among manufacturers looking to compete with Apple. The strategy infuriated Jobs, and by 2009 relations between the two companies had soured and Google's then-CEO, Eric Schmidt, left Apple's board. Jobs' biographer famously quotes him as accusing Google of "grand theft" and vowing to "go to thermonuclear war" over the issue.
In January 2010, Taiwanese phone manufacturer HTC Corp launched a touch screen, Android-based smartphone that sported features very similar to the iPhone. Apple sued in March of that year, and the Android smartphone patent wars were on.
HTC, though, was a minor player compared with Samsung.
After the cordial but failed August 2010 meeting, attorneys from Apple and Samsung talked in a series of meetings both in South Korea, California and elsewhere in the United States.
Apple's attorneys set to work putting a price tag on a royalty demand. By October 2010, they had concluded that Samsung should pay $24 per smartphone, and $32 per tablet. Based on Samsung's own estimation of its profits, Apple's royalty payments would effectively wipe out more than half of Samsung's margins on any phone priced less than $450.
And, Apple's offer wouldn't have covered the "unique user experience" patents Apple holds dear. "We made that clear," said Apple licensing chief Boris Teksler.