Understanding Apple: Big Court Win – What Does it Mean?

By Malcolm Manness - August 30, 2012 | Tickers: AAPL, GOOG, MSFT | 0 Comments

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Apple (NASDAQ: AAPL)  CEO Tim Cook sent out a message to employees the other day:

Today was an important day for Apple and for innovators everywhere.

While the latter half of that claim may be a matter of opinion, that it was important for Apple is clear. They had just won big in court over Samsung. So, what are some of the implications here?

From the investors standpoint, in early morning Korea time Reuters notes:

Shares in Samsung - the world's biggest technology firm by revenue - tumbled more than 7 percent on Monday, set for its biggest daily percentage drop in nearly four years, wiping $12 billion off its market value.

That is a costly shave! It is 12 times the $1 billion the jury awarded Apple.

Here are the benefits to Apple that I see. Some are obvious, the last one perhaps less so.

1- $$$$$$$$

Lots of them. I don’t care how big you are, $1 Billion is no chump change. And Judge Koh could as much as triple that since most infringements were deemed willful.

2- Validation of the patents in question

One of the findings of the jury was that several of Apple’s patents were indeed valid. This will add weight to Apple’s other litigations elsewhere in the US and around the globe.

3- Findings that Samsung’s patent claims were exhausted

Samsung was suing Apple using its patents that were part of cell communications standards. Apple argued that:

a – They were FRAND encumbered patents, and

b – They had indeed been licensed when Apple purchased chips from Intel that came with a license.

The patents in question had been adopted by standards organizations which set electronic protocols by which a phone communicates with the towers. Patents from various companies are used in creating the standards, and these patents are subject to licensing fees. However, the companies that own patents that are incorporated into the standards must agree to license to all comers on Fair, Reasonable and Non-Discriminatory terms.

Interestingly, the jury did not find for Apple that Samsung had violated FRAND. However, it judged that Samsung's patents were exhausted by the license fees that Intel pays them to manufacture the chips. This decision will likely have repercussions globally.

4- Pressure on other Android phones

The Samsung products were all running various flavors of Google’s (NASDAQ: GOOG) Android operating system. Some of the other Android phones may have to change their look and feel to comply with the jury’s ruling. Things like the bounce effect in some ways may be a small thing, but it adds to the overall feeling that the system is intuitive and natural. These are things that Apple has worked hard to develop. Now they are vindicated.

(Note: Microsoft’s (NASDAQ: MSFT) Windows Mobile phones will not be affected as they seem to have avoided copying.)

There is a lot of pressure growing on Android now.

FOSS Patents blog notes:

Prior to today's verdict (again, I will await Judge Koh's post-verdict decision), courts in different jurisdictions had found Android-based devices to infringe seven valid Apple software patents, two valid Apple design patents, and three valid Microsoft patents. That list already included (because of earlier decisions, such as on a preliminary injunction motion) some of the patents the jury found valid and infringed, but the list will grow, probably to 15 patents (if not more).

5- Vindication

Here is a very big one. The message by Tim Cook indicates that in many ways this is the biggest for them. It validates the fact that through their hard work, they have come up with original ideas that warrant protection. That they have the right to hold their inventions to themselves in order to differentiate their product.

There is another aspect of this. In the market place there is a lot of negativity expressed against Apple. Now granted there is a strong contingent of iHaters who will never in their lives purchase anything made by Apple because of some dire malevolent behavior that they imagine Apple has perpetrated on the world.

This is particularly true since the jury’s judgment was that the infringements were willful. That is a very strong statement on Apple’s behalf. It says that the jury was so swayed by the evidence that that they found the infringements were clear and should have been avoided.

This final point #5, of course, is only one man’s opinion.

--- Background

Last Friday, after just 22 hours of deliberation, jurors awarded a stunning $1.05 billion to Apple in its patent infringement case against Samsung, finding almost every point in Apple’s favor. Among them:

Apple proved through evidence that Samsung "took action that it knew or should have known would induce SEA or STA to infringe the D’677, D’087, D’305, and/or D’889 Patents." Willful infringement in five cases, and dilution of trademark in others.

Additionally, Samsung is barred from asserting the '516 and '941 patents, those relating to technology used by certain Intel chips in iDevices, as they were exhausted. These are some of the FRAND related standards patents.

Fellow Fool Evan Niu gives an excellent summary of the judgment.

In depth, detailed analysis of the legal technicalities are covered excellently at FOSS Patents blog.

=====

Malcolm Manness has a Masters degree in Computer Science, and has worked for 14 years in development, technical publications and software quality assurance. He has been investing for 20 years. Currently, he does writing, and FileMaker Pro programming on contract.

His short fiction can be found (under pseudonym J. Seunnasepp) at http://50centflash.com/.

==== Understanding Apple series

You may love Apple and their products, or hate them to the core, but you cannot deny that Apple now has the highest market cap of any company, their products are trend setters, and currently they are trading at rather low multiples, especially regarding forward earnings.

Warren Buffet has the maxim: “Invest in what you know!” So, for those who want a unique perspective on Apple’s success, I have a series of articles Understanding Apple. I hope you will find them helpful and provocative.

Let me know what you think.

Previous article: Apple Wins - Samsung Spins.

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