Tuesday, August 28, 2012

Lessons from the Apple v. Samsung patent infringement case

In a landmark case Apple was awarded $1.049 billion in damages by the jury examining the case. There are two important perspectives in this case - First is to calculate the money gained by Samsung in infringing the patents and the money lost through this lost suit. Second is the long term impact on their market share.

Apple had made Samsung an offer of $30 per handset and $40 per tablet as a licensing fee to use its patent. Experts say this would've roughly cost  Samsung $250 million dollars in 2010. So clearly considering that Samsung has to pay four times this amount in damages due to patent infringement does not indicate that it was a wise decision. WSJ reports

Apple said, it iwas willing to offer a 20% discount to Samsung if the Korean tech giant agreed to cross-license its technology to Apple.
Assuming an unsubsidized price of about $600 on a handset, $30 would amount to a royalty rate of about 5%. Payments under the proposal would have come to roughly $250 million in 2010, Apple calculated. Without the discounts, Samsung would be asked to pay $288  million.
But infringing patents and copying the features of Apple did make Samsung the #2 mobile company. Not a bad deal! Considering it outdid RIM and Nokia it is indeed not a bad deal.

In the U.S. market it will take a lot of time for Samsung to launch new phones. Its reputation too has taken a hit. So clearly from a long term perspective Samsung's path of "adopting technology" hasn't really gone well. After the verdict, the stock price of Samsung fell by almost 7% indicating a temporary loss in confidence in the firm.

Google's Android will have to find out alternatives for pinch-to-zoom, rubber band effect during scrolling and double tapping to zoom features on this platform. The use of Android and the loss of this law suit will be a deterrent for other smart phone manufacturers to use Android.

Lessons: For start-ups in a competitive environment the value of patents is very clear. Kravets points out in his article that, "patents in the U.S. are incredibly valuable, and will continue to be valuable for the foreseeable future. Two, if you believe your technology holds any value, it is probably valuable enough to protect it through intellectual property rights. This is especially true where a startup is operating in a crowded space and producing innovations that may only be improvements over a competitor’s existing products or designs." 

Finally investing in innovation is not a bad deal at all. This law suit should encourage innovation and should lead to higher investment by firms in innovation.