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Apple v. Samsung — Who’s the Big Loser Here?

The worldwide patent litigation between Apple Corporation and Samsung Electronics is a perfect illustration of the “lose-lose” nature of high-stakes IP litigation.

While the headlines have focused on the $1 billion U.S. jury award Apple won at the end of August, in the long run Apple may turn out to have been a loser in this struggle as well.

Some brief history.

Apple and Samsung are long-time business partners. Samsung holds many patents on touch screen technology. It supplied screens for the iPod and iPhone. Samsung still makes the touch screen for Apple’s iPad tablet computers. It won the contract earlier this year, despite the smartphone litigation, when other companies were unable to meet Apple’s technical requirements for larger screens. Samsung also makes the chips that power the iPhone and iPad.

Just days before the US jury decision in August, a court in Korea ruled that both Apple and Samsung had infringed each other’s patents, but awarded only nominal damages because there was no possibility any consumers could have confused one company’s products for the other’s.

The Korean court found that Apple had violated two of Samsung’s wireless technology patents, while Samsung violated one of Apple’s technology patents. The icons Samsung uses on its devices do not violate Apple’s design patents, the court decided.

Throughout 2011 and 2012, parallel cases in Japan, Europe, the UK and Australia have resulted in wins and losses for both companies on many of the same technical and design claims. Each of them has sought injunctions to block sales of the other’s products.

In the latest US case, the jury decided that some, but not all, Samsung products infringed Apple’s utility and design patents. It also upheld Apple’s “trade dress” claims relating the look-and-feel of some, but again not all, iPhone products.

The jury found Apple did not infringe Samsung’s utility patents. But it did side with Samsung over Apple’s antitrust claims relating to technical standards.

Samsung – and many commentators – predictably said the decision was a win for Apple but a big loss for consumers. Apple claimed complete vindication, but I think the verdict is still out on that front. Despite the headline-grabbing damage award, Apple did lose some of its claims and may be vulnerable to Samsung and other competitors in some areas.

Appeals in this case will likely drag on for years. Meanwhile, a separate case between Apple and Samsung over other telephone technology is also working its way through the US courts. There may be another big trial over these claims in 2014. And the latest development in September saw speculation that Samsung would launch yet another lawsuit against Apple over the new iPhone5.

For Apple, all of this litigation may have opened the door to more competition. Until now, many smartphone makers were content to simply follow in Apple’s footsteps. This made Apple the de facto standard for smart phones. Witness the beatings RIM and Nokia have taken in the marketplace.

In many ways, all of this copying favoured Apple. No one lined up all night to get the latest Samsung Galaxy, the way they did for the iPhone. Now, everyone will be forced to come up with new innovative designs and, sooner or later, someone will come up with the next greatest thing.

For Apple, the other negative effect of this case and others like it is that every time a court finds against Apple on any of its claims, even those that are not very significant in the grand scheme of things, Apple loses just a little bit of its magic.

Apple clearly knows this. Reports published before the US trial began this summer indicated that Apple and Samsung had met several times earlier this year to attempt to mediate a solution to the litigation. The mediation failed, the reports said, because the stakes were simply too high for both companies.

In my opinion, the stakes were too high for both not to settle. But that’s not the Apple business culture. Apple has gone down this road before, when Steve Jobs refused to license the original Macintosh graphical user interface to Microsoft, forcing Bill Gates to develop Windows. We all know how that turned out.

Apple will almost certainly have to make some sort of deal with Samsung. First, they have a bigger business relationship to protect, despite Apple’s recent efforts to find alternate sources for critical chips and screen components. Second, they may want to make a common front against other competitors.

Finally, the Apple/Samsung litigation is widely seen as a proxy for a much bigger fight between Apple and Google. In mid-August, Google’s Motorola unit filed a new lawsuit against Apple with the U.S. International Trade Commission. Motorola is trying to stop Apple from importing the iPhone, iPad, iPod Touch and other products to the United States. This is just the latest in series of patent skirmishes between Apple and Motorola, but it’s the first new move since Google acquired Motorola in February 2012.

Reports at the end of August that Google CEO Larry Page and Apple CEO Tim Cook have held at least one direct conversation and plan to talk again in a bid to settle these and other patent disputes are the strongest indication yet that all of the players may be starting to suffer from some litigation fatigue. Expect to see more attempts at mediation over the coming months.

No doubt Apple is seeking to capitalize on the win in the Samsung case. $1 billion can buy a lot of settlement leverage. But, at the end of the day, that may be just about how much everyone will have spent in legal fees in all of these cases.

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