The two electronics behemoths, Samsung (KRX: 005930) and Apple (NASDAQ: AAPL), have been litigating a series of patent infringement lawsuits since 2011. Apple had accused Samsung of patent infringement in April 2011, and a California jury agreed in August 2012 that Samsung had infringed on numerous design and utility patents and thus awarded Apple $1 billion. Samsung appealed the ruling, and the US Court of Appeals for the Federal Circuit reduced the amount to $548 million. But Samsung questions whether it should pay the amount when a majority--almost $400 million--would be equal to the total profits that Samsung earned from the various smartphones that infringed on Apple's patents. So Samsung appealed again. On October 11, the US Supreme Court heard oral arguments in the case Samsung Electronics Co. v. Apple. The landmark case weighs intellectual property rights against innovation and imagination.
What are the exact points of contention of the patent infringement? The initial claim made by Apple in 2011 and 2012 was that Samsung had infringed on three utility patents and four design patents--and copied the iPhone's rectangular shape, rounded corners, silver edges, black face, and the display of colorful icons in addition to the design of basic icons, touch interface, and packaging in its Galaxy line of smartphones. In response, Samsung filed a countersuit accusing Apple of infringing on some of its software patents. After a trial, appeal, retrial, and separate lawsuit, the Supreme Court will decide on a design patent case for the first time in over a century.
The central question is not whether Samsung copied certain parts of the iPhone in the design of its phones, but whether it should pay so much--over half a billion dollars. Samsung has argued that the appealed rulings are akin to forcing an automaker that infringed on a cup holder patent to pay the entire profits from the car. In short, its argument is that it is unreasonable under current patent infringement statutes to allow plaintiffs to be awarded an amount exorbitant relative to the actual profits derived from any infringement. To the average investor, the objection makes sense. Awarding Apple more than Samsung's profits from the smartphones that infringed on Apple's patents seems unusual when the patents in question cover inventions like shape, icons, bezels, and appearance. Justice Anthony Kennedy stated during the oral arguments: "If I were a juror, I wouldn't know what to do," alluding to the difficult responsibility of jurors to clearly decide whether infringement occurred and the award amount warranted.
Because the Supreme Court currently only has eight justices, the decision could be tied, in which case the appeals court's ruling would stand. Of course, the bigger picture is the effect on American enterprise and the economy. Supporters of Apple argue that Apple should win so that companies will be deterred from copying intellectual property in consumer electronics and Apple can continue to dominate the smartphone market. But the much better argument is that Samsung should win so that the tech industry can share innovations of product parts and startups can avoid burdensome licensing costs. The public must wait until the summer at the latest to know the resolution of the epic case.
The author does not hold any positions in any of the stocks above.