Apple Against Samsung Over Phones Turns on Who Copied Who

Apple Inc. (AAPL) hasn’t had much to show for its two years of effort to prove Samsung Electronics Co. (005930) “slavishly copied” its iPhone, as its top competitor became the world’s biggest smartphone maker.

Its next chance at putting a dent in Samsung’s sales comes Aug. 9, after a decision was delayed today, when a U.S. trade agency in Washington is to announce whether it will block imports of some of the Korean company’s phones. An import ban on some iPhone 4s starts at midnight Aug. 4 unless President Barack Obama intervenes, while an appeals court hears Apple’s arguments for banning Samsung products in a separate case Aug. 9.

Those three events could alter the balance in the global smartphone-patent battle -- leaving one company in a better bargaining position, continuing the cycle of litigation or forcing both sides to the negotiating table. The fight is for more share of a market that grew 34 percent to $293.9 billion last year, according to data compiled by Bloomberg.

“It is a natural point in the process to consider settlement,” said Nick Rodelli, head of Legal Edge Research at the Center for Financial Research and Analysis in Rockville, Maryland. “If that doesn’t happen, then bargaining positions could change very abruptly based on what happens in litigation, which is inherently unpredictable.”

Photographer: Victor J. Blue/Bloomberg

A person holds a Samsung Electronics Co. Galaxy S4 smartphone, left, next to an Apple Inc. iPhone 5 during an event at Radio City Music Hall in New York. Close

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Photographer: Victor J. Blue/Bloomberg

A person holds a Samsung Electronics Co. Galaxy S4 smartphone, left, next to an Apple Inc. iPhone 5 during an event at Radio City Music Hall in New York.

As it seeks to block Samsung phones from the U.S., Apple is fighting to overturn an International Trade Commission import ban on some of its own devices. Apple could be forced to remove some versions of its iPhone 4s and iPad 2 3G from the U.S. market next week unless the ban is overturned by the Obama administration or put on hold by the courts.

Apple will also ask a U.S. appeals court Aug. 9 to reverse a trial judge’s ruling that’s allowed continued sale of Samsung products that a jury last year said infringed Apple patents.

‘Deliberately Copied’

The ITC delayed a decision it was scheduled to make today on Cupertino, California-based Apple’s claims that Samsung “deliberately copied Apple’s patented designs and technology” for the iPhone and then “undercut Apple’s prices and captured a significant share of the U.S. market.”

Apple and Samsung together make almost half of the smartphones sold in the world, with Samsung holding the title of world’s biggest and the two companies vying to be No. 1 in the U.S.

It’s unclear how an import ban would hurt Samsung. The Suwon, South Korea-based company has alternatively said it can work around the Apple patents to avoid product shortages, and that an exclusion order “could create an immediate shortage of millions of mobile devices.”

No Agreement

The companies have held talks over the past year -- often mandated by the courts or trade agency -- with no sign of an agreement. Samsung’s position as a top supplier of components for the iPhone hasn’t precipitated a détente. Patent lawyers who’ve been following the case say it will take a significant hit against one or the other company to trigger a settlement.

“It’s going to take one thing to get traction and then suddenly people get reasonable,” said Rodney Sweetland, a patent lawyer with Duane Morris in Washington. “Then you can figure out who writes the check and for how much.”

Apple filed the first salvo in April 2011, a month after the company unveiled the iPad 2 in what co-founder Steve Jobs dubbed the “Year of Copycats” after those who sought to emulate the success of the iPhone and iPad.

That case resulted in a San Jose, California jury deciding in August 2012 that more than two dozen models of Samsung devices infringed Apple features like the look of the iPhone, use of a pinching gesture and double taps to zoom into images.

Despite the verdict, the trial judge allowed Samsung to continue selling the products, saying there was no direct link between those features and the reasons people buy smartphones.

Sales Allowed

Apple will argue Aug. 9 before the U.S. Court of Appeals for the Federal Circuit that the ruling allowed Samsung to take U.S. market share and limits the rights of any patent owner whose invention is used in a complex product like a smartphone or computer.

The trade commission has a different standard, looking at economic impact and public interest.

An ITC judge already said some Samsung products infringed four Apple patents, including one for the design of the iPhone. The other three are for a multitouch screen, translucent images for applications displayed on a phone or computer screen and a way to detect when headphone jacks are plugged in.

“If companies like Apple cannot protect the inventions that make their products unique, the result will be rampant copying and harm to the public -- a reduced range of choices for consumers in the marketplace,” Apple said in a filing with the agency.

‘Trivial Features’

Samsung said in an ITC filing that the public interest in protecting patents on “such trivial features as translucent images and rounded rectangles is far outweighed by the harms a broadly worded exclusion order would impose upon consumers and the smartphone market.”

Apple is also looking to avoid disruption to its customers. It has asked Obama and the U.S. Trade Representative to overturn the ITC’s June import ban on some iPhone 4 models on the grounds Samsung is misusing patents in standardized technology used by the entire phone industry. Apple said that Samsung is violating its pledge to license standards patents on fair and reasonable terms.

Samsung, in its own filing, said the ITC rejected that claim and found that Apple was unwilling to license the technology on any terms.

Ronald Reagan was the last U.S. president to overturn an ITC-ordered import ban -- in a case involving Samsung memory chips. If Obama declines to act, Apple can seek a delay from the Federal Circuit, the Washington court that handles all patent appeals.

Sweetland said there’s a good chance the Federal Circuit will put the order on hold since it’s considering a similar issue in September in another Apple case, involving Google Inc. (GOOG)’s Motorola Mobility.

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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