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Apple Wins, But Android Game Not Over

Samsung lost an important legal round to Apple. But looking ahead, Google has Android patent weapons of its own.

Apple iPhone 5 Vs. Samsung Galaxy S III: What We Know
Apple iPhone 5 Vs. Samsung Galaxy S III: What We Know
(click image for larger view and for slideshow)
Apple's triumph over Samsung in its patent infringement case will benefit Apple in the short term, prolonging the survival of its high profit margins and limiting competitive pressures from Android hardware makers. But the billions Apple could reap in damages and future licensing fees won't be enough to cripple Samsung, or Google, the power behind Android.

What's more, Apple's victory aids Microsoft, a company that competes with Google and also covets Apple's mobile business. Opening the door to Windows Phone in order to shut it on Android doesn't make Apple's mobile products more compelling or strengthen the foundation of Apple's business.

The jury's decision to award over $1 billion in damages to Apple has hit Samsung hard, at least as much as a company with $148.6 billion in 2011 sales can be harmed by being forced to pay less than 1% of its revenue at some later date, after the appeals have potentially reduced the fine. Samsung characterizes the verdict as a loss for the American consumer rather than a win for Apple.

The decision, the company said in an emailed statement "will lead to fewer choices, less innovation, and potentially higher prices. It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies. Consumers have the right to choices, and they know what they are buying when they purchase Samsung products."

[ Besides Apple, who else won as a result of the verdict? Read Apple Verdict Could Boost Microsoft, RIM Smartphones. ]

Samsung says that this is not the final word in the case and that it will persevere in other legal venues around with world, where some Apple claims have already been rejected. And it insists it "will continue to innovate and offer choices for the consumer."

Karen Lisko, senior litigation consultant with Persuasion Strategies, a litigation advice group within the law firm of Holland and Hart, sees Apple's win as having a significant effect on future jurors. "The jury pool for the next trial is watching this case and this total rout in favor of Apple will not escape notice," she said in a phone interview.

"Given this outcome, other companies are going to have to work harder to skirt around Apple's patents because they've been warned now," she said.

The goal of the patent system, she said, is to promote innovation and Samsung can demonstrate that and avoid future infringement claims with relatively minor changes. However, she said, given the ruling favoring Apple, juries may want to see more than minor changes if and when Apple brings future patent claims against Samsung or other Android handset makers.

Samsung, she said, erred during the trial in focusing so heavily on the competitive impact of Apple's patents. "When you're defending a case in a patent infringement lawsuit, you first have to focus on your strong attempts to work around the patent," she said, noting that the Patent and Trademark Office is highly respected by most jurors. "Samsung should have focused more on what it does well as a company instead of saying that Apple should not have gotten these patents. Jurors often shut down when the defendant goes after the jugular of the plaintiff."

Apple meanwhile is showing no such restraint. On Monday, the iPhone maker filed to ban eight Samsung products as a consequence of its patent win. It is seeking an injunction on the sale of four Galaxy S2 models, two Galaxy S models, the Droid Charge, and the Galaxy Prevail. Judge Lucy Koh, who has been overseeing the case, is expected to rule on the request at a later date.

Brian J. Love, assistant professor of law at Santa Clara University, said in a phone interview that he expects Samsung will attempt to persuade the judge to set aside the verdict and to rule as a matter of law on various issues. He said that if Judge Koh enters a permanent injunction against the many Samsung products at issue in the case then he'd expect an appeal. He said there's a good chance the federal circuit would stay such an injunction during an appeal. That could take a year or more.

A further delay would soften the impact of any injunction because the products in question would no longer be relevant in the market. "These phones are already at least a year old," Love said. "In another year, [after the appeal], they'd be two-years-old. These product life cycles are short. There's a good chance Samsung would be ready to let these products phase out on their own."

Google, meanwhile, can be expected to develop software patches to alter Android, like the one it released in July to obviate an injunction on Samsung's Galaxy Nexus, said Love. That patch altered the way search worked on the phone, to get around an Apple universal search patent.

As for Apple's design patents, Love doesn't see these as being problems for Android handset makers going forward. Getting around design patents is usually pretty trivial, he said, because they cover ornamentation rather than function. However, he acknowledged that the cost can become substantial if it means retooling an assembly line.

Windows Phone 8 Preview: A Visual Tour
(click image for larger view and for slideshow)
Windows Phone 8 Preview: A Visual Tour
While Love believes that Google may be able to address many of the issues facing its Android partners via software changes, he adds that Apple has more leverage as a result of its victory. Apple's future patent claims, he said, will benefit from the fact that all seven of its patents were found to be valid by the jury. Usually, he said, 40% to 50% of patents get invalidated as they go to trial.

Apple's claim isn't just about money, which the company already has in abundance. "There has always been a sense that Apple has been in the case for non-monetary reasons," Love said. Apple's goal, he suggests, has been to affirm its role as "the true innovator of the smartphone market and that Android is riding Apple's coattails."

In a Deutsche Bank research note published on Monday, analyst Jonathan Goldberg wrote that in the wake of the verdict, "Apple looks poised to continue its strength in share of profits and consumer mindshare." During the trial, it emerged that Apple's profit margin for its iPhone has been as high as 58%.

Love observes that the smartphone industry could clearly be more competitive. "If Apple can just continue to do what it's doing and make those kinds of profit margins, then it has no reason to do much innovation of its own," he said.

Apple and Microsoft are the only companies making significant profits from Android, according to Goldberg, who estimates that Microsoft could be making close to $2 billion annually from licensing patents to Android handset makers. Google's Android profits remain small and among its Android handset partners, only Samsung reported profits during the past three quarters.

Goldberg believes Apple's patent win will make mobile carriers more willing to look beyond Android, perhaps to Windows Phone, for holiday handset orders. And he sees the further legal jeopardy for other Android handset makers.

"We believe the patents Apple asserted against Samsung apply to pieces of the Android kernel as well," Goldberg said in his research note. "Since few of the other Android vendors have much in the way of IP, it may be hard for them to defend themselves when Apple's lawyers come knocking on the door."

At the same time, the most significant threat to Android, Oracle's recent lawsuit against Google, has passed, assuming Oracle doesn't win a major reversal on appeal. And Google, now that it owns Motorola Mobility, has a hedge against partner platform defections. It can shift from trying coordinate its unruly ecosystem to leading by example, with its own hardware, if dissension among its partners becomes too great.

And in Motorola's patent portfolio, Google has weapons of its own. Goldberg writes that while many industry observers believe Google has shown its legal hand, he argues that there has been a failure to adequately consider the 1,000+ patents Google bought from IBM and Motorola's patent portfolio, particularly related to LTE technology. "We would not be surprised if a new LTE-capable iPhone became the target of a Google lawsuit," he said.

Yet a Google legal counter-attack may not be enough for Google's Android hardware partners, particularly those without formidable patent portfolios. In the end, Goldberg expects Google will have to indemnify its partners and limit their legal costs, noting that Intel pursued a similar strategy to assure the dominance of its x86 architecture.

Despite Apple's victory in court, Goldberg foresees continued success for Android. "We think Android will remain the market share leader this year, and the actual impact on the ground [of the legal situation] will probably be minimal," he concluded.

Love contends that Apple's all-out-war on Android has changed the character of Silicon Valley. "Many people would suggest that the reason Silicon Valley was as successful as it was was that they didn't go around suing each other," he said. "They tended to settle dispute by competing, by being more collaborative."

Apple's co-founder and former CEO Steve Jobs, before he died last year, told biographer Walter Isaacson that he wanted to destroy Android because it was "a stolen product" and threatened to wage "thermonuclear war" to achieve his goal. The problem with this approach is that nuking another nuclear state is the one thing most likely to provoke a nuclear counterstrike.

Despite Apple's win over Samsung, the biggest threat to Android may be internal. If among Android handset makers and Android developers, no one is making money, then it's hard to see how Google's version of Android can survive.

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