Samsung Electronics Co. (005930) lost the first round of a U.S. trade case brought by Apple Inc. (AAPL), its second big defeat this year in America as the companies battle worldwide over smartphone and tablet computer technology.
Samsung infringes four patents, including one for the front face of the iPhone and one for touch-screen technology co- invented by Steve Jobs, U.S. International Trade Commission Judge Thomas Pender said in a notice yesterday on the agency’s website. The judge’s findings are subject to review by the full commission, which has the power to halt products at the U.S. border and is scheduled to finish its investigation by Feb. 25.
The case is one of more than three dozen between the makers of about half of the world’s smartphones. Samsung, which lost a $1 billion jury verdict in August against Apple, is challenging a different ITC judge’s findings that its own patents weren’t infringed by Apple. The Korean company has had more success in other countries, including a victory yesterday in The Hague.
“People see what’s happening in the other countries, but here in the U.S., every time they go up against Apple, they lose,” said Will Stofega, a program manager at Framingham, Massachusetts-based researcher IDC. “Samsung will continue to fight. In the long run, this cult of Apple may not be a good thing to have.”
The judge’s findings will become public after both sides get a chance to redact confidential information. If the commission agrees with Pender and orders a halt on imports, the action would be reviewed by the U.S. president, who can overturn the ban on public-policy grounds. An appeals court would review the overall case.
“If left to stand, this initial determination could lead to fewer choices, less innovation, and potentially higher prices for the American consumer,” said Adam Yates, a U.S.-based spokesman for Samsung. “We remain confident that the full commission will ultimately reach a final determination that affirms our position that patent law must not 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.”
Kristin Huguet, a spokeswoman for Cupertino, California- based Apple, had no immediate comment.
Apple’s iPhone is the top-selling smartphone in the U.S., with 34 percent of the American market in August, almost double Samsung’s 18 percent, according to market researcher ComScore Inc. (SCOR) Samsung is the world leader with more than a quarter of global mobile phones sales compared with Apple’s 17 percent.
The two companies have run up hundreds of millions of dollars in legal bills in their patent disputes. Apple’s lawyers have argued it revolutionized the smartphone industry when it introduced the iPhone in 2007, only to see copycats from Samsung and other companies making handsets that run on Google Inc. (GOOG)’s Android operating system.
At stake is a market that Bloomberg Industries said grew 62 percent last year to $219 billion. More than 1 billion people, or about one in seven people worldwide, had a smartphone in the third quarter, according to an Oct. 17 report by researcher Strategy Analytics. While it took 16 years to reach that milestone, the group estimates that another billion people will have smartphones within the next three years.
“It hasn’t really slowed down Samsung that much -- they continue to do quite well,” said Shaw Wu, an analyst with Sterne Agee & Leach Inc., who has a buy rating on Apple shares. “These companies still have to run their business as usual and almost pretend nothing has happened. It’s going to take several years and hopefully not decades in the courts.”
Among tablet computers, Apple had about 70 percent of the market in the second quarter, compared with 9.2 percent for Samsung and 4.2 percent for Amazon.com Inc. (AMZN), according to IHS ISuppli.
The design patent found to be infringed is for the flat front face with wider borders at the top and bottom and a lozenge-shaped speaker slot above the display screen. The other, in which no violation was found, is for the shape of the phone.
The Jobs patent is being reviewed by the U.S. Patent and Trademark Office to confirm whether it covers a new invention. Also found to be infringed were a patent that covers the translucent images for applications displayed on a screen, and one to detect when headsets are plugged in. A second patent for headset-jack detection wasn’t violated, the judge said.
The trade commission has twice before forced companies to alter foreign-made smartphones if they wanted to keep selling them in the U.S. HTC Corp. (2498) phones were held up at the border in May after Apple won a trade case, and the company has an enforcement action pending that accuses HTC of violating the trade agency’s exclusion order. Google’s Motorola Mobility unit was ordered to remove a feature to coordinate schedules from its phones after it was found to infringe a Microsoft Corp. (MSFT) patent.
Even if the commission were to order an import ban, it would likely give Samsung time to work around the patents to ensure there is no disruption to consumers and carriers, Rodney Sweetland, a patent lawyer with Duane Morris in Washington who specializes in ITC cases, said before the decision.
Samsung has submitted documents to Pender about a way to change its designs to address the dispute, though the papers are confidential so it isn’t known what changes to its phones would be involved. Apple is seeking to block U.S. imports of more than a dozen models of Samsung phones and tablet computers, including Galaxy Tab, Galaxy Nexus, Galaxy SII, and Galaxy Note.
Samsung has had better success outside the U.S. in its legal clashes with Apple. In addition to a non-infringement ruling from The Hague, a Tokyo judge in August ruled that Samsung didn’t infringe Apple’s Japanese patent for synchronizing music and video data.
Apple was ordered to post apologies on its U.K. website for claiming that Samsung’s Galaxy tablet computers copied a design for the iPad when a London court found they hadn’t. A South Korean court in August said both companies had violated each other’s patents on some phones and tablet computers.
Samsung, based in Suwon, South Korea, also got a boost when a U.S. appeals court on Oct. 11 overturned an order that would have prevented Samsung from selling the Galaxy Nexus phone in the U.S. while another Apple patent case is pending. The court said that such orders could be imposed only if the patented invention is something that drives sales, not a single feature of a multicomponent device.
The Apple case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, and Samsung’s case is In the Matter of Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-794, both U.S. International Trade Commission (Washington).
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