Apple’s $1B USD Win Over Samsung Slashed by 40 Percent, App Settlement Nears

Apple, Inc. (AAPL) rocked the mobile market when it scored a $1.05B USD jury verdict over arch-rival Samsung Electronics Comp., Ltd. (KSC:005930).  A jury in the U.S. District Court for the Northern District of California ruled last August that Samsung “willfully” infringed on Apple patents covering Apple’s iPad and iPhone.  The jury agreed that Samsung “ripped off” the look and feel of Apple’s iconic products.

Soon after Apple went for the jugular, looking to triple the damages due to the “willful” nature of the infringement.  But even as it reveled in its victory, the win began to unwind.  

The U.S. Patent and Trademark Office (USPTO) has filed preliminary invalidation rulings regarding two of the key Apple utility patents involved in the case.  And then presiding Judge Lucy Koh overrode the jury and vacated the “willful” finding, deciding that the jury was wrong and that Samsung only violated Apple’s patents because it believed them to be invalid (a finding which the patent office at least partially agrees with).

I. More Bad News for Apple in Samsung Case

Last week in District Court, Judge Koh dealt Apple another setback, vacating [PDF] more than 40 percent of the jury damages.  She justified the decision to slash $450,514,650 USD from the verdict by pointing to two errors made by Apple, which the jury did not realize.

First, Apple encouraged the jury to calculate damages based on Samsung’s profits.  In reality that approach was only valid for the design patents.  As many of the violations were for utility patents, Judge Koh found those damages invalid due to error.  

Samsung scored a key win in court last week. [Image Source: PhoneBuff]
Apple also goofed on the period it claimed damages on — while Apple did notify Samsung of alleged violation of the “rubber band patent” (U.S. Patent No. 7,469,381, aka the ‘381 patent) (since ruled invalid) on August 4th, 2010, it did not notify Samsung of the other infringements until April 15, 2011, hence the period of infringement was shorter than Apple claimed.

Due to the errors, Judge Koh decided to simply eliminate the damages for many of the phones targeted, while declining Samsung’s request to review the overall correctness of the jury verdict.  Judge Koh argued it was too hard to determine why the jury ruled as they did; hence it would be inappropriate to modify their decision other than to correct the blatant errors.  

She comments, “It is not the proper role of the court to second-guess the jury’s factual determination as to the proper amount of compensation.”

Judge Koh slashed Apple’s gains by $400M USD, but declined to analyze the jury’s overall verdict, leaving that to the appeals courts. [Image Source: IB Times]
The products for whom damages were partly vacated include:

  • Captivate
  • Continuum
  • Droid Charge
  • Epic 4G
  • Exhibit 4G
  • Indulge
  • Infuse 4G
  • Galaxy Prevail
  • Gem
  • Galaxy SII for AT&T
  • Galaxy Tab
  • Nexus S 4G
  • Replenish
  • Transform

The products for whom damages remain include:

  • Fascinate
  • Galaxy Ace
  • Galaxy S i9000
  • Galaxy S II i9100
  • Galaxy Tab 10.1 Wi-Fi
  • Galaxy Tab 10.1 with 4G LTE
  • Galaxy S 4G
  • Galaxy S II Showcase
  • Intercept
  • Galaxy S II Skyrockeet
  • Galaxy S II Epic 4G Touch
  • Galaxy S II T-Mobile
  • Mesmerize
  • Vibrant

Samsung is now only on the hook for around $600M USD, a rather trivial amount given its record profitability.  Samsung also appears in a strong position to appeal the verdict and possibly get the entire damages tossed in the appeals circuit, assuming the USPTO finishes off Apple’s patents used in the case (which are currently past the early stages of invalidation).

Apple, on the other hand, will likely try to appeal the vacation.  It faces an uphill battle in this case, though.  It will likely try to focus on its upcoming second jury trial against Samsung, which will deal with newer products and a slightly different set of patents.

II. In-App Purchases 

Apple is on the verge of settling a second, separate case, which pertains to in-app purchases in its iOS mobile operating system.

In-app purchases were first added in summer 2010, with the release of iOS 4.0.  In April 2011 angry parents sued Apple for allegedly making it too easy for children to access their parent’s iDevices and make unauthorized purchases.

In response to the suit, Apple is looking to create a $23M USD settlement fund.  The settlements will only apply to certain apps, and plaintiffs will have to fill out some paperwork.

Judge Edward Davila for the Northern California district court (where the case is being tried) expressed concern for the difficulty in obtaining a settlement, commenting, “It seems like you’re asking the plaintiffs to do a lot.  Apple has this information.  They’re in the best position to retrieve this information.”

Parents sued Apple for making it too easy for children to make unauthorized in-app purchases.
[Image Source: Engadget]
Apple’s lawyers countered, arguing that they were putting up a web app to make the settlement process less painful.  Each unauthorized purchase will make the user eligible for a $5 USD refund as an iTunes gift card.

The company has modified iOS (via the iOS 4.3 update) in response to the suit.  Originally, when you entered your password for in-app/App Store purchases, there would be large window in which you could freely make purchases without re-prompting for your password.  That allowed some children to make large in-app purchases, even if they did not know their parent’s credit card or iTunes password.  Apple has since made the window for password timeout much shorter.

Nonetheless, there have been some unfortunate recent incidents, such as a 5-year-old from southwest England who spent $2,500 USD on his parents’ credit card in unauthorized in-app purchases.  The child did not have the password to the iPad.  Apple has reportedly refunded the parent in the case.

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