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On The Apple vs. Samsung Decision…

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    August 28, 2012

    Apple’s victory over Samsung appears… extreme.  Since I’m not a lawyer, I can only give my layman’s opinion which is likely worth about what you paid for it.  Nonetheless, it appears as if the the opinion will be under attack by Samsung shortly (reference Legal analysts suggest Apple-Samsung verdict may not be safe). Whether that attack will be successful is unknown.

    Potential Grounds For Reversal?

    The jury form was apparently inconsistent, and Samsung’s lawyers apparently anticipated such, as can be seen by this motion found on Grollaw:

    Late in the process yesterday at the Apple v. Samsung trial, when the parties and the judge were reviewing the jury verdict form, Samsung noticed that there were, indeed, inconsistencies in the jury’s verdict form, a possibility Samsung anticipated [PDF]. Here’s the jury’s Amended Verdict Form [PDF], amended to fix the mistakes. Here’s the original [PDF]. Here’s the note [PDF] the jury sent to the judge when told to fix the inconsistencies. What are they, they asked? “Please let the jury know,” they wrote in the only note ever sent in their deliberations, “of the inconsistencies we are supposed to deliberate on.”

    In two instances, results were crazily contradictory, and the judge had to have the jury go back and fix the goofs. As a result the damages award was reduced to $1,049,343,540, 1 down from $1,051,855,000. For just one example, the jury had said one device didn’t infringe, but then they awarded Apple $2 million for inducement. In another they awarded a couple of hundred thousand for a device they’d ruled didn’t infringe at all. This all was revealed by The Verge in its live blog coverage:

    The jury appears to have awarded damages for the Galaxy Tab 10.1 LTE infringing — $219,694 worth — but didn’t find that it had actually infringed anything….A similar inconsistency exists for the Intercept, for which they’d awarded Apple over $2 millionIntercept: “The jury found no direct infringement but did find inducement” for the ‘915 and ‘163 utility patents. If a device didn’t infringe, it would be rather hard for a company to induce said non-existant infringement.

    Also according to The Verdict site (by way of Groklaw)

    While the nine jurors in the Apple v. Samsung trial are busy working their way through the verdict form [PDF], trying to keep straight all the instructions they were read yesterday, I want to show you something that speaks to the issue of fairness, or lack thereof, in the trial. Reading two recent orders in the case will give you a clue, I think, as to why Samsung’s lawyer, John Quinn of Quinn Emanuel, earlier dramatically said what he did to Judge Koh, after Samsung was not allowed, once again, to present evidence because it was allegedly “too late”, “Why even have a trial? What’s the point?” He was saying in effect that Samsung wasn’t being treated fairly.

    Was he right? We get a window into the matter, because we have now both the order [PDF] by the magistrate judge denying Samsung’s request for an equal adverse inference order against Apple on the purported grounds that it was too late to file it, and the order [PDF] that overruled it by the presiding judge, the Hon. Lucy Koh. She wrote that it was “contrary to law” to hold it was untimely. And besides, there was a question of fairness:

    It is only fair that the same standard of analysis be applied in adjudging the merits of Samsung’s motion as was applied to Apple’s.

    Finally, she decided that the sanction language he had earlier chosen against Samsung had been too harsh anyhow. So she has, to her credit, righted that wrong. Although Judge Koh appeared annoyed in the moment, I think when Quinn stood up and publicly said what he did, it may have caused her to think more deeply about whether or not this trial *was* being fairly handled by one and all. In at least this issue, the answer is that it was not. And it’s a fairly egregious example. So let’s take a look. For sure, if Samsung loses, this issue is going to resurface, I would think, in the inevitable appeal.

    It gets worse, more from Groklaw:

    If the jury instructions [PDF] are as long and complex as they were in this case, a quick verdict can indeed mean it shirked its duty. For example, if the jury rushed so much it assigned $2 million dollars to Apple, and then had to subtract it because there was no infringement, it raises a valid question: what was the basis for any of the damages figures the jury came up with? If they had any actual basis, how could they goof like this? Was there a factual basis for any of the damages figures?

    Time will tell, but keep in mind that one of the plays you’ll see next will likely be a Rule 50(b) motion by Samsung, and that’s the one where you ask the judge for various relief on the basis that no reasonable jury could find what it did find on the evidence presented. Here’s Google’s still pending Rule 50(b) motion for judgment as a matter of law in the Oracle v. Google case, to give you an idea of what they look like. As you can see, you can ask for victory across the board or just on one part of what the jury decided.

    This story is far from over, in other words, and while Apple’s CEO, Tim Cook, waxed philosophical about the trial, and saying that it was about values, not money, one important US value is that the jury fulfill its responsibilities, one of which is to read and make sure they understand and follow the jury instructions they are given. I believe Cook would agree that trials are supposed to be fair, with everyone doing their part. If this jury thought they knew the right result without instructions, and if they hurried so much they made glaring mistakes, and they did, and all in Apple’s favor, something isn’t right in this picture. As the legal blog, Above the Lawexpressed it:

    Here’s the thing, ladies and gentlemen of the Apple v. Samsung jury: It would take me more than three days to understand all the terms in the verdict! Much less come to a legally binding decision on all of these separate issues. Did you guys just flip a coin?

    If it would take a lawyer three days to make sure he understood the terms in the form, how did the jury not need the time to do the same? There were 700 questions, remember, and one thing is plain, that the jury didn’t take the time to avoid inconsistencies, one of which resulted in the jury casually throwing numbers around, like $2 million dollars for a nonfringement.

    Come on. This is farce.

    It literally appears that the Jury glanced over prior art deliberation at the behest of the jury foreman who held a related patent himself. This is getting stick already, as per CNet, who interviewed a juror:

    The decision was very one-sided, but Ilagan said it wasn’t clear the jurors were largely in agreement until after the first day of deliberations.

    “It didn’t dawn on us [that we agreed that Samsung had infringed] on the first day,” Ilagan said. “We were debating heavily, especially about the patents on bounce back and pinch-to-zoom. Apple said they owned patents, but we were debating about the prior art [about the same technology that Samsung said existed before the iPhone debuted]. [Velvin Hogan] was jury foreman. He had experience. He owned patents himself. In the beginning the debate was heated, but it was still civil. Hogan holds patents, so he took us through his experience. After that it was easier. After we debated that first patent — what was prior art –because we had a hard time believing there was no prior art, that there wasn’t something out there before Apple.

    “In fact we skipped that one,” Ilagan continued, “so we could go on faster. It was bogging us down.” …

    “Once you determine that Samsung violated the patents,” Ilagan said, “it’s easy to just go down those different [Samsung] products because it was all the same. Like the trade dress, once you determine Samsung violated the trade dress, the flatscreen with the Bezel…then you go down the products to see if it had a bezel. But we took our time. We didn’t rush. We had a debate before we made a decision. Sometimes it was getting heated.”

    From a layman’s perspective, a mistrial or a thrown verdict may be in the making. Also from Groklaw (I encourage my readers to visit this site due to its heavy reliance on documented fact and relevant industry links):

    Update 2: Dan Levine of Reuters has some words from the foreman:

    “We wanted to make sure the message we sent was not just a slap on the wrist,” Hogan said. “We wanted to make sure it was sufficiently high to be painful, but not unreasonable.”Hogan said jurors were able to complete their deliberations in less than three days — much faster than legal experts had predicted — because a few had engineering and legal experience, which helped with the complex issues in play. Once they determined Apple’s patents were valid, jurors evaluated every single device separately, he said.

    Now the jurors are contradicting each other. Lordy, the more they talk, the worse it gets. I’m sure Samsung is glad they are talking, though. Had they read the full jury instructions, all 109 pages [as PDF], they would have read that damages are not supposed to punish, merely to compensate for losses. Here’s what they would have found in Final Jury Instruction No. 35, in part:

    The amount of those damages must be adequate to compensate the patent holder for the infringement. A damages award should put the patent holder in approximately the financial position it would have been in had the infringement not occurred, but in no event may the damages award be less than a reasonable royalty. You should keep in mind that the damages you award are meant to compensate the patent holder and not to punish an infringer.

    The same instruction is repeated in Final Jury Instruction No. 53, in case they missed it the first time. Did they obey those instructions? Nay, did they even read them? The evidence, judging by the foreman’s reported words, point the wrong way.

    How the actual product market will react?

    Samsung still has some life left in the product that may be banned in the US, (to a greater extent the S2 phone, and a lesser extent the 10.1 tablet). As quoted from Bloomberg:

    Injunction Chances

    “We expect there is a two-thirds chance of an injunction against Samsung products,” Peter Misek, an analyst at Jefferies & Co. Inc., wrote in an Aug. 26 report.

    Samsung’s schedules for introducing products won’t be affected by the verdict, James Chung, a Seoul-based spokesman for the company, said by phone on Aug. 25.

    The global lineup for the rest of this year includes the next version of the Galaxy Note, which sold more than 10 million units in less than a year. The company began selling a tablet edition of the Note this month, following the May release of the Galaxy S III, the newest version in its bestselling smartphone series.

    Samsung, which has gotten around other sales bans by modifying some product features, has sought to differentiate its products since the global patent fight with Apple began last year, and the design and feature of the Galaxy S III may be distinctive enough to avoid a ban, Seo said.

    More Revenue To Be Gained From The S3 Phone Than To Be Lost From The S2 Ban

    While the loss of revenue from the Galaxy S2 will be regrettable since that device has yet to see its nadir in the market, the more uniformly distributed S3 phone should be a revenue geyser. It is being distributed across all major and many minor carriers and even pre-paid (MVNO) carriers with now physical customizations and modifications. It is (finally) seeing marketing muscle that can challenge Apple in awareness, and it is selling very, very fast.

    Apple’s Symbiotic, Incestuous Relationship With Its Vendors/Competitors Should Yield Interesting Results Should This Verdict Not Be Overturned

    Let’s not forget what you see if you rip open an Apple iPhone or iPad… You see a bunch of Samsung manufactured parts. Should Samsung truly feel pressure from a revenue perspective from this loss, it will invariably up the prices of the parts it sells to Apple. This is not only a justifiable business move, it invariably raises the prices of iPhone/iPad products and/or decreaes Apple margins (there goes thatmargin compression theory again). Due to Apple’s outstanding success and extreme sell through rate, it has very, very little choice in where it sources its parts from. Samsung, who is also Apple’s biggest competitor, is basically the only game in town – save LG. Guess what Samsung and LG have in common?

    Apple is Samsung’s largest customer, even as they compete to sell phones that allow users to surf the Web and play games, and as they fight in courts on four continents over patent infringement claims. Apple accounts for about 9 percent of Samsung’s revenue, making it the company’s largest customer, according to data compiled by Bloomberg.

    Be aware that the margins on Apple’s tablets have already compressed, and expect the same from the upcoming iPhone 5 (Apple deftly managed to sell deprecated hardware passed its competitive tech life cyce, thereby benefiting from inflated margins off of said product). The reason Apple’s corporate margins have been increasing is due to the mix of gross sales tilting heavier to the iPhone and to a much lesser extent the iPad as compared to notebooks/desktops/peripherals. Notice during both the earnings misses in the past year, corporate margins dropped as iPhones made up less of the revenue mix.

    This may grant Apple a reprieve to catch up in the tech race, for its mainstay product is drastically and dramatically behind the curve technology and capability-wise.

    • Samsug Galaxy S3 vs iPhone 4s: This is an unfair comparison with the iPhone 5 coming out in a few weeiks, but the iPhone 4S is simply not in the running.
    • Samsug Galaxy S3 vs iPad with Retina Display: I was in the NYC flagship store yesterday, and surprisingly enough, streaming 1080p HD YouTube videos, the Samsung phone literally blew away the brand new iPad with Retina Display (marketing speak for hi res screen).  The comparison was not even close enough to warrant a debate. This brings me pause as to whether Apple will be able to compete with S3 upon the launch of the iPhone 5. Not only is it expected to have only a 4 inch screen, but it will invariably adopt the hi res, iPad screen tech. I invite anyone with an S3 or (Galaxy Note) to stream 1080p HD content onto the top of the line iPad and your devive simultanesouly to see where I’m coming from.
    • Samsug Galaxy S3 feature and performance will need to nearly be matched by Apple – somthing that it never had to do before. Of course, the Apple marketing momentum will ensure mucho sales, but the hyper-growth component is the question. Will Apple be able to pull it off? The iPhone 5 launch is probably the most important and critical product launch in the history of Apple…
    • As for this being a big break for the other players, outside of Motorola (due to Google’s acquisition) and HTC, I don’t think there’s much of a reprieve. Samsung has released a far surperior product and has finally learned how to market it (although it is still not doing as good as job as Apple does). Nokia is still dead in the water until it can show and prove with Windoes (mobile) 8. You all know how I feel about RIM (see Hindsight Is 20/20, And As Luck Has It Our Foresight On Research in ) from way back in 2009.




    Images: Flickr (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record