On the eve of Apple’s Worldwide Developers Conference, Samsung announced that Apple also misappropriates other companies’ technology.
The Federal Trade Commission’s (FTC) ruling in favor of Samsung that bans the import of certain iPhones and iPads will have little impact on these two technology leaders beyond public opinion. It’s attracted much attention simply because Apple won $1 billion in damages the last time the two engaged in intellectual property litigation. It was the public consensus then that Apple prevailed because it had designed broadly better products and Samsung infringed on Apple’s patents in order to succeed.
Apple’s victory over Samsung last August was an intellectual property litigation sniper shot at infringement of just a few of its patents. And, likewise in this case, Samsung’s legal snipers picked off one of four high-value targets when it won one infringement claim out of the four it brought. Neither judgment is a categorical conclusion that one company copied the other’s idea for a smartphone or tablet.
More narrowly, the ruling against Apple only applies to some of its older AT&T product models including iPhone 4, the iPhone 3GS and the iPad 2 3G. And it applies to a special type of patent called a “standard essential patent.” Standard essential patents are created when the patent holders participate in a standards body that sets a standard where adopters of the standard must use the patent. By setting the industry standard, the patent holders are obligated to create a patent pool of their related patents and license them at a reasonable price.
Samsung’s patent involves the encoding and decoding of CDMA communications. It asked Apple to pay 2.4% of sales as a reasonable license fee to use this standard essential patent. Apple refused the offer, which led to litigation and the complaint to the FTC.
A back-of-the-envelope estimate based on SEC filings for 2010 and 2011 amounted to $137 million in damages due to patent infringement. This estimate is probably wrong, but the order of magnitude is likely right, so for this argument we can value the patent to be between $100 million and $1 billion. It’s not a lot of money to either of these large successful companies.
For Samsung, this is a big public relations victory one week before Apple’s Worldwide Developer’s Conference (WWDC). It does to Apple what Apple’s victory last year did to Samsung, diminishing the perceived value of the engineering that was applied to product design. It is also a financial victory that Samsung can offset last year’s $1 billion jury verdict, recently reduced to $600 million and currently on appeal.
For the next 60 days, shipment of these products won’t be restricted, while the White House reviews the FTC ruling. President Obama can veto the ruling if it is determined to be in the nation’s interest. If the President does not veto the ruling, Apple can appeal the decision to the First Circuit, which Apple already has said it would do.
President Obama is not very likely to take time out of his political agenda for an esoteric CDMA patent with damages amounting to less than 1% of Apple’s annual revenues. Apple’s appeal will take years and will run concurrently with Samsung’s appeal of last year’s jury verdict. In the end, there will be either a settlement or a judge’s ruling some years from now that likely takes the 2.4% license fee that Samsung requested down to some lesser amount.
Big news, little impact. As long as they’re competing so aggressively, you can expect Apple and Samsung to continue the patent sniping.