Apple (Nasdaq: AAPL) Patent War with Samsung A Fight No One Wins

Like two mighty monsters in a 1950s sci-fi B-movie, Apple Inc. (Nasdaq: AAPL) and Samsung Electronics Co. (PINK: SSNLF) have locked horns for over a year in an epic patent war neither can win.

Over the past year, the two tech titans have filed dozens of patent infringement lawsuits against each other in 10 countries. Most seek to block the sale of one or more of the other's smartphone and tablet products.

The biggest case, filed in San Jose, CA, is scheduled for a July trial, which U.S. District Judge Lucy Koh is desperate to avoid. (She called the case "cruel and unusual punishment" for the jury.)

Earlier this week Koh ordered the CEOs of both Apple and Samsung to meet in mediation sessions, but nothing came of the meetings.

The mutual stubbornness makes sense when you realize what's at stake.

As of the first quarter of 2012, Cupertino, CA-based Apple and South Korea-based Samsung accounted for nearly 100% of the profits and 74% of the revenues in the enormously lucrative mobile phone business, according to Raymond James analyst Tavis McCourt.

Both parties seek victories in the patent war to help seize - or protect - market share.

In a court filing earlier this month, Apple made this crystal clear:

"While the parties have been readying the case for trial Samsung has vaulted into first place in worldwide sales of smartphones, with massive sales of its copycat products. Samsung's infringement of Apple's intellectual property has already resulted in damages that reach billions of dollars. [...] It is critical to Apple to start trial on July 30, to put an end to Samsung's continuing infringement."

Such patent fights are common in the tech world. However, companies typically seek licensing fees rather than injunctions to block product sales - the approach Microsoft Corp. (Nasdaq: MSFT) uses.

When both companies have a patent gripe, as is the case with Apple and Samsung, a cross-licensing agreement often results.

But profits from smartphones and tablets would dwarf any licensing fees, so both companies have dug in.

Some experts also think that Apple, having made a lot of noise about going after those it feels are copying its products, could be as concerned with saving face, as protecting its intellectual property.

"It would take a very good sales job to come up smelling well from the settlement on Apple's side," Steven J. Henry, an intellectual property lawyer at Wolf, Greenfield & Sacks inBoston, told Bloomberg News. "That doesn't mean it won't happen, but the appearance is going to have to be that they were victorious."

Meanwhile, Samsung is eager to defend the gains it has made in the marketplace. Samsung accounted for 40% of all Android-based phones in the first quarter, which helped push it past Nokia Corp. (NYSE ADR: NOK) as the world's top phone maker. Other Android phone makers stood at 10% or less.

Apple vs. Samsung a Risky Fight

While both companies see the patent war as a means to gain an edge in the marketplace, the strategy is unlikely to work given the size, global reach and considerable resources that Apple and Samsung each bring to this fight.

In fact, these tech titans need to be careful how far they push the other.

"Each one has enough intellectual property to shut down the other's products," Mark Lemley, a Stanford Law School professor who specializes in intellectual property, told Bloomberg. "I don't think either one can let that happen.... The parties will need to settle at some point in the future; they can each do far too much damage to the other to allow this to continue forever."

Apple has a potent mobile computing patent portfolio, bolstered last year when it picked up some of Nortel's patents. With over $100 billion in cash, it also has extraordinarily deep pockets.

Samsung also has a strong patent portfolio. But its large number of LTE patents - those associated with mobile devices that connect to 4G wireless networks of telecoms like AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) - make it a particularly dangerous adversary for Apple.

Apple launched its first 4G device -- the third-generation iPad -- in April. The iPhone 5, expected to launch in October, almost certainly will have 4G.

And then Apple will be vulnerable to a barrage of Samsung patent suits all over the world.

Prolonging this fight will only hurt both companies, while neither gets what it wants.

Unsatisfying as it may be, a settlement is ultimately in the best interest of both Apple and Samsung.

"The judge will try to get them to realize that it's better to come to some kind of business understanding than to just roll the dice and let judge and jury do their job," IP lawyer Henry told Bloomberg News. "[But] I think they're out to do more damage to each other before they get to the point of resolution."

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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