Casenote: Apple Inc v Samsung Electronics Co Ltd

31 August 2012:

Background and decision

The highly anticipated jury decision in the Apple v Samsung case was handed down Friday 23 August (Pacific Time) in the US Northern California District Court.  The verdict was a resounding victory for Apple, with the jury finding that 26 of Samsung’s Android smartphones and tablets had infringed on three utility patents and three design patents owned by Apple, and it had wilfully infringed on all but one of these patents.  The jury further found that Samsung had ‘diluted’ Apple’s trade dress in regards to the iPhone and iPhone 3G.  The jury awarded damages of approximately USD$1.05 billion to Apple and awarded no damages to Samsung on the basis of its countersuit.[1] 

The decision comes after a lengthy, 3-week trial that involved large amounts of highly technical evidence presented to jurors.  The jury was presented with a 20 page form requiring them to answer some 700 questions, as well as a further 109 pages of instruction from the court.  The jury was asked to first determine the validity of a number of patents held by Apple and Samsung, and then whether either company had infringed the other’s patents.  Interestingly, half of the patents that Samsung were considered to have violated did not concern technical innovations in Apple’s products but involved aesthetic design aspects of Apple’s products, such as the ‘rounded edges’ and ‘home button’ of the iPhone.  Samsung’s counter-suit concerned only a number of technical utility patents it alleged Apple had infringed.  As stated above, six of Apple’s patents were found to have been infringed by Samsung, five of these wilfully (which impacted the damage award).   The jury found no infringement of Samsung’s patents by Apple.[2]

The jury was also asked to make a determination as to whether the value of the trade dress of the iPhone and the iPad had been diluted by Samsung.  The term ‘trade dress’ refers to the visual aspects of a product and its packaging that identify the source of the product for consumers.  This aspect of the case concerned the connection between Apple’s designs and consumer perception of Apple.  The argument was that the similarity in look between Samsung and Apple products was likely to confuse customers and thereby dilute the value of Apple’s trade dress. The jury was asked to determine whether the trade dress for the iPhone, iPhone 3G, iPad and iPad 2 was sufficiently ‘famous’ (identifiable to consumers) to make it protectable, and then whether Samsung’s products were sufficiently similar to infringe on the protection of this trade dress. [3]   On these questions the jury answered yes to both in regards to the iPhone and iPhone 3G (both for Apple’s registered and unregistered trade dress) but not for the iPad or iPad 2.

Analysis

The decision is obviously a significant early victory for Apple in its ongoing litigation with Samsung.  The decision allows Apple to seek permanent injunctions to prevent Samsung from selling the infringing products in the United States.  Hearings for these injunctions are scheduled to begin on December 6, and will concern eight Samsung products that Apple wishes to see banned from sale in the USA.[4]  If this injunction is successful then it will obviously require a significant effort by Samsung (and possibly Android) to redesign their products in order to avoid similarities to Apple’s.  The decision has obviously been under, and will face continued, criticism and analysis.  Some of our observations are outlined below.

Stifling competition and pushing the limits of patent law

There has always been a strong tension between the competing aims of intellectual property law and competition law: one the one hand, IP creates a statutory monopoly, whereas on the other hand, competition law generally seeks to minimize or outlaw monopolies.  The economic justification of IP lies in its protection of the value of innovations and creating incentives for the exploitation of these innovations for the benefit of consumers and the market.[5]  The benefits of this are often seen to countenance the monopolization of technology and designs that ordinarily would be considered anti-competitive.[6]

However, this rationale is not simple to identify in this case.  Apple’s litigation has the appearance of a powerful company (Apple is now the world’s most valuable company by market capitalisation[7]) attempting to strengthen its market position by forcing out a competitor through the use of IP protections.[8]  This is particularly true with regard to the non-technical patents and trade dress of their products, protection of which through IP law is much more of a grey area than protection of ‘hard’ technical innovations.  There is concern about the stifling impact on innovation that this finding might have in the technology and design sector, which often relies on the ‘borrowing’ of technical and aesthetic innovations.[9]  It has of course not gone unnoticed that Apple prominently owes much of its success in the past in borrowing from and improving on existing designs and technologies.[10] 

A parochial decision?

Obviously this is an extremely one-sided decision, with Samsung being awarded $0 in its countersuit against Apple.  That this decision was reached in California, the ‘home’ of Apple, whilst a similar decision in Samsung’s home, South Korea (see below) was largely adverse to Apple, is not considered to be a mere coincidence.  Whilst there is no evidence that the jury acted less than objectively and on the evidence placed before them, the question remains open whether the fame and extremely high profile and good reputation of Apple as a brand in the United States[11] influenced the jury’s assessment, particularly with regard to the trade dress aspects of the case.  In markets where Apple has dominance its products, particularly the iPhone and iPad, are viewed as ‘trendsetters’ subject to imitation by other companies.

Did the jury adequately consider the case?

The jury appeared to demonstrate remarkable speed in reaching a decision in this case.[12]  The jury reached a verdict in just 21 hours, much faster than many observers expected, particularly given the complexity of the verdict form and the instructions they were given (see above).  It is particularly concerning that there were inconsistencies with the original form submitted that awarded some $2 million to Apple for inducement of an infringement that the jury had in fact found didn’t occur.[13]  This mistake required the form to be amended. 

Some observers have suggested this demonstrates a more general lack of care and consistency on the part of the jury.[14]  Pamela Jones of the IT-Law blog Groklaw has been particularly widely quoted for her observations on what she sees as the somewhat arbitrary nature of the jury’s findings, their lack of care and mistakes regarding when ‘prior art’ can defeat a patent claim.[15]  All this leads Jones to conclude that these are strong grounds (among others[16]) for Samsung to at least partly succeed[17] in their expected appeal of the decision.[18]

Implications for Australia

As a matter of precedent, the decision is unlikely to have any effect on the current litigation before Australian courts between Apple and Samsung.  In particular, the products and patents concerned are in many cases different, and, as mentioned, the decision is likely to go on appeal soon.  Furthermore, the trade dress and design issues are not being considered in the Australian litigation, meaning that the sole issue will concern patents.[19]  The case is currently being heard before Justice Bennett of the Federal Court of Australia.  On 1 August 2012 Apple was granted an interlocutory injunction banning the sale of the Galaxy 10.1 tablet in Australia pending the outcome of the case, which resumed hearing on Wednesday August 29.

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