Appeals Court Makes it Easier For Apple to Ban Samsung Devices

Apple, Inc. (AAPL), the world’s second largest smartphone maker and largest single tablet OEM, won a key ruling in a federal appeals court this week.  The ruling involves Apple’s ongoing battle with South Korea’s Samsung Electronics Comp., Ltd. (KSC:005930), the top smartphone seller globally and number two global tablet seller, behind Apple.  The ruling shifts the balance of power in the legal side of Apple and Samsung’s battle for global electronics dominance decidedly in Apple’s favor as it now has a lower bar necessary in order to ban Samsung devices.
I. To Ban or Not to Ban?
Last month the Obama administration sided with Apple in its court war with Samsung.  The administration previously overrode a U.S. International Trade Commission’s (ITC) ruling that would have allowed Samsung to ban older Apple smartphones and tablets, the first such executive override since 1987.  The administration argued that it was not practicing favoritism due to Apple’s domestic status, or the company donations/relationship to the Obama campaign.
Rather, it argued that Samsung’s lawsuits were based on patents it was required to license to Apple; while Apple was free to ban Samsung as it patents were not designed as part of a cooperative standard.  This argument seemingly ignored the ITC finding that Apple had refused to negotiate with Samsung, but Samsung’s critics claimed that it was Samsung who sabotaged negotiations.
Apple had also in Aug. 2012 won a $1.05B USD jury verdict from Samsung in U.S. District Court for the Northern District of California, in a case presided over by Judge Lucy Koh.

Federal Judge Lucy Koh
While Samsung will almost certainly end up paying all or most of those damages, the big question is whether any of its products would be banned, harming its ability to compete.  The answer ultimately proved “no” as Judge Koh ruled that Apple did not exhibit sufficient evidence to prove a ban was necessary.
Apple challenged this, and it won to an extent, with respect to certain design and utility claims relating to its iPad.  The U.S. Court of Appeals for the Federal Circuit effectively reprimanded Judge Koh, arguing her ruling erred on a number of points.  It tossed the decision regarding Samsung’s Galaxy Tab 10.1 tablet back to her and she subsequently rethought her ruling following the criticism and ordered a ban.  But by then the issue became a moot point as Samsung had already implemented a workaround for the technology in question.  Hence no sales ban was ordered after all.

Apple lost its battle to ban the Galaxy Tab 10.1, after Samsung installed workarounds.
Apple turned its attention back to the Appeals circuit in an effort to overturn Judge Koh’s decision not to ban the Samsung smartphones in the cases, some of which continued to be sold without workarounds.  Samsung, meanwhile, tried to convince the Appeals circuit that no ban was needed.
Samsung believed the Apple verdict was unjust and did not take into account pending patent validations (one of which notably recently reversed in the eleventh hour, a win for Apple).  Apple believed that Judge Koh acted inappropriately in denying it a product ban on 26 Samsung devices.  Notably, Judge Koh ruled that Apple’s lawyers had to show that the infringed technology was the “sole” reason customers were picking Samsung devices over Apple ones, something she said they failed to demonstrate.
II. Appeals Court to Samsung — Yup, You Infringed
After hearing both sides, the Appeals Court has made a ruling and it is decidedly in Apple’s favor.
The court upheld damages related to U.S. Patent No. 7,469,381 (the “rubber band” patent on bounced animations, which has been found mostly invalid in a preliminary ruling by The Central Reexamination Division at the United States Patent and Trademark Office (USPTO), which should soon be finalized.

Bounce on the HTC EVO 4G, covered by the invalidated ‘381 patent
As that invalidation is not final, the Appeals court refused to consider it.  Also upheld were infringements on Apple’s “pinch to zoom” gesture patent, U.S. Patent No. 7,844,915, and the “double-tap to zoom” patent, U.S Patent No. 7,864,163 (note: this is different from the “data double-tapping” U.S. Patent No. 5,946,647 patent Apple asserted against other Android OEMs).
The good/bad news for Samsung is that the Appeals court yet again appeared to argue in support of Apple’s claims that Samsung infringed on Apple’s exclusive right to produce a “rectangular smartphone… [with] a large rectangular display… [and] rounded [corners]” which is granted by U.S. Design Patent No. D618,677 and D593,087.  Clearly the Appeals Court bought Apple’s line that the Galaxy S and Galaxy S II looked too “iPhone-like” compared to previous Samsung designs.

The patented iPhone design (right) next to prior art presented by Samsung.
The court writes:
Both patents claim a minimalist design for a rectangular smartphone consisting of a large rectangular display occupying most of the phone’s front face.  The corners of the phone are rounded.  Aside from a rectangular speak slot above the display and a circular button below the display claimed in several figures of the patent, the design contains no ornamentation.
This of course solidifies these damages.  However, it would be somewhat mind-boggling for the court to rule that Samsung’s subsequent larger smartphone designs (e.g. the Galaxy S3, GS4, Galaxy Note 2, and Galaxy Note 3) would also be covered under this ruling, as that would be troublingly broad.  But whatever subtlety led to the court’s decision was not elaborated further in this ruling.
III. Judge Koh Admonished by Appeals Court for “Errors”
The Appeals Court argues that while Apple licenses to HTC Corp. (TPE:2498), Nokia Oyj. (HEX:NOK1V), and International Business Machines, Inc. (IBM), the lower court was wrong in suggesting that Apple and Samsung should settled as:

Samsung’s use of these patents is different.
It continues:
We agree with Apple that these factors are relevant to whether monetary damages will adequately compensate Apple for Samsung’s infringement of the asserted patents, and the district court erred by failing to consider them. 

Apple only needs to show that some damage was dealt, not that the infringements were the sole cause of competitive, damage a court rules.  If Apple can show that customers who would by an iPad or iPhone bought a Samsung device instead, as a result of the infringed features, that’s good enough, it argues. [DeviantArt/KalasPuff]   The Appeals court fell somewhere between the District Court and Apple on the topic of what proof was needed to ban some Samsung products.  It contradicted Judge Koh who argued that the features in question needed to be shown to be the “sole cause” in order for a product ban to be ordered.  It writes:

First, the district court appears to have required Apple to show that one of the patented features is the sole reason consumers purchased Samsung’s products…. To the extent these statements reflect the view that Apple was necessarily required to show that a patented feature is the sole reason for consumers’ purchases, the court erred.

It is true that Apple must “show that the infringing feature drives consumer demand for the accused product.” Apple II, 695 F.3d at 1375. It is also true that this inquiry should focus on the importance of the claimed invention in the context of the accused product, and not just the importance, in general, of features of the same type as the claimed invention.
In other words, the Appeals court does argue that Apple has to show that specific features in question created demand for Samsung, products, but it does not require them to be the exclusive cause of demand — the much higher bar for a ban the lower court set.
In a second statement, the Appeals court also ruled that Judge Koh erred in saying that Apple couldn’t “aggregate” its patents.  Aggregating would show that while each of the patents individually might not have driven demand, that together they did drive demand, which was adversely affected by the alleged infringement.  This cumulative view on how to look at infringement and damages makes it much easier for Apple to justify a ban.
IV. Apple Can Likely Secure Faster Bans in the Future
The Appeals court didn’t approve or deny the ban; rather it kicked it back down to Judge Koh, asking her to judge it based on this new standard.  This already happened once before with the original Galaxy Tab 10.1, where the Appeals court similarly found Judge Koh’s conclusions to be invalid.  In that case Judge Koh subsequently ordered a ban.
This is not atypical as federal judges are often wary of repeatedly committing to decisions they perceive to run contrary to the opinions of Appeals judges who outrank them, particularly if the orders in question chastised the lower judge for overlooking examples of similar cases (as the Appeals Court order seems to).

[Image Source: CNET]
Assuming that the 26 Samsung smartphones mentioned in the case will now likely face a permanent court ban (pending Judge Kohs’ reevaluation), the question becomes what that ban will mean for Samsung.  As just three of those devices remained on sale as of Dec. 2012, the answer is likely “not much”.  The Galaxy S II will likely be the main victim — but it’s already in the process of being discontinued (e.g. specialist models like AT&T, Inc.’s (T) Skyrocket have since been mothballed).
The bigger issue for Samsung is that the Appeals court ruling sets a lower bar for future, potentially more damaging product bans.
Where as the Galaxy S 2 ban — if granted at all — will have taken over a year after the jury verdict to order, the latest Appeals ruling could force a far hastier ban in upcoming cases.

The Galaxy S2 is the only major phone in the case still on sale.
  Apple is currently gearing up for a second case that involves the Galaxy S3 and Galaxy Note 2 — plus a third pending case involving the Galaxy S4 and Galaxy Note 3.  A jury will hear the second case on March 2014 in the U.S. District Court for the Northern District of California with Judge Paul S. Grewal presiding over the trial.  No trial date has been set for the third case, which Apple is in the process of currently filing.
V. …But Apple Does Have to Prove it was Harmed, Court Says
A small piece of good news for Samsung is that the Appeals court rejected Apple’s lawyers argument that as preliminary injunctions were not permanent, they did not need to establish “causal nexus” (i.e. show that demand was hurt by the infringement).  It also rejects Apple’s premise that a jury verdict and anecdotal evidence was effectively a causal nexus in and of itself, suitable for basing a permanent ban on.
The court notes:

Apple makes several arguments why it believes there should be no causal nexus requirement in the permanent injunction context.
This was one of the only places that the Appeals court sided heavily against Apple, arguing that Apple misunderstood certain cases it cited and that its lawyers failed to understand the central premise behind “causal nexus”, i.e. the reason why they had to show commercial harm was necessary to obtain a preliminary ban.

Apple does need to prove it was harmed by Samsung’s infringement, the court clarifies. [Image Source: Reuters]
The Appeals court “helpfully” explains that reasoning to Apple’s lawyers, stating:
The purpose of the causal nexus requirement is to show that the patentee is irreparably harmed by the infringement.  Without such a showing, it is reasonable to conclude that a patentee will suffer the same harm with or without an injunction, thus undermining the need for injunctive relief in the first place. 
If Apple can by March ban the Galaxy Note 2 and Galaxy S3 it could do quite a bit more damage to Samsung, as these will still be the last-generation models at this point, which is typically the most common model to be adopted by budget buyers.
VI. Expert Witnesses Crucial to Future Ban Efforts
Apple’s hopes of both secure a ban on the older Galaxy S2 when Judge Koh rehears the first case’s injunction request, and its hope of banning the GS3 next spring will largely rest largely on Apple’s use of expert witnesses.  While the Appeals court was critical of Apple’s use of anecdotal examples, which it said failed to prove causal nexus, it took the testimony of Prof. John Hauser, Ph.D., a marketing professor at the Massachusetts Institute of Technology (MIT).

The Appeals court ruled Judge Koh was wrong for disregarding the analysis of MIT marketing Prof. John Hauser, Ph.D. [Image Source: MIT]
Dr. Hauser conducted a consumer survey that claimed that customers expressed willingness to pay $100 USD more for a smartphone with the technologies covered in Apple’s three utility patents, and $90 USD more a smartphone.  It singled out the “pinch to zoom” (‘915 patent) as the most valuable feature, with customers reported willing to pay $39 USD more a smartphone and $45 USD more for a tablet with that feature.
The Appeals court did acknowledge that Samsung complained of flaws in this survey, but it said that Judge Koh was wrong to fully reject it as it did not need to be proved precisely correct, but rather merely needed to show whether or not there was evidence of a causal nexus for damage by allowing infringing products to continue to be sold.
If Apple conducts market surveys before upcoming cases it may be able to secure permanent bans based on the lower standard of evidence that the Appeals court has established.  On the flip side if Samsung’s legal team and its own expert witnesses were able to poke holes in Apple and its experts’ claims, they could make a ban tougher to obtain.
Apple would love to score an even earlier ban in the filing phase, by winning an ITC preliminary injunction (which unlike a permanent injunction from a federal court only prevents imports, not sales).  However, Samsung successfully convinced the ITC judges earlier this year that there was reasonable evidence that it had “designed around” Apple’s patents, implementing alternative strategies.  As a result the judges declined to enforce a preliminary injunction on various devices including the Galaxy S3, Galaxy Nexus, and new Galaxy Tab devices which could have taken effect this holiday season, causing serious sales damage to Samsung.
Ultimately this case is bad for both companies image to an extent.  But it seems unlikely to be resolved anytime soon, as Apple has repeatedly expressed its refusal to license a full set of patents to Samsung, basically admitting it views Samsung as more dangerous than HTC or Nokia.

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