Samsung Electronics Co. (005930), sought to steal market share by selling a Galaxy Nexus phone that copies a feature that makes the iPhone’s Siri virtual personal assistant so compelling, Apple Inc. told a U.S. appeals court.
“This was the beat-Apple strategy,” Apple lawyer Mark Perry of Gibson Dunn, said yesterday in arguments before the U.S. Court of Appeals for the Federal Circuit in Washington. “This was the top of the line, Cadillac phone they trotted out to compete with the iPhone.”
Samsung, the world’s largest maker of smartphones, is seeking to overturn an order to stop selling the Galaxy Nexus in the U.S. until a patent-infringement case brought by Apple can be held. The case, which involves different patents than those at the heart of a trial under way in San Jose, California, is scheduled for trial in March 2014.
Samsung lawyer John Quinn said Apple, which has the biggest share of the U.S. market, wasn’t harmed by the “minuscule” sales of the Galaxy Nexus, so there’s no threat if the phone remains on the market. Samsung also is appealing U.S. District Judge Lucy Koh’s finding that Apple is likely to win the case, and is challenging the validity of the patent.
The case is part of a global battle between Cupertino, California-based Apple and Suwon, South Korea-based Samsung for supremacy in the $219 billion global smartphone market. More than 30 lawsuits have been filed between the two companies on four continents, not counting lawsuits Apple has filed against other makers of handsets that run on Google Inc. (GOOG)’s Android operating system.
A key issue in the arguments yesterday before the appeals court was whether Apple must prove it lost market share to the Galaxy Nexus to obtain a pre-trial ban on sales, and whether the patented feature drove sales of either product.
Apple reported that it sold $16.2 billion worth of iPhones in the third quarter ended June 30. By contrast, Quinn said, Samsung sold $250 million of the Galaxy Nexus device in the first two quarters it was on the market.
“This is a product that, at most, captured 0.5 percent of the market,” Quinn said. “Nothing in the record here would support a finding of irreparable harm” to Apple.
The patent is for a unified search feature that captures results from multiple sources, such as the Internet and e-mail contacts. Perry said that ability forms the heart of Siri, because consumers like the comprehensive results they get when they ask a question.
Quinn said many consumers didn’t even know the feature was on the Samsung phones. It is the Android operating system that customers chose, he said.
The three-judge panel questioned whether the dominance Apple and Samsung have should be a factor in the analysis.
“This is a two-horse market,” said Circuit Judge Jimmie Reyna. “It’s a two-horse and several ponies market.”
The Galaxy Nexus has remained on the market as Samsung appeals the order to the Federal Circuit, which specializes in U.S. patent law. The panel gave no indication yesterday when it would rule.
The Galaxy Nexus is the first phone to run on the Ice Cream Sandwich version of Android, the most popular platform for mobile devices. Mountain View, California-based Google, in an Aug. 3 filing with the Federal Circuit, said Apple shouldn’t be entitled to a ban on a smartphone based on allegations involving a single feature.
The patent relates “at best, to a very minor aspect of the Galaxy Nexus phone’s overall functionality which was never shown to drive sales,” Google wrote.
Modern smartphones have thousands of features, and if patent owners can block products based on a single invention, all of the devices would be vulnerable to such orders and “the design and manufacture of similarly complex technological marvels would become economically infeasible,” Google wrote.
Sprint Nextel Corp. (S), which sells the Galaxy Nexus, said in a court filing that a ban “harms Sprint’s substantial investment in its device portfolio” that can’t be filled for nine to 12 months.
“It impacts the inventory of thousands of downstream distribution points and it tarnishes Sprint’s reputation,” Sprint said, calling itself an “unwitting victim” in the legal battles over smartphones.
Samsung, which also counts Apple as its biggest customer for phone components, began selling its first Android-based smartphone in 2009. The Galaxy Nexus, first sold in December, is used to market all of Samsung’s phones and build brand awareness, Apple said.
Apple said this is a critical period in the market as consumers switch to smartphones in increasing numbers. The smartphone market grew 62 percent last year and accounts for $219 billion of the total $312 billion mobile-phone market, according to data from Bloomberg Industries.
Apple has been gaining ground in the U.S., with 33 percent of the U.S. market, according to research firm Strategy Analytics. Phones that run on the Android operating system captured 56 percent of the market in the second quarter, down four percentage points, the researcher said July 30.
Customers who buy a particular phone tend to stick with that operating system, even on other devices, Perry said. A lost iPhone sale also means less Apple revenue for things such as applications and accessories, he said.
Circuit Judge Kimberly Moore, who said she loves the Siri feature on her iPhone, urged both sides to ratchet down the tone of their court filings.
“All this mudslinging and rhetoric -- I didn’t want to read it,” she said. “I don’t know who drives the mudslinging, the lawyers or the clients, but it turns off the judges.”
The case is Apple Inc. (AAPL) v. Samsung Electronics Co., 12-1507, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court Galaxy Nexus case is Apple Inc. v. Samsung Electronics Co. Ltd., 12-cv-00630, U.S. District Court, Northern District of California (San Jose).
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