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Apple v. Samsung – the Saga Continues

The news, reported in late February, that Apple and Samsung had once again failed to resolve their smartphone patent dispute through mediation did not come as a big surprise. At this writing, the technology giants were preparing to go to trial in California in late March, although there was still some prospect that continuing discussions with the mediator could produce a last minute breakthrough.

Published reports citing court filings stated that company executives met with the mediator in a full-day session, followed by a number of phone calls, without success.

The background of this dispute includes significant wins by Apple in prior rounds of patent litigation with Samsung (which I have commented on previously on Slaw), resulting in almost $1 billion in awarded damages. I’m sure those prior victories did not encourage Apple to settle the current claims relating to newer smartphone technology.

But this litigation remains a high-risk strategy for both companies. If Apple wins, it may get another big money judgment, but even $1 billion pales in comparison to Apple’s January 2014 reported quarterly revenue of $57.6 billion and profit of $13.1 billion. And if Samsung wins, it could invalidate patents on the smartphone technology and open the door to new competitors for both companies. Maybe Samsung thinks it has a big enough market lead that it doesn’t have to worry about new competitors, but I imagine Blackberry – and Nokia before them – thought the same.

And this isn’t the first time that Apple has been embroiled in long-running IP litigation.

For almost three decades – 1978 to 2007 – Apple Computer was locked in a trademark battle with Apple Corps, the record company founded by the Beatles. A truce was declared in the early 80s, when the computer company agreed not to get into the music business and the record company agreed not to get into the computer business. That lasted until 1989, when Apple added music capability to its computers. There was another settlement in 1991, in which Apple Corps retained the exclusive right to use Apple on any “creative works whose principal content is music”, while Apple Computer retained the right to use Apple on “goods or services… used to reproduce, run, play or otherwise deliver such content”, but not on content distributed on physical media. Then iTunes came along in 2003, and the whole thing blew up again. This time, the case went to trial and Apple Computer won, in the basis that this new use (iTunes) was permitted under the previous settlement agreement. Apple Corps appealed; the parties settled. Apple Computers eventually bought the rights to the APPLE trademark from Apple Corps. and, in 2010, the Beatles catalog was finally added to the iTunes Store.

The irony is that the Beatles immediately became an iTunes best seller, with more than 5 million single song and 1 million album downloads in the first two months, according to published reports at the time.

So, the question remains: why are disputes like this so hard to settle, when there is so much risk in continuing the litigation (Apple Corps was hit with legal costs estimated at £2 million when it lost its case in 2006) and so much to gain from a settlement (a whole new generation of fans paying for songs from the Apple Corps catalog)?

Perhaps, companies like Apple are naturally litigious and would rather fight than settle; or perhaps they are targets for all kinds of litigation (check out the voluminous Wikipedia entry for “Apple Litigation”) and feel that they must vigorously defend their rights. This is not intended to single out Apple for particularly criticism. Many large organizations take the same approach to disputes.

Why should they mediate technology and intellectual property disputes?

Well, one obvious reason is that mediation can open the door to direct communication between senior executives (rather than their legal counsel) and generate new ideas for mutually-beneficial settlement options. For example, Samsung used to be one of Apple’s largest suppliers of touchscreens, before they became direct competitors. If the two companies could work together again to develop new technology and steal a march on other competitors, it would be an obvious win for both of them. This is probably something that was discussed during the recent mediation sessions (very little detail on those sessions has leaked out in the press, other than the fact that they did meet and were still willing to continue talking up to the trial date).

Another reason is to avoid potentially greater harm from continuing the dispute. No-holds barred litigation is fine if you have nothing to lose. For example, a litigant on the verge of bankruptcy or otherwise judgment proof might as well roll the dice. Or if the litigant will almost certainly have to pay some amount in damages, it may be worth delaying the payment as long as possible, even if the cost may be greater in the end. Or if a monopoly or other competitive advantage can be extended by continuing the litigation, even if the litigant ultimately loses. But in almost every other scenario, a negotiated or mediated settlement will be better than litigation, win or lose.

And perhaps the most important reason to mediate is to send a message that the party is acting from a position of strength. Start the litigation to send a message that you are serious; then shift to settlement mode as quickly as possible. The timing of the shift must be consistent with a reasonable prospect for a negotiated or mediated settlement – the other party may not be ready to talk seriously. But when both sides are ready to talk, the one that initiates the discussion is most likely to have the advantage.

It will be interesting to see how the Apple Samsung case plays out. Maybe the parties will be more inclined to settle on the eve of trial, or even after the trial if the decision is appealed – as was the case in the Apple v. Apple case.

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