Mobile rivals Apple Inc. and Samsung Electronics Co. return to a San Jose federal court Thursday to renew their high-stakes legal wrangling that could ultimately determine control of the red-hot smartphone market.
Samsung wants the court to toss out a $1-billion jury verdict against it for patent infringement. Apple wants to block sales of some Samsung smartphones in the U.S, including the Galaxy S 4G, the Galaxy S II, and the Droid Charge.
The hearing is crucial for both companies as each tries to gain leverage in the fast-growing, $150-billion global market. They are looking to protect a position that can slip away in a nanosecond, as onetime powerhouses such as BlackBerry maker Research in Motion Ltd. learned.
“If you think back a few years, who would have foreseen the shrinking market share of players like RIM and Nokia who were such major players?” said Jed Wakefield, an attorney at Fenwick & West. “Patents give you a powerful opportunity to gain an advantage, but only for a limited window. Companies are willing to fight hard in court for that window of opportunity that patents give them.”
Neither side has been willing to cede an inch of legal ground in any venue, no matter how trivial the issue or how high the legal bills. In addition to the U.S. trial, Apple and Samsung are currently locked in court in several countries, each with an army of lawyers.
“This thing is far from over,” said Brian Love, a law professor at Santa Clara University. “Regardless of what happens on Thursday, it doesn’t seem like these parties are anywhere near settling things.”
Both sides worry that any unfavorable ruling, no matter how minor, will be used against it in another venue.
“Each party is afraid that if they give up something somewhere, it will end up hurting them against another defendant or in another case in another jurisdiction,” Stanford law professor Mark Lemley said.
Apple and Samsung declined to comment on the litigation.
It’s no coincidence that the fight over smartphone patents has exploded in the last few years. Although the smartphone market began to take shape with products such as the Palm Treo, it was really the arrival of the iPhone in 2007 that pushed the gadgets into the hands of mainstream users.
And while sales of smartphones seem to be in the stratosphere, large portions of the market are still untapped. According to a report released this week by Mary Meeker, a partner at venture capital firm Kleiner Perkins Caufield & Byers, there are 5 billion mobile phones in use, but only 1 billion are smartphones.
As the smartphone market has grown in size, so too has the scope of the mobile patent litigation, which is now significant enough that observers speak of it in historical terms. They compare it to previous epic patent battles over products such as medical stents last decade, when years of legal wrangling led to billion-dollar verdicts and mergers that reshaped an industry, or similar legal squabbles among semiconductor companies in the 1980s.
Like those clashes, the legal fight over smartphones seemed inevitable to people in the field of intellectual property litigation. Take an innovative product in a fast-moving market, throw in huge players with bottomless bank accounts, and it becomes unavoidable that they will use patents as a weapon to gain the higher ground against rivals.
“Where they arise is in these markets with big, big amounts of money at stake,” said Christopher Barry, who researches intellectual property litigation for PricewaterhouseCoopers. “And when there’s so much money at stake, companies invest a lot in IP, not only in procuring it, but using it to the best of their advantage.”
Although the iPhone may have ignited this feud, it was two big, more recent events that took the patent wars to a new level of hostility.
In July 2011, a consortium that included Apple, Research in Motion, Microsoft Corp. and Sony Corp. bought the 6,000 patents held by Nortel Networks Corp. for a tidy $4.5 billion. A month later, the loser in that bidding war, Google, turned around and acquired Motorola Mobility for $12.5 billion, in part because it hoped its 17,000 patents would protect its Android mobile operating system from lawsuits.
To put the smartphone patent wars in perspective, Lex Machina Inc., a Silicon Valley start-up that’s developing data tools to analyze intellectual property litigation, says that from 2006 to 2011, the number of smartphone-related lawsuits filed more than quadrupled, from 24 to 103. While those numbers might seem small, the growth of smartphone patent lawsuits outpaced the overall growth of patent lawsuits, which rose to 3,544 in 2011 from 2,574 in 2006.
“The case is astoundingly complex — the biggest complex of patent suits at least in the last 90 years,” Lemley wrote in an email.
The Apple versus Samsung case has received tremendous attention, in part because these two companies have emerged as the top two rivals in the global smartphone market. Also, the lawsuit seemed to offer the prospect of a decisive blow that might provide some legal clarity to the tangled web of smartphone litigation that has sprawled across the globe.
Instead, the fight remains fierce. Just last week, a string of cases from far-flung jurisdictions added to the drumbeat of decisions that only seemed to further muddy the question of who had the advantage. Apple won a ruling in a Dutch court to block sales of some Samsung Galaxy products. But it lost in Britain, where a judge ordered Apple to take out ads in local newspapers apologizing for accusing Samsung of copying its products.
In fact, despite all the attention on this case, it largely involves products that are fairly old. Of the 20 gadgets that were part of the original lawsuit, Samsung now sells only eight. There is a separate lawsuit working its way through court that covers Apple’s claims against a host of newer Samsung products.
“The wheels of justice turn very slowly compared to product life cycles,” Love said.
What’s most surprising to observers is not the fury of the smartphone patent wars but the public interest they have generated. When such fights erupted in the past over products such as medical implants or semiconductors, the stakes and the markets were also potentially huge. But the product did not touch consumers as directly as smartphones do.
“Consumers are changing these devices so fast,” said Jim Elacqua, head of the patent litigation practice at Skadden, Arps, Slate, Meagher & Flom in Palo Alto. “People are discarding these phones, good ones, in a year to get the latest. The consumer is really on top of this market.”