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Electronics Production | April 19, 2011

Apple sues its component supplier Samsung

Apple is waging an all-out patent war on anything Android. After suing HTC about a year ago and Motorola last fall, Apple has now pointed its legal guns at Samsung. Samsung virtually certain to retaliate.
On Friday (April 15, 2011), it filed an infringement suit with the US District Court for the Northern District of California, Oakland Division, case no. 11-cv-01846. Not only is this significant because it's a much bigger company than HTC and Motorola combined but it's particularly remarkable since Samsung is one of Apple's key suppliers of hardware components.

Also, Samsung is a major patent holder. Bloomberg quotes a Samsung spokesman as saying that "Samsung will respond actively to this legal action taken against" the Korean company. The Malaysian National News Agency (Bernama) reports that another Samsung spokesman said over the phone that they believe "Apple has violated [Samsung] patents in communications standards" and that Samsung is "considering a counterclaim." In my opinion, it's a foregone conclusion that Samsung will countersue.

When I was asked in recent months whether Samsung's status as a major supplier was a reason for which it had not yet been sued by Apple, my answer was that this probably played a role but I expected Apple to assert its rights against Samsung sooner or later.

However, I thought that Apple was firstly going to make some headway against HTC and Motorola. Instead, Apple's suit against Samsung came before Apple obtained a ruling against any other Android device makers, and became known on the very day on which the ITC staff said at a hearing on Apple's complaint against HTC that it doesn't believe any of Apple's asserted patents are infringed.

Anything Android is Apple's mortal enemy

By going against Samsung, Apple clearly demonstrates its absolute determination to fight "anything Android". It looks like Steve Jobs would even be prepared to sue a member of his family should any of his kins decide to build Android-based devices.

Tomorrow (Apr 20, 2011) Apple will announce its latest earnings, and yesterday its stock price temporarily dipped into negative territory on a year-to-date basis. Even though Apple appears to be generating huge sales these days, the stock market has fallen out of love with it to some extent. Besides uncertainty over succession I would mostly attribute this to the fundamental threat Android represents to Apple's revenues and margins.

Considering how much Apple's prospects depends on fending off the Android threat, one can argue that Apple would have assert its intellectual property rights even more aggressively from a shareholder value perspective. For instance, I think Apple went after HTC somewhat half-heartedly. A year ago Apple asserted 10 patents against HTC in an ITC complaint, and that one isn't on the winning track for now (though things can still change).

Usually, companies file companion federal lawsuits that mirror their ITC complaints. Apple didn't do that but instead asserted 12 other patents against HTC in Delaware. And Apple actually has many more patents that read on Android. I believe they could easily have sued HTC over another 10 or 20 patents -- or more.

I believe Apple's management would -- from a shareholder value point of view -- be well-advised to work out a settlement with Nokia sooner rather than later (even though I guess Apple would end up a net payer in such a deal since Nokia owns many more patents in this field) and to focus entirely on Android. It's not hard to imagine a competitive landscape in which both Apple and Nokia can prosper in parallel.

But if Apple fails to fend off Android, it will within a year or two find itself in a situation like Research in Motion, even if at a higher level (initially...). Apple has realized this already, as its new lawsuit against Samsung shows, but given what's at stake, I think Apple would have to do much more than this. It would have to sue more Android device makers and over more patents.

I also wonder whether Apple may now become a more aggressive bidder for Nortel's 4G patents. It may not view them as mission-critical, but it sits on a $60 billion mountain of cash and can outbid Google or anyone else if it wants. The Motley Fool published an article by Christian Zibreg, who very convincingly argues that Apple should go for Nortel's patents and "seek royalties from everyone else in the industry."

If Apple doesn't act aggressively enough to prevail over a patent dwarf like HTC and to outbid Google, this may at some point raise a leadership question... possibly at a point when it will already be too late to undo the losses experienced by Apple's shareholders.

Again, to be clear, all of what I just said was purely an analysis from a shareholder value angle. My political preference would be for all companies including Apple to advocate the abolition of software patents, but it's not realistic to expect that of an organization that currently has a market capitalization of more than USD 300 billion that could be contracted to a fraction of that number only because of Android.

Accused products and asserted IPRs

At this stage Apple's complaint is not yet downloadable on PACER. I have to rely on third-party reports at this stage. Apparently, the accused products include (but are not limited to) the Galaxy S 4G, Epic 4G and Nexus S smartphones, and the Galaxy Tab.

Reuters reports that "Apple's bringing 16 claims against Samsung, including unjust enrichment, trademark infringement and 10 patent claims." Those patent claims appear to include, besides hardware and software patents, certain design patents. So this infringement suit is about the "look & feel" of Samsung's Android-based products, which is indeed strikingly similar to that of the iPhone and iPad, as well as certain technological features.
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Author: Florian Müller

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