Apple’s patent victory may be small in larger battle with Samsung

In denying Apple Inc.’s motion to ban sales of some Samsung Electronics Co. products that a jury had determined infringed its smartphone patents, legal observers say a federal judge delivered a potentially troublesome message to the technology giant: These violations are small potatoes.

That might sound odd, considering that a jury in August found the patent infringements serious enough to award Apple $1.05 billion in damages. But U.S. District Judge Lucy Koh made it clear in a ruling this week that the scope of the violations was tiny relative to the enormous number of features contained in a smartphone.

In winning the jury verdict, Apple successfully proved that Samsung had willfully copied several features. But Apple faced a great burden to persuade Koh to issue a permanent injunction against the 26 Samsung products in question. Apple had to prove that the features played a decisive role in why consumers might choose to buy a Samsung phone over an iPhone.

“Apple has simply not been able to make this showing,” Koh wrote.

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That ruling was a surprise to some legal experts and will almost certainly be appealed by Apple. But should it stand, the decision could substantially blunt Apple’s two-year quest to use litigation to tilt the competitive playing field against Samsung, now the world’s leading seller of smartphones.

“The impact is to shift the competition from the courtroom and more into the market,” said Forrester Research analyst Charles Golvin. “The judge wants to let the competition that exists today in the market play out rather than impose any ban on any particular parties.”

In the most recent quarter, Samsung has shown signs of getting the upper hand against Apple. According to Strategy Analytics, Samsung’s Galaxy S III became the top-selling smartphone, besting Apple’s iPhone 4S. Analysts expect those numbers to swing back in Apple’s favor this quarter now that the iPhone 5 has launched.

Still, the competition is intense. Although the case that Koh ruled on involved older Samsung products, legal observers said Apple had probably hoped to use a permanent injunction as leverage to request a preliminary ban on products such as the Galaxy S III that are part of a second lawsuit pending before Koh. That case is not expected to go to trial until 2014.

Apple, which appeared so triumphant back in August when the jury handed it a sweeping victory, declined to comment on the latest twist. Samsung, however, released a statement praising Koh’s decision:

“We are pleased that the judge today denied Apple’s move to limit consumer choice and restrict fair competition in the marketplace.”

To the casual observer, the rulings by the judge and jury might seem contradictory. But Brian Love, a Santa Clara University law professor, said that the $1.05-billion verdict is a monetary award for past damages. At a hearing this month, Apple asked the judge to increase that award as much as $500 million, although comments made by Koh indicated she seemed inclined to reduce it.

The permanent injunction, Love said, is considered to be the much bigger legal fish in such cases, because it is aimed at recasting the dynamics of competition. Such bans can hamper companies by removing their products or forcing them to make changes that render their products less appealing. And that, in turn, creates pressure for a legal settlement.

Mark Lemley, a Stanford Law School professor, said Koh’s ruling on the motion could ripple far beyond this case. Such permanent injunctions used to be almost automatic, before a 2006 U.S. Supreme Court ruling placed some limitations on them. Even in light of those changes, Koh’s ruling potentially raises the bar for a company to prove such a step is warranted, he said.

“If this decision is upheld, it could radically change the calculus of patent suits in the information technology industries,” Lemley said.

Koh’s ruling followed a decision by Samsung to withdraw some requests for injunctions against Apple products in European courts. Several observers, however, said the timing was probably a coincidence and not a sign that either side is about to call a truce or push for a settlement.

Indeed, if anything, Samsung’s incentive to settle was reduced by Koh’s ruling, legal experts said. Even if Koh increases the damages award, the money is pocket change to these goliaths. Samsung had nearly $149 billion in revenue in 2011, while Apple reported revenue of $156.5 billion in fiscal 2012.

Florian Mueller, who blogs and consults about smartphone patent litigation, noted that the damages may not amount to much more than Samsung would have paid to license the patents in question.

“Samsung is not going to give Apple a deal if the only threat is that they have to write a check to Apple,” Mueller said. “Because if that is the only thing Samsung has to fear, then Samsung will happily write the check and keep on cloning Apple products.”

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