If Apple sneezes, Samsung catches a cold

Defeat in patent battle is a temporary setback, for the Samsung brand stands to gain

Samsung’s defeat in a bitter patent wrangle with Apple Inc, its smartphone rival and biggest customer, will dent its $21 billion cash pile, but could actually help cement its leadership in the global smartphone market.

A US court has ordered Samsung, which sold around 50 million phones in April-June, almost twice the number of iPhones, to pay $1.05 billion damages, after ruling that the South Korean firm infringed on some Apple patents.

While the verdict was a big win for Apple, the damages are less than half the $2.5 billion compensation it sought, although that could yet be increased by the judge, and are just 1.5 per cent of annual revenues from Samsung’s telecom business.

That phone and tablet business is the powerhouse behind Samsung's growth, earning around 70 percent of total profit. The group had net profit of $4.5 billion in April-June.

Samsung could also see its popular Galaxy smartphone banned from sale in the United States. But its skill as a “fast executioner” - quick to match others’ innovations - would likely mean tweaked, non-patent infringing devices would be on the market soon after any ban.

“Samsung has already made some design changes to new products since the litigation first started more than a year ago,” said Seo Won-seok, an analyst at Korea Investment & Securities. “With the ruling, they are now more likely to make further changes or decide to raise product prices to cover patent-related payments.”

Also, Apple's demands for Samsung to pay it royalty on phone sales could hit rival phones using Android more than it hits Samsung. And, all that publicity from the high-profile US litigation has made Samsung's brand more recognisable.

The California jury had only begun deliberating on Wednesday after a complex weeks-long trial. Friday's verdict on seven Apple patent claims and five Samsung patent claims suggests the nine-person panel had little difficulty in concluding that Samsung had copied some features of Apple’s iPhone and iPad.

It could lead to an outright ban on sales of key Samsung products, with Apple saying it planned to file for a sales injunction within seven days and the judge in the case setting a hearing on September 20.

Because the jury found "wilful" infringement, Apple could seek triple damages.

The US ruling came less than 24 hours after a Seoul court found that while iPhone and Galaxy look very similar Samsung hadn't violated Apple's design.

Samsung issued a defiant response to the US decision, which it called “a loss for the American consumer”, indicating the legal tussle is far from over.

“This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple's claims," Samsung said in a statement.

Based on the damages ruling, Samsung is asked to pay Apple around $10 royalty per phone, a move seen aimed at slowing rival phones that run on Android - which account for more than two-thirds of the global market.

If Apple were to pursue similar legal challenges against other Android manufacturers that could squeeze profit margins as smartphone prices decline in a growing market - reinforcing the dominance of Samsung, one of the few with margins big enough to absorb the extra cost.

Win some, lose some?

Concerns abound over potential reputational damage, the short-term cash hit and impact on billions of dollars of business with Apple had knocked as much as 5 per cent off Samsung's shares this week in the run-up to the verdict. But the stock is still up nearly 50 per cent since Apple filed its accusations.

Samsung has previously bypassed patent rulings with a few engineering tweaks and has also made some bold design changes to differentiate its devices from Apple’s.

“The impact on Samsung will be limited...,” said DJ Jung, representative patent attorney for SU Intellectual Property. “Still, it’s a sweeping loss in the most important market. It's inevitable that Samsung will be affected - it could be perceived as a copycat.”

Even though Samsung’s flagship Galaxy S III phone was not involved in the trial, the jury validated Apple’s patents on features and design elements that Apple could then try to wield against that product.

Seoul-based Jung predicted further appeals and fresh suits against newer products as the rivals continue to clash in court.

“It’s going to be a very drawn-out battle,” he said. “They will keep suing each other, appeal against unfavourable verdicts and bring in new products ... because the stakes are too high. They don't want to lose their initiative in the fast-moving smartphone market.”

Despite, or because of, the publicity from the US case, and more than a dozen pending cases around the globe, the Samsung brand has gained recognition - as an equal to Apple rather than a mere supplier.

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