Apple’s $1 Billion Verdict May Lead to Samsung Sales Ban

Apple Inc. (AAPL) won more than $1 billion after a jury found Samsung Electronics Co. infringed six of seven patents for its mobile devices in a verdict that may lead to a ban on U.S. sales of handheld electronics a judge deems to violate Apple’s rights.

Apple won less than half of what it sought in damages in the first lawsuit to go before a U.S. jury in the fight to dominate the global smartphone market, though U.S. District Judge Lucy Koh may later triple the damages against Samsung under federal law. Samsung avoided a finding of damages for antitrust law violations or breach of contract.

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Koh, who presided over the four-week trial, scheduled a hearing next month to consider Apple’s request to make permanent a ban on U.S. sales of Samsung devices including its Galaxy Tab 10.1 computer, as well as to extend the ban to other Samsung products. Jurors in federal court in San Jose, California, found after just three days of deliberations that Samsung infringed three software patents related to its tablet computer and two of those related to Samsung’s smartphones.

“This is a huge victory for Apple,” Mark Lemley, a Stanford Law School professor, said in an e-mail. “The verdict is just large enough to be the largest surviving patent verdict in history.”

“Even more important is the injunction Judge Koh is likely to issue,” Lemley said after the verdict on Aug.24. “The real question is whether this is enough to derail the momentum the Android ecosystem has gained in the marketplace.”

Samsung Counterclaims

The nine-member jury rejected Samsung’s patent counterclaims against Apple, the world’s largest company by market capitalization, and its request for damages. The jury also determined that all of Apple’s patents at stake in the trial were valid. Apple also won findings that Samsung devices diluted the value of its so-called trade dress, or how a product looks. Samsung is the 24th largest company by market capitalization.

After the verdict was read, Koh reduced the damages award by $2 million at Samsung’s request because of inconsistencies in the jury’s findings.

Samsung said in an e-mailed statement it will ask the judge to overturn the verdict. If Koh doesn’t overturn the award, Samsung said it will appeal the case.

Consumer Loss

The “verdict should not be viewed as a win for Apple, but as a loss for the American consumer,” Samsung said. “It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies.”

Samsung said the verdict wasn’t the “final word” in the case or in courts and tribunals around the world.

The verdict is the largest jury award of the year, according to data compiled by Bloomberg. The verdict is the fourth-largest jury award in a patent case in U.S. history.

Apple rose as much as 1.8 percent to $675 on Aug. 24 after the close of regular trading on the Nasdaq Stock Market.

Koh set a hearing for Sept. 20 on Apple’s request for an injunction barring U.S. sales of Samsung products. She ordered Apple to file a one-page chart by Aug. 27 identifying which devices it seeks to ban. Depending on the extent of Apple’s request, Koh said she may change the briefing and hearing schedule.

E-Mail Evidence

Velvin Hogan, the jury’s foreman, said in a phone interview yesterday that the panel relied on e-mails describing Google’s influence to arrive at their decision. The e-mails included an internal 2010 Samsung message describing how Google asked it to change the design of its products to look less like Apple’s.

Jurors went through a “meticulous” process of determining that Samsung infringed Apple’s products, Hogan said. When it came time to determine whether the infringement was “willful,” or intentional, “we knew where we had to go in the evidence,” Hogan said, referring to the e-mails.

The jury’s finding that the infringement was intentional allows Koh to triple the damages when she considers Apple’s request to bar sales of some Samsung products.

“Certain actors at the highest level at Samsung Electronics Co. (005930) gave orders to the sub-entities to actually copy,” Hogan said. “So the whole thing hinges on whether you think Samsung was actually copying. The thing that did it for us was when we saw the memo from Google telling Samsung to back away from the Apple design.”

“The entity that had to do that actually didn’t back away,” said the 67-year-old San Jose resident.

Four Continents

Apple, based in Cupertino, California, sued Samsung in April 2011, and Samsung countersued as part of a battle being waged on four continents over a smartphone market valued at $219.1 billion, according to Bloomberg Industries. The companies have also sued each other in the U.K., Australia and South Korea.

At the San Jose trial, Apple’s lawyers argued that following the introduction of the iPhone in 2007, Samsung experienced a “crisis of design” -- a phrase from an internal e-mail at the South Korean company -- and set about copying the features and look of Apple’s “revolutionary” devices.

Samsung’s attorneys countered that Apple’s innovations were obvious and that its own phones and tablets evolved out of natural competition rather than mimicry.

The jury addressed more than 600 questions in its verdict. 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. Samsung’s demand for as much as $421.8 million in royalties was based on claims that Apple infringed five patents.

Galaxy Tab

Jurors found that Samsung didn’t infringe one patent covering the design of Apple’s iPad tablet computer. Apple’s claims related to that patent specifically targeted Samsung’s Galaxy Tab 10.1.

“There’s a huge gap between the verdict and reality,” said Kevin Restivo, an IDC analyst in Toronto.

“Samsung is not likely to cede the smartphone market leadership to Apple or anyone else in the short term,” Restivo said. “Short of an injunction, meaning no sales of a Galaxy- series smartphone around the world, that’s not going to change.”

Apple said during the trial that at least 28 Samsung products infringed its patents. Jurors were required to specify which of three corporate entities -- the Samsung parent company and two U.S. units -- was responsible for each infringement and the damages Samsung owed for each infringing device.

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.

‘Delight’ Customers

“The mountain of evidence presented during the trial showed that Samsung’s copying went far deeper than even we knew,” Kristin Huguet, a spokeswoman for Apple, said in an e- mailed statement. “At Apple, we value originality and innovation and pour our lives into making the best products on earth. We make these products to delight our customers, not for our competitors to flagrantly copy.”

The patent disputes began when Samsung released its Galaxy smartphones in 2010. Apple co-founder Steve Jobs, who died Oct. 5, initiated contact with Samsung over his concerns that the Galaxy phones copied the iPhone, according to trial testimony.

Supply Links

Samsung and Apple are the world’s two largest makers of the high-end handheld devices that blend the functionality of a phone and a computer. Even as they battled each other in court, they are bound by commercial deals involving component supplies. Apple accounts for about 9 percent of Samsung’s revenue, making it the company’s largest customer, according to a Bloomberg supply-chain analysis.

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, a research firm based in Framingham, Massachusetts.

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.

Two of the Galaxy smartphones that the jury found to have infringed multiple patents -- the Galaxy S and the Galaxy S II - - have been Samsung’s best sellers. Infringement findings were also made against the Galaxy Prevail, the single most popular model in the U.S. from 2010 through the first half of this year, according to shipment data disclosed during the trial.

Google’s Android

Both sides have had legal victories. Apple won a U.S. court order on June 29 blocking sales of Samsung’s Galaxy Nexus smartphone, the first smartphone to use Google Inc. (GOOG)’s Android 4.0 operating system. The product has remained on the market as Samsung appeals the order to the U.S. Court of Appeals for the Federal Circuit in Washington.

In November, Samsung won a battle in an Australian court that allowed customers to buy Samsung’s rival to the iPad.

A Seoul court on Aug. 24 ordered each company to stop selling some smartphones and tablets in South Korea and pay damages after ruling that they infringed each other’s patents.

Apple also won a ruling that day from the U.S. International Trade Commission in Washington that it didn’t infringe two patents owned by Google’s Motorola Mobility unit for wireless technologies in a decision that reduces the likelihood of an import ban on the iPhone.

Trade Commission

The commission didn’t completely resolve the companies’ dispute, ordering a trade judge to reconsider Motorola Mobility’s claim that Apple violated another patent. The judge had previously found no violation of that patent, which applies to a sensor used to determine the proximity of a person’s head to the phone so it doesn’t accidentally hang up.

The commission could have stopped shipments of the iPhone and iPad at the border had it upheld Judge Thomas Pender’s earlier finding that Apple infringed a patent for 3G technology.

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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