Apple Patent Victory Seen Spurring Wider Range of Smartphones

Apple Inc. (AAPL) scored a clear victory in its patent dispute with Samsung Electronics Co. (005930) yesterday, increasing pressure on smartphone makers around the world to create handsets that stand apart from the iPhone and deliver more choices for consumers in a $219.1 billion market.

A jury awarded $1.05 billion in damages yesterday after finding that Samsung infringed six patents for mobile devices, a defeat for Apple’s biggest opponent in smartphones.

The verdict strengthens Apple’s hand as it seeks to discourage Samsung and competitors such as HTC Corp. (2498) and LG Electronics Co. from making devices that mimic the iPhone. While it’s a blow to efforts by Samsung and its software partner Google Inc. to challenge Apple in smartphones, the outcome will probably mean a broader range of devices and more options for consumers as rivals seek to avoid costly legal tussles, said Carl Howe, an analyst at Yankee Group.

“This is a big win for Apple,” said Howe, whose firm is based in Boston. “It’s good for innovation. It says that if you create something new, others can’t just piggyback on it. From a competition point of view, it says create your own stuff. It says copying is not OK.”

Cupertino, California-based Apple would add to its victory over Samsung should U.S. District Judge Lucy Koh, who presided over the trail, decide to ban Samsung mobile devices from the U.S. based on the jury’s findings of infringement. Koh, who could also triple the damages awarded, will consider the injunction request at a later date.

Design Imperative

“The more significant issue is whether or not Apple is entitled to an injunction,” said Colleen Chien, an assistant law professor at Santa Clara University. “If it is, expect to see some new phone designs emerge, quickly -- not only by Samsung but all other handset makers selling designs similar to Apple’s.”

Apple shares rose to as high as $675.94 in late trading yesterday as the verdicts were announced, surpassing the intraday record of $674.88 reached on Aug. 21. The stock had gained less than 1 percent to $663.22 at yesterday’s close.

Apple sought $2.5 billion to $2.75 billion for its claims that Suwon, South Korea-based Samsung infringed four design patents and three software patents in copying the iPhone and iPad. Jurors found infringement by all 21 Samsung devices that Apple claimed had copied its so-called rubberbanding technology, the way an iPad or iPhone screen seems to bounce when a user scrolls to the end of a file.

Innovation Threat

The nine-member jury in San Jose, California, rejected Samsung’s patent counterclaims against Apple and its request for damages. The jury also determined that all of Apple’s patents at stake in the trial were valid.

In light of the verdict, Samsung and other manufacturers will probably need to work harder to ensure that their devices aren’t seen as copying Apple’s, said Kevin Rivette, founder of 3LP Advisors LLC and former vice president of intellectual property strategy for International Business Machines Corp. (IBM)

“It’s a good day for competition,” Rivette said. “You’re going to force competitors to come into the marketplace with new designs.”

Still, tweaks aimed at avoiding copying the iPhone won’t necessarily result in better products as companies put concerns over intellectual property ahead of innovation, Chien said.

“Rather than innovate first, sort out the IP later, which has been the custom in tech, companies will need to be much more mindful of the patent landmines that are out there, and try to avoid or secure rights to them,” she said. “That could literally choke innovation.”

Google Loses

Samsung will ask the judge to overturn the verdict and, if she doesn’t, will appeal the case, Mira Jang, a spokeswoman for Samsung, wrote in an e-mail.

“Today’s verdict should not be viewed as a win for Apple, but as a loss for the American consumer,” Samsung said. “It will lead to fewer choices, less innovation, and potentially higher prices.”

The four-week trial underscores rising stakes in the smartphone market, where sales surged 62 percent last year, according to data compiled by Bloomberg Industries. While Samsung is the leading smartphone manufacturer, Apple’s iPhone is the best-selling single device. Google’s Android operating system is the most used mobile software, with 61 percent share.

The verdict also hands a defeat to Google, which may need to scale back or change features of Android, said Rivette.

“Google is in a position that it didn’t want to be in,” he said.

HTC, Sony

The setback comes at a bad time for some other users of Android, including HTC, which in June cut its sales and profitability forecast for the fiscal second quarter. Google’s Motorola Mobility on Aug. 13 announced a 20-percent staff reduction. Sony Corp. said on Aug. 23 that it’s cutting 15 percent of the workforce in its mobile-phone unit.

Google competitors, including Microsoft Corp. (MSFT), stand to benefit if manufacturers seek alternatives to Android to avoid being sued by Apple, Rivette said.

“Microsoft is a big winner,” Rivette said. “The licensees will start moving away from Android. They’re business people.”

The patent disputes between Apple and Samsung are far from over. A hearing for Apple’s request for an injunction is scheduled for Sept. 20, and the two companies have sued each other in the U.K., Australia and South Korea.

“We’ve seen the first big win in a long battle,” Rivette said.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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