Apple, Samsung Take Smartphone War to First U.S. Jury

Apple Inc. (AAPL) and Samsung Electronics Co. (005930), having waged their patent battle on four continents, are now on a collision course in California with little prospect of a settlement before a jury trial set to begin this week.

U.S. District Judge Lucy Koh in San Jose, who practiced as an intellectual-property litigator in Silicon Valley for eight years, is scheduled to start jury selection July 30. Jurors will decide each company’s claims that its rival infringed patents covering designs and technology for mobile devices, with potential damage awards reaching billions of dollars.

The companies have sued each other in the U.K., Australia, and South Korea, among other countries, in a bid for dominance of a mobile-device market that Bloomberg Industries said was $312 billion last year. In San Jose, Apple seeks damages of $2.5 billion based on claims Samsung copied the iPhone and iPad. The Cupertino, California-based company also wants to make permanent a preliminary ban it won on U.S. sales of a Samsung tablet computer, and extend the ban to Samsung smartphones.

“Eventually all the parties to the smartphone wars will have to settle,” Mark Lemley, a Stanford Law School professor, said in an e-mail. “But the parties have fought this one long and hard, and I don’t see why they would settle now, with an injunction already in place. I expect them to take their chances at trial.”

Claiming Apple is infringing two patents covering mobile- technology standards and three utility patents, Samsung is demanding royalties of as much as 2.4 percent for each device sold.

Samsung’s Evidence

Samsung, based in Suwon, South Korea, said in a court filing it plans to show jurors evidence that in 2006, before Apple’s January 2007 introduction of the iPhone, Samsung was developing the next generation of mobile phones, envisioning “a simple, rounded rectangular body dominated by a display screen with a single physical button on the face.”

Apple is trying to deflect Samsung’s infringement claims in part by arguing that Samsung deceived the European Telecommunications Standards Institute, according to a court filing. Samsung was pushing the organization to adopt certain standards without disclosing that it had applied for patents covering the same technology, Apple claims.

Apple’s request for $2.53 billion in damages is based on its compensation claims for unjust enrichment amounting to $2 billion, lost profit of $500 million and royalties of $25 million, according to the filing. Apple claims Samsung products infringe four design patents and three software patents, according to a court filing.

‘Cutthroat and Nasty’

Kristin Huguet, an Apple spokeswoman, declined to comment on the trial or the possibility of a settlement.

“We will take all available measures to stop Apple’s unacceptable free-riding of our intellectual property,” Nam Ki Yung, a Seoul-based spokesman for Samsung, said in an e-mail.

Will Stofega, a technology industry analyst with IDC in Framingham, Massachusetts, said this case is “much more cutthroat and nasty” than most lawsuits between technology companies, which usually settle.

Stofega said he expects the dispute to drag on in courtrooms around the world even as it strains an important relationship between the two companies -- Samsung being one of Apple’s biggest component suppliers.

‘How Interlocked’

“It shows you how interlocked these companies are,” he said.

In the second quarter of this year, consumers worldwide bought 406 million mobile phones compared with 401.8 million in the same period last year, with Samsung and Apple shipping almost half of those phones, according to IDC.

Samsung extended its lead over Apple during the second quarter, shipping 50.2 million mobile phones, representing 32.6 percent of the market, compared with 26 million units, or 16.9 percent of the market, for Apple, according to IDC.

Samsung Chief Executive Officer Choi Gee Sung and Apple CEO Tim Cook tried and failed to settle the San Jose case at a court-ordered May 21 meeting in San Francisco. Previously, company officials met in September and December and on May 4 to discuss resolving a related dispute before the U.S. International Trade Commission.

A settlement remains unlikely because Apple may be confident it can prove patent infringement and persuade the judge to permanently bar Samsung products that are “no more than colorably different” from any single banned tablet or smartphone, said Doug Lichtman, a law professor at the University of California in Los Angeles.

Such a ruling would prevent Samsung from evading an injunction by manufacturing new products that are only “trivially different” from a smartphone or tablet found to be infringing Apple patents, Lichtman said in an e-mail.

Eventual Resolution

Samsung may be unwilling to negotiate due to its ability to profit from selling devices at a wide range of prices. During the first quarter, Samsung sold more than 40 percent of all mobile phones that run on Google Inc. (GOOG)’s Android operating system, according to Stamford, Connecticut-based research company Gartner Inc. (IT) Android was installed on 56 percent of new smartphones, more than twice Apple’s share.

Moreover, Lemley said, Koh’s order last month barring sales of the Galaxy Tab 10.1 tablet would be lifted at the end of trial if Samsung wins. Samsung may be willing to take whatever risks a trial presents rather than pay what Apple requires to lift the injunction, he said.

With so much at stake for both companies globally, Apple and Samsung eventually will have to resolve their differences out of court, Lemley said, citing pending patent litigation over mobile devices also involving HTC Corp. (2498) and Google Inc.’s Motorola Mobility unit.

“Smartphone patents are like nuclear weapons in the Cold War -- there are just so darn many of them,” Lemley said. “Apple is riding high right now, but a year from now it may be Apple’s products being enjoined on the basis of a Motorola or HTC or Samsung patent. Taken to their logical conclusion, everyone in this market could shut down everyone else.”

The case is Apple Inc. v. Samsung Electronics Co. Ltd., 11- cv-01846, U.S. District Court, Northern District of California (San Jose).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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