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4/9/2014
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Apple V. Samsung: More Secrets Emerge

Ongoing $2.2 billion patent case surfaces internal discussions and decisions around marketing today's best-known smartphones.

The ongoing legal tussle between Apple and Samsung has netted some interesting tidbits of information that might otherwise have remained secret. The companies are laying bare some of the internal discussions, documents, and processes used to not only design smartphones, but to manufacture and market them. If you believe Apple's side of the story, Samsung's current market dominance wouldn't have happened without Apple's technology powering Samsung's devices.

This week, Apple explained why it thinks it's entitled to $2.2 billion in damages from Samsung. Apple claims Samsung is infringing on five patents that were used in products sold by Samsung between August 2011 and the end of 2013. This was a time of dramatic growth for the smartphone and tablet markets, as more and more consumers around the world adopted the devices. Apple contends Samsung sold some 37 million devices with Apple tech on board during that time.

Apple lawyer Christopher Vellturo said the market was "in a profound state of change and growth because so many people are coming in and buying phones." Samsung lifted certain ideas from the iPhone that made its own devices easier to use. "That had a dramatic effect on Apple, and the compensation is therefore substantial," said Vellturo. Now that smartphones have been adopted by the majority of consumers, growth is slowing.

[More surprises from Apple v. Samsung: Steve Jobs's Email Revealed.]

Analysis of the damage claims shows Apple is looking for about $40 in patent fees per smartphone. This is a huge number, given the sale price of most smartphones. Samsung, meanwhile, contends Apple owes it just $7 million based on two other patents.

Perhaps the most telling revelation came from an Apple slideshow unearthed by Re/Code. The slides examine consumer purchasing trends in the smartphone market and point to trouble for the iPhone maker. Apple's internal research shows consumer demand for larger, less-expensive smartphones played a big role in plateauing iPhone sales.

Further, the high cost of the iPhone, thanks to thickly padded margins, became a point of contention with wireless network operators who disliked the subsidy premiums. Some operators called Apple's policies "unfriendly" and said they "lacked alignment" with the carrier's needs. That led carriers to set internal caps on iPhone sales to keep those costs down. Who benefited from those carrier policies? Samsung, which offered larger, cheaper phones.

In the end, Apple concluded that "consumers want what we don't have." Another way to say the same thing could be: People want a bigger iPhone that costs less.

(Image: StockMonkeys.com via Wikimedia Commons.)
(Image: StockMonkeys.com via Wikimedia Commons.)

To date, Apple has not sacrificed its margins to bring down costs, nor has it increased the size of the iPhone. Apple may have debuted the iPhone 5c alongside the 5s last fall, but its $549 retail price isn't low enough. Apple doesn't break down sales of individual iPhone models, so the success or failure of the 5c remains hidden. Rumors of a larger iPhone have persisted for close to two years, but it has yet to happen.

Apple further argued that Samsung intentionally stole to solve its own problems. It highlighted an email from Samsung's mobile boss, J.K. Shin, in which he decried the company's "crisis of design" and sought ways to win favor with wireless network operators. The five patents at the heart of the trial helped Samsung overcome certain barriers in functionality that in turn led to devices such as the Galaxy S II and S III.

The trial is underway in San Jose, Calif. Apple is still presenting its side of the case. Samsung won't mount its defense until next week.

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Eric is a freelance writer for InformationWeek specializing in mobile technologies. View Full Bio

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Lorna Garey
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Lorna Garey,
User Rank: Author
4/9/2014 | 3:44:17 PM
Rising tide
At some point, Samsung's enlargement of the smartphone market benefits Apple, and vice versa. The main winners here are the lawyers. Any damages will just be passed along to consumers. Maybe we should all buy HTC in protest!
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