Apple Reveals Tactics in First Week of Samsung Trial

An Apple Inc. marketing executive revealed the company’s reliance on free press coverage and product-placement as it unveiled its case to jurors in the first week of a multibillion-dollar patent-infringement trial against Samsung Electronics Co. (005930)

Apple accuses Samsung of copying features from its mobile devices. Each company is trying to convince jurors that its rival infringed patents covering designs and technology.

Apple executives, testifying in federal court in San Jose, California, discussed early planning for the iPhone and deliberations over whether to introduce a smaller version of the iPad. Phil Schiller, senior vice president of worldwide marketing, described how Apple benefits from widespread media attention.

The remarks offered rare glimpses of decision making at a company that ordinarily goes to great lengths to shroud its inner workings in secrecy. By lifting the curtain on its internal operations, the company is attempting to win over the jury to its argument that Samsung copied its ideas.

Apple and Samsung are the world’s largest makers of the high-end handheld devices that blend the functionality of a phone and a computer. The trial is the first before a U.S. jury in a battle being waged on four continents for dominance in a smartphone market valued by Bloomberg Industries at $219.1 billion.

$2.5 Billion Claim

Apple seeks $2.5 billion for its claims that Samsung infringed patents. Samsung, based in Suwon, South Korea, countersued and will present claims that Apple is infringing two patents covering mobile-technology standards and three utility patents. Cupertino, California-based Apple 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.

Samsung lawyers have said Apple can’t claim a “monopoly on a rectangle.” Apple’s lawyers have said the similarities between its iPhone and iPad and Samsung’s smartphones and tablets go beyond acceptable imitation.

One patent in dispute involves how the screen bounces back when a user scrolls to the end of a Web page or picture. Samsung adopted a similar feature for its smartphones, Apple claims. Another patent at issue covers the use of two fingers to zoom in on a picture or document, a feature that Apple alleges Samsung also copied.

Punishing Lawyers

Before testimony yesterday, the third day of trial, U.S. District Judge Lucy Koh rejected Apple’s request to punish a Samsung lawyer’s public disclosure of evidence excluded from trial.

Apple, in an Aug. 1 filing with Koh, said the July 31 statement authorized by Samsung’s lawyer was designed to convey to jurors, through the media, arguments contesting Apple’s central allegations that Samsung copied the iPhone and iPad.

Koh said yesterday that Samsung and its lawyers at Quinn Emmanuel Urquhart & Sullivan LLP chose to “highlight evidence that they both knew was excluded,” and she reserved the right to investigate the release further.

The judge interviewed each juror separately, asking if they had read or heard anything about the case since testimony ended July 31, concluding she was “satisfied” the jury could remain “fair and impartial” and that they could remain in place.

7-Inch Tablet

Apple executives have also debated whether to unveil a smaller iPad, according to yesterday’s testimony. An attorney for Samsung showed an e-mail from Eddy Cue, Apple’s senior vice president for Internet services, advocating for a 7-inch tablet, compared to the 9.7-inch model now on the market. In the January 2011 e-mail, Cue discussed trying to persuade Apple co-Founder Steve Jobs to build a smaller iPad.

Jobs died in October 2011.

Schiller, discussing the iPhone, said Apple decided not to pay for any advertising during a brief period after the device was introduced in January 2007 and when it went on sale later in the year.

“We didn’t need to,” Schiller said. He read from several rave reviews of the iPhone and iPad, explaining that such stories did a better job than advertising to build buzz.

Schiller said Samsung is taking advantage of Apple’s design and marketing work by introducing similar smartphones and tablets, which “creates a huge problem” for marketing.

Product Confusion

“Customers can get confused about whose product is whose,” he said. “It dilutes the way customers see Apple.”

On cross-examination, Samsung’s lawyer, Bill Price, began to challenge Apple’s contention that Samsung’s infringement causes confusion among consumers between the two companies’ products. Price asked Schiller why Apple didn’t add a logo or any kind of advertising to the top of its iPhone.

The plain face of the phone is “distinctive and unique and I do think people recognize it as Apple’s,” Schiller said.

Schiller testified that he has looked at Samsung’s phones at issue and concluded that they may be confused.

Consumers will “accidentally buy the Droid Charge thinking it’s an iPhone?” Price asked.

“I believe they may be confused,” Schiller said.

“And that ‘may’ is the basis” for Apple’s billions of dollars in damages, Price asked?

The question drew an objection from Apple’s lawyers, with Koh agreeing and requiring it be withdrawn.

iPhone Development

Later in the day, Scott Forstall, Apple’s senior vice president in charge of iPhone and iPad software, described the creation of the iPhone, and gave jurors the first detailed testimony about one of the patents at issue in the in the trial.

Forstall said Apple started developing the iPhone in 2004 because company executives were frustrated with the features of their own mobile phones. The company had already begun working on the iPad, working with touch-screen technology. Apple set the tablet project aside and incorporated the touch features into the iPhone.

The iPhone project was top secret, Forstall said. He was put in charge of the iPhone’s software and Steve Jobs said he couldn’t hire anybody from outside the company to work on it.

Apple used colors to describe the work. The first iPhone was called “Purple,” he said. The floor where Forstall’s team worked was locked off from other employees and cameras were set up for security, he said.

‘Fight Club’

“We put a sign up that said ‘Fight Club,”’ Forstall said, referring to the movie starring Brad Pitt. “The first rule of ‘Fight Club’ is you don’t talk about ‘Fight Club.”’

Forstall said he is listed as an inventor on Apple’s ’163 patent being disputed in the case, which covers software allowing users to navigate between pieces of content on a Web page. The software allows users to double-tap a single news article from a website, for example, and properly size and position it for reading, he said.

Under cross-examination, Samsung lawyer Kevin Johnson, asked Forstall if he was aware that certain claims, or elements, of the patent had been narrowed as a part of it being accepted by the U.S. Patent and Trademark Office.

Forstall said he wasn’t aware of that.

Johnson also asked if Forstall knew prior inventions, called prior art, were found, and that was a reason the claims were narrowed?

Forstall said he didn’t know that.

The trial is scheduled to resume Aug. 6.

Apple rose $7.91 to $615.70 in Nasdaq trading, its highest since April.

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

To contact the reporters on this story: Joel Rosenblatt in San Jose federal court at jrosenblatt@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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