South Korea’s Samsung Electronics (SEO:005930) may be poised to become the world’s largest smartphone maker, passing Finland’s Nokia Oyj. (HEL:NOK1V), but life isn’t all sunshine and roses for the gadget maker. The company faces serious danger on at least two fronts.
I. Apple Goes for Samsung’s Jugular in Patent Dispute
Rival gadget maker Apple Inc. (AAPL) is hoping that a court will give it a kill shot on Samsung. Apple has filed [Scribd] for preliminary injunction that could force Samsung to take its flagship Android products — the Infuse 4G, Galaxy S 4G, Droid Charge, and Galaxy Tab 10.1 — off the market in the U.S.
If granted by the U.S. District Court for the Northern District of California, the injunction could force Samsung into a massive settlement payout with Apple — which again would be a major loss, and could interfere with product development.
While Apple’s April 15 lawsuit (U.S. District Court for the Northern District of California) and June 22 lawsuit (South Korea’s Seoul Central District Court) cite a broad range of patents, the injunction request only includes four.
Three of the patents — U.S. Design Patent No. D618,677, D593,087, and D504,889 — lay claim to the shape, color, and button placement on the iPhone case. Apple claims that Samsung’s phones look too much like the iPhone in that they are small, thin black rectangles with buttons.
A fourth patent actually deals with technology, U.S. Patent No. 7,469,381. It deals with methods of “list scrolling and document translation, scaling, and rotation on a touch-screen display.”
A request for a preliminary injunction (PI) is a bold move in a lawsuit, as it will only be granted if the court considers the case strong. Apple is fond of the tactic, but has found it to backfire at times. For example, while a court granted it a PI against Mac-clone maker Psystar, a more recent request in its case against Amazon.com, Inc.’s (AMZN) use of the term “Appstore” was rejected.
A PI rejection, while not decisive to the overall case, can be damaging, in so much as it gives the impression that the overall case is weak.
Samsung is hardly rolling over, though. In the last week it filed suit against London-based High Court of England and Wales and Italy. These suits join pending lawsuits in Seoul, South Korea, Tokyo, Japan, Mannheim, Germany and the U.S. (Delaware). Samsung is suing Apple in eight different courts [Scribd] in six different countries. It’s also expanded the number of U.S. patents involved to 17. It’s also using many foreign patents against Apple.
The company has filed a complaint with the United States International Trade Commission (ITC) to try to block the imports of iPads, iPods, and iPhones. While not as rapid as a PI request, the filing could block imports of the devices within 16 to 18 months.
Apple resorted to lawsuits and legal harassment in desperation, after its smart phones proved incapable of competing effectively with Android. Android currently has more than twice the market share of Apple’s iOS.
II. Parts Sales Offer More Woes
Even as Samsung scrambles to maintain its legal war with Apple, it’s facing a serious logistics crisis, as well.
Apple is the largest single buyer of Samsung liquid crystal displays — a lucrative business for Samsung. Samsung also sells and/or licenses NAND and processor chips to Apple. With the legal war, Apple is reportedly considering dropping Samsung altogether as a supplier.
Samsung’s head of its recently combined semiconductors and display units, Kwon Oh-hyun states, “In the past, the semiconductor market tended to be weaker in the first half and stronger in the second half, but for this year, it is likely to remain flat throughout the latter half.”
This is very bad news for the company as a whole, as these units drive 70 percent of Samsung’s profits and 44 percent of its total revenue, typically.
It’s unclear whether Apple’s growing boycott on the company’s components is to blame for the drop, but it’s clearly playing a major role.
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