PERSPECTIVES

News and Analysis of the Global Innovation Scene

MaryAnne M. Gobble, Editor

Apple Scores a Win in the Smartphone Wars

After several failed attempts, Apples latest salvo in the smartphone patent wars seems to have hit home. On August 24, after less than 24 hours of deliberation, a California jury decided that Samsung had, in fact, infringed on six Apple patents, to the tune of just over $1 billion in damagesone of the largest patent infringement awards ever. Once the initial excitement subsided, however, the real meaning and likely effect of the verdict became murky. First came hints that the jury hadnt been thorough in its consideration of the issues leading to the verdict. The decision came much too fast, some said, given the length (109 pages) and complexity of the jury instructions. Worse, the original verdict sheet bore some clear mathematical and logical errors that forced the court to issue a corrected sheet. And interviews with jurors have revealed that their deliberations veered into extralegal territory, for instance suggesting that the amount of the award was intended to punish Samsung when established law (and the jury instructions) clearly indicates that damages should be calibrated to restore the losses of the plaintiff, not to punish the defendant. And, in the same week, similar lawsuits in Japan and South Korea concluded with very different results. A Tokyo judge ruled against Apple,

DOI: 10.5437/08956308X5506001

deciding that Samsung hadnt infringed on Apple patents, and a South Korean judge offered a decision that was, essentially, a draw, acknowledging that Samsung products did closely resemble Apples designs but not nding a clear case for infringement. Post-decision statements from the two companies were predictably extreme: Apple applauded the verdict as a validation of values, characterizing it as a loud and clear message that stealing isnt right; Samsung asserted that the decision should not be viewed as a win for Apple, but as a loss for the American consumer. But analysts found little to agree about, either. Indeed, various sources concurred on only one essential truth: that Samsung is absolutely correct that this is not the nal word in this case or in the raging patent war. It remains to be seen how many Samsung products will be pulled from U.S. shelves, and there will certainly be appeals of the decision and of the associated damages, which many see as extreme. The case is unlikely to see a nal decision for months, if not years. Some observers see the Samsung suit, and the suit against HTC that Apple lost last year, as proxy wars against Googles Android operating system, which Steve Jobs saw as a blatant knockoff of Apples iOS. Jobs told his biographer, Walter Isaacson, shortly before his death in 2011, Im going to destroy Android, because its a stolen product. Im willing to go thermonuclear war on this. Indeed, the Samsung decision may represent a signicant challenge for hardware

manufacturers as they create the next generation of Android phones. With Apples right to key elements of the smartphone experience backed up by a successful, and costly, lawsuit, manufacturers of Android handsets will have to nd new ways to accomplish key tasks and then convince consumers to adopt them. But Apple would be advised to remember that no one truly wins a thermonuclear war. The decision may give the company a temporary advantage, locking competitors out of key technologies and user interface features, but given the speed of change in the industry, its unclear how long that advantage may last. And the decision may also kick off a new round of innovation that could eventually knock Apple off its pedestal. Even before the Samsung decision, UBS industry analyst Steve Milunovich suggested that a win in the case might actually be bad for Apple over the long term. In a widely quoted research report, Milunovich argued that a win could hurt Apple because the real threat is not a competitor beating Apple at its own game but instead changing the game. The likelihood of Apple being leapfrogged or a rival creating a new category is greater if they have to think out of the box. In other words, forcing competitors to avoid its patents could backre on Apple, if the move motivates the competition to outinnovate the company. Given Apples own reputation as a game-changing innovator, such an outcome would be ironic indeed. Taking too punitive a line with Samsung and other companies could have

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MaryAnne M. Gobble, Managing Editor Raleigh, North Carolina gobble@iriweb.org

Americas New Brain Drain: The Loss of the Sea Turtles

The Chinese call them sea turtlesscientists and engineers who obtain doctorates, postgraduate experience, and even jobs in the West and then return to their homeland to take up key roles in the technology economy. While China is not alone in persuading qualied citizens to return homeIndians are increasingly following the sea turtles examplethe Middle Kingdom has approached the issue most aggressively. A government talent development program started in 2010 offers bonuses of up to $150,000 to returnees qualied in science, technology, engineering, and mathematics (STEM) elds. Chinas gain is the Wests loss; the drain has been particularly felt in the United States. Over the decades, the United States has beneted hugely from overseas science students choosing to stay in U.S. universities or corporations once they complete their training. International students account for about two-thirds of engineering PhDs awarded by American universities and a high proportion of doctorates in the sciences. So the increasing ow of sea turtles threatens to produce a signicant gap in American innovation. A recent report by the Partnership for a New American Economy and the Partnership for New York City, Not Coming to America: Why the U.S. is Falling Behind in the Global Race for Talent, spells out the problem. In recent years, it states, U.S. immigration laws have failed to keep pace with the countrys changing economic needs. Articially low limits on the number of visas and serious bureaucratic obstacles prevent employers from hiring the people they needand drive entrepreneurs to other countries, who are quick to welcome them. In fact, other nations have witnessed the
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Samsungs Galaxy S III, right, and Apples iPhone 4S on display at a mobile phone shop in Seoul, South Korea, August 24. (AP Photo/Ahn Young-joon)

other repercussions for Apple as well. Although Apple, and some analysts, believe that the win in court brings with it an advantage in the court of public opinion, IAM Magazine editor Joff Wild suggests that too much focus on blowing [competitors] out of the water could irreparably damage Apples brand. This is an argument worth considering, especially given the way in which Apple has traded on the emotional appeal of its products to build customer loyalty. Having its brand associated with a heavyhanded vindictiveness could taint that experience, breaking the emotional bond that keeps many consumers returning to Apple. Steve Jobs once declared, Good artists copy, great artists steal. And we have always been shameless about stealing great ideas. In this context, the companys declaration of thermonuclear war may seem hypocritical, and Apple itself has trained its customers to be attuned to such considerations. Instead, many suggest, Apple should consider offering Samsung and other Android handset manufacturers a set of cross-licensing agreements, which would also defuse impending infringement suits against Apple led by Motorola and others. It may also help to mend fences with Samsung, a major
Perspectives

supplier of components for the iPhone. At the same time, it would give Apple a stake in every Android smartphone sold and moderate competition by forcing Android makers to account for those licensing fees in their pricing. (Smartphone manufacturers already pay licensing fees to Microsoft for some elements of the Android OS. As Roger Chen, writing for CNET, put it, Googles free operating system isnt as free as it used to be.) The wider impact of the decision remains to be seen. A number of parties, including Google general counsel Kurt Walker, have expressed concern that the patent wars may stie innovation in the industry and shut out newcomers who dont have the resources to protect themselves. This decision may accelerate the patent arms race, building the barriers to entry even higher. It may also inate the value of patent portfolios even further, which could be good news for RIM, Kodak, and others contemplating patent sales. Whether consumers will see a rush of new designs as companies seek ways to work around Apples patents, or less choice and higher prices, will depend on a whole array of factors yet to be determined. Apple has won this battle, but the war, it seems, is still up for grabs.

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