Apple v Samsung: Can anyone land the killer blow?

For the past two years, Apple and Samsung have been brawling in a bout that has captured the world’s imagination. As the two companies have fought to dominate the global smartphone and tablet markets, the stakes of winning in patent cases and pushing back the opponent have become increasingly high. The tech rivals have jabbed and hooked each other for 10 rounds—rumbling in 10 jurisdictions, from the US to South Korea, the UK to Japan.

Neither party has managed a knockout blow. In August 2012 Apple celebrated after a Californian court ordered Samsung to pay $1.05 billion for infringing six patents. Since the ruling, the same court has denied Apple a US injunction—which could have the potential to floor Samsung—and other courts, including in the UK, have rejected Apple’s claims that its rival has wilfully infringed its IP.

With neither side able to finish off its opponent, the big talking point in the patent industry is when will the companies shake hands and settle out of court. Jim Kulbaski, partner at Oblon Spivak in Virginia, says this is unlikely to happen within the next year because it must not be forgotten that Apple’s late co-founder, Steve Jobs, vowed to destroy the Android operating platform. which Samsung uses for its phones and tablets.

“You need to understand the history of this dispute. Apple and Steve Jobs strongly believe that there was copying and they will be satisfied only by the removal of Samsung’s products from the market. Based on this history, I cannot see a settlement occurring soon,” says Kulbaski.

Rodney Sweetland, partner at Duane Morris in Washington, DC, adds that neither party has traction in the form of either an injunction or an exclusion order from the International Trade Commission (ITC) that is going to stick. “Until that happens, there will be no incentive to finish the negotiations.”

Both attorneys highlight a current case at the ITC—a quasi-judicial federal agency in Washington, DC, with the power to block imports of goods infringing patents or trademarks—as one that could yield an injunction in 2013.

In a preliminary ITC ruling in October 2012, administrative law judge Thomas Pender backed Apple in a row over six patents. He said four of Samsung’s phones infringed four patents—and recommended an import ban. The decision must still be approved by a six-person ITC commission, whose decision can be challenged at US Court of Appeals for the Federal Circuit. The commission, sitting at the top of the agency, aims to rule on the complaint by March 23.

“Samsung really is in the cross-hairs here,” says Sweetland, “but it has already developed a ‘workaround’ [to avoid infringement]. With the exception of the case in California where it was a product design case, most of the companies’ disputes involve patents covering computer functionalities. Those, by and large, are gimmicks, so they’re not usually essential to the phone. They are something that can be worked around.

“It is much easier to do that than with hardware. If it’s hardware that the patent reads on, it’s harder to design a workaround. Even when one side gets to a position where it can push the other to the point where it might get an injunction or ITC order, if it can work around it with a software fix then the other side loses traction again.”

The upshot of all this is that even if Apple were to secure an import ban in its biggest smartphone market, the US, the impact may be only minimal. Samsung’s new (and therefore future) products are unlikely to infringe the already violated patents in the case. An ITC order would probably affect only a handful of older products.

Apple’s hand may also be weakened by a ruling from the US Patent and Trademark Office (USPTO) in October 2012 that tentatively invalidated its so-called ‘bounce-back’ patent, which covers the bouncing motion that takes place when a user scrolls past the end of a page, and is one of the six patents Samsung infringed in the ruling in August last year.

With a ground-breaking ruling unlikely to emerge in the near future, many attorneys believe that the companies, despite their obvious bitter rivalry, will have to negotiate and end the litigation. It is just a question of when.

“In my mind, the companies are likely to settle because Apple’s patents are very narrow and Samsung will always be able to avoid infringement by changing its designs. I have not seen any single patent that is absolutely earth-shattering and would shut down every smartphone out there. These are very small features that can be altered or removed if necessary,” Kulbaski says.

“Further, the validity of Apple’s patents is being questioned by the USPTO in re-examination proceedings. Samsung is in a position in which it does not have, and should not agree, to stop selling its software.”

Says Sweetland: “A settlement has to happen. Whether it’s this year or next, I can’t say.”

“THE COMPANIES ARE LIKELY TO SETTLE BECAUSE APPLE’S PATENTS ARE VERY NARROW AND SAMSUNG WILL ALWAYS BE ABLE TO AVOID INFRINGEMENT BY CHANGING ITS DESIGNS.”

He adds that when it does arise, a settlement will have two components: a cross-licensing deal and a monetary payment to whomever is in a more dominant position in the litigation. “My instinct is that Apple has been getting the better of the game so far, so it will probably get the cash out of this deal from Samsung. But whoever gets the first injunction that sticks will be in a position to extract the payment.”

Apple has recent form when it comes to settling out of court with an Android platform-user. In November 2012 it settled with HTC in a deal of which few details were revealed, other than the dismissal of a series of lawsuits and the creation of a 10-year licensing agreement. Kulbaski notes that the HTC settlement has not affected any of the other smartphone manufacturers or their litigation, so an Apple-Samsung settlement would not likely have much effect on the battle between Apple and Google-owned Motorola.

“Apple would almost definitely write the Samsung settlement licence in such a way that would allow it to continue fighting Motorola,” says Sweetland.

“I think the Apple and Google fights will be almost as big as the Apple and Samsung one. Google has made it readily apparent that it wants to expand its business lines, and the acquisition of Motorola [in May 2012] not only gave it a huge patent portfolio but also gave it the chance to get into the product business as well. If Google makes a bid for the product business then Apple has to continue its battle against Google.”

Google shows all the signs of preparing for battle. In 2012, the USPTO granted 1151 patents to the company, a 170 percent increase on the previous year. The search giant now ranks 21st in the list of top 50 patent assignees, according to IFI Claims Patent Services, which represents a jump of 44 places since 2011 and puts it one place ahead of Apple. If a war between the two arises, Google certainly has the ammunition.

“Will Apple v Google have the same worldwide implications, and will the fight be going on in Europe and Asia as well as the US, like you have with Apple v Samsung? Probably not, because Motorola is not the same kind of worldwide player that Samsung is. But in the US IP litigation space, it will be as engaging,” says Sweetland.

Patents aside, Apple has the war chest to continue fighting in court. Hundreds of millions a year in patent litigation fees pale into insignificance for a company that reported fourth quarter revenues of $36 billion and profits of $8.2 billion in 2012.

This means that if and when Apple and Samsung shake hands, other smartphone and tablet users may be anxious about how either company might change its IP litigation strategy.

“The worst thing that could happen to the Nokias of this world is for Apple and Samsung to end their dispute,” says Sweetland. “Nokia uses a Windows platform, not an Android platform, meaning it would be open game on them. Nokia has been sitting on the sidelines, it has a huge patent portfolio and its market share and market capitalisation are both low. So Nokia would be well advised to get into the game. It probably has the ability to monetise its patent portfolio, and the way it will do that is through litigation.

“In 2013 and beyond, we should expect to see an increase in litigation by smaller players in the market,” he adds.

The continuing battles between big tech industry players may be entertaining on the one hand, with judges handing out eye-watering sums for patent infringement, but inevitably they raise questions and concerns about how well the US software patent system is working.

Tacitly acknowledging these worries, the USPTO has kicked off a debate about how to improve the quality of the software patents it grants. Under the Software Partnership, a cooperative effort between USPTO and the software community, industry players are invited to take part in roundtable discussions and suggest what topics the project should cover.

USPTO has already proposed one topic: establishing clear boundaries for claims using functional language, which describe processes but have no corresponding inventions, and wants feedback on it.

Whether this means that there are serious flaws in the US system that require reform is up for debate. “There has been criticism of US software patents since I became a patent attorney in 1992 and it was going on before that,” says Kulbaski. “No patent system is perfect and patent examiners have limited time and limited resources to perform searches. I believe the US patent system is a reasonable one and it serves its purpose.”

Sweetland says the disputes are part of a commercially-driven process, through which the likes of Apple and Samsung are fighting over innovative patents. He is adamant that the conflict is not due to any peculiarities of the US patent system.

In this commercially-driven environment, Apple and Samsung show few signs of tiring as the stakes bearing on each hit become increasingly high. A US injunction or exclusion order would surely hurt the opponent, but may not be enough to land a knockout blow. And even if it did end this bout, there are plenty more challengers waiting to step forward.