Update on Apple – Samsung Patent Ruling

The Apple Inc. (NASDAQ:AAPL) vs. Samsung Electronics Co., Ltd. (KRX:005930) patent ruling that we reported on yesterday continues to generate a lot of media attention and even more opinions. To recap, last Friday a jury in California ruled that Samsung had copied features of Apple’s iPhone and awarded Apple Inc. over $1 billion in damages. Now Apple is seeking to ban the U.S. sale of certain Samsung products and will seek punitive damages that could triple the award.


For all the hoopla, the award has had at most a small impact on the stock prices of key players. Samsung’s stock price, after dropping over 7% on Monday, closed Wednesday at about 3.5% down compared to last Friday’s close. The relevant Korean stock exchange index was flat over for the same period. As of market close on Tuesday, Apple is up a little and Google Inc. (NASDAQ:GOOG), after gapping down over 2% Monday morning is essentially unchanged from late last week. During this period both the NASDAQ Composite index and Dow Jones Industrial Average gained slightly. Google was not involved in the case, but the result has potentially significant negative ramifications for its Android operating system.


Yesterday we reported that a hearing was set for September 20th where Samsung would try to get charges reduced or dismissed, while Apple would seek punitive damages and argue for the ban on U.S. sales of certain Samsung products. Now it’s being reported that late Tuesday the judge moved this hearing to December 6th.  The September 20th hearing will now involve Samsung trying to get the judge to reverse her temporary injunction against Samsung’s Galaxy Tab 10.1 tablet (issued before last Friday’s verdict), as the jury did not find that the tablet infringed on Apple’s patents.


Opinions vary as to whether the decision will be a game-changer or a minor bump in the road for some market participants. (And this assumes the verdict is upheld on appeal.) But most commentators are optimistic for the long term – even that this case could spur innovation.


The ultimate impact of the verdict, which applies only to certain hardware and software features and only to the U.S., depends in no small part on Apple. If Apple is emboldened and becomes more aggressive in suing, the impact will likely be larger.


As noted yesterday, Samsung’s huge size, financial strength, global reach and broad range of products should protect it from significant damage.


Google says that the basic Android system it provides (for free, it makes its money on advertising) does not violate any of Apple’s patents – it’s features added by manufacturers and developers that Apple is targeting. But if other market participants can’t find workarounds for the software part of Android devices they’ve developed, they might move to Microsoft’s or another operating system. This could hurt Google while helping Microsoft.


Mobile device manufacturers could be the worst hit. Many aren’t so profitable and the cost of product redesigns or royalty payments to Apple could force them out of the business. That in turn could affect telecoms because a smaller number of competitors might reduce the profitability of deals they can negotiate.


And what will be the impact on Apple? Engaging in brutal legal battles can’t be good for the Apple mystique. Increased innovation by competitors could hurt Apple in the long run. Money and management time focused on legal battles might cause Apple to drop the ball on product development. Finally and ironically, Apple’s old nemesis Microsoft might end up being the biggest winner of all.




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