Samsung to pay Apple

After a long battle, US courts have ruled that Seoul-based Samsung electronics will have to pay Apple Inc. over half a billion for patent infringement. Apple’s initial appeal had been for $2.5 billion.

Background

Apple Inc. is one of the most successful multinational technology companies in the world. It was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976 and incorporated in January 1977. It currently designs, develops, and sells consumer electronics, computer software, and online services. Among the company’s most successful products are the iPhone smartphone, the iPad tablet computer, the Mac personal computer, the iPod portable media player, and the Apple TV digital media player. Apple's consumer software includes the macOS and iOS operating systems, and the Safari web browser. Its online services include the iTunes Store, the App Store, Apple Music, and iCloud. The current CEO of Apple is Tim Cook.

The first-generation iPhone was released on June 29, 2007, and there have been multiple new hardware iterations with new iOS releases since. More than 1.2 billion units of the iPhone have been sold over the years. The original iPhone was described as "revolutionary" and a "game-changer" for the mobile phone industry. Newer iterations have also garnered praise, and the iPhone's success has been credited with helping to make Apple one of the world's most valuable publicly traded companies.

Samsung

Samsung was founded by Lee Byung-chul in 1938 in Daegu, South Korea. Initially, a trading company that exported products such as dried fish to China, today, Samsung is a multinational company and the largest South Korean business conglomerate. Samsung Electronics, started in 1969, is a key focus for the organisation. Samsung electronics began by exporting black-and-white TVs to Panama in 1971.

Today, Samsung electronics is divided into three segments: Consumer Electronics (televisions, printers, air conditioners, refrigerators, laundry machines, etc.); Information Technology & Mobile Communications (computers, handhold phones, digital cameras, etc.); and Device Solutions (semiconductor and display parts). In 2017, Samsung was the second largest tech company in the world, according to Forbes. Last year, Samsung earned $174 billion in sales, $19 billion in profit, $217 billion in assets and a market cap of $254 billion.

Analysis

US courts have ruled that Samsung Electronics must pay Apple Inc $539 million over patent infringement. Apple first filed a lawsuit in 2011 alleging that some Samsung smartphones had “slavishly” imitated its products. The design aspects that were plagiarised included the “covering the rounded corners of its phones, the rim that surrounds the front face, and the grid of icons that users view,” according to Bloomberg.

Samsung was found guilty in 2012; however, a disagreement over the damages to be paid continued until this year. Samsung has already paid $399 million to Apple for breaching the patents and would be required to pay the balance of $140 million. Samsung has argued that it should only have to pay damages for the particular parts, and not the entire iPhone. According to this, the payment would have been $28 million.

"We're grateful to the jury for their service and pleased they agree that Samsung should pay for copying our products," Apple said in a statement. "This case has always been about more than money. Apple ignited the smartphone revolution with iPhone and it is a fact that Samsung blatantly copied our design. It is important that we continue to protect the hard work and innovation of so many people at Apple." 

"Today's decision flies in the face of a unanimous Supreme Court ruling in favour of Samsung on the scope of design patent damages," Samsung said in its statement. The company did not say whether it would file an appeal, however it noted, "We will consider all options to obtain an outcome that does not hinder creativity and fair competition for all companies and consumers."  

Kiranjeet Kaur, analyst at research firm IDC told the BBC that the judgement would be a warning to smaller players in the industry to be “more wary of overstepping [patents], especially in markets like the US.”

Bloomberg has estimated that Samsung could be able to pay Apple back in 2 weeks. “Samsung earned $38.9 million in profit each day, or $1.6 million per hour, from sales of its mobile devices based on its most recent quarterly earnings, with a chunk of that coming from sales of its smartphones. That means the single division of the technology giant could pay Apple in about two weeks,” the company noted.

Assessment

Our assessment is that the judgement has not indicated a clear winner in the battle, given that Apple had asked for $2.5 billion in damages. Samsung may make an appeal. However, we believe that the final ruling against Samsung will make an important statement on whether companies should have to pay the total profits of a particular product, if they only infringe on one component of the product.