Brewing for months, the patent trial officially began on Monday with jury selection. Apple is suing Samsung for $2.5 billion in damages, accusing the Korean company of "slavishly copying" both the hardware and software of its iPhone design.
Samsung has emerged as the biggest threat to the iPhone's continuing growth. Samsung sold 50 million smartphones in the June quarter, by far the most of any vendor.
Meanwhile, AAPL reported sales of just 26 million iPhones in its June quarter - a major concern since Apple gets more than half of its revenue and profits from the iPhone.
Samsung has countersued, claiming the iPhone infringes on patents it holds that enable all smartphones to function. Samsung wants a 2.4% licensing fee for each iPhone sold, which would cost Apple a whopping $2 billion per year.
The ferocity of the fight stems from what's at stake. Both want to dominate the rapidly growing market for mobile computing devices -- smartphones and tablets.
"This is a cage match for rights to one of the most lucrative markets in the world," Colin Gillis, an analyst at BGC Financial, told the Los Angeles Times. "They're fighting on everything: They're fighting on innovation, they're fighting on price, they're fighting in the courts."
The Stakes in the Apple vs Samsung Battle
The Apple vs. Samsung trial in a federal court in San Jose is just one of 50 patent battles the companies are waging in 10 countries on four continents.
While both companies are taking a risk by battling in court instead of forging a cross-licensing agreement, the winner has a lot to gain.
In the short run, Apple could gain not just a fat payment from Samsung for profits earned on its Galaxy smartphones, but injunctions against the sales of several Samsung tablets and smartphones.
Apple has already secured a pre-trial injunction against Samsung's tablet, the Galaxy Tab 10.1. A ban on the Galaxy Nexus smartphone was suspended by a temporary stay granted by an appeals court.
An Apple court victory would make those bans permanent. That would force Samsung to redesign the affected products so they no longer infringed on Apple's patents, costing Samsung money and sales.
An Apple win would also send a warning to other smartphone makers, particularly those who, like Samsung, use Google's (Nasdaq: GOOG) Android operating system. Several of Apple's claims concern Android.
Samsung's goals are far more modest. It wins even if the case is thrown out. While it would love to receive license fees from Apple, Samsung would be just as happy being left alone to its success in the smartphone market.
Mobile sales account for 60% of Samsung's profits. Sales of its Galaxy S phones propelled Samsung to a record profit of $5.9 billion for the June quarter.
And make no mistake; smartphones is where the money is. According to research firm IDC, sales of all types of mobile phones worldwide grew just 1% last quarter, while sales of smartphones leapt 42.1%.
Each company knows it's critical to win over first-time smartphone buyers to try to lock them into your ecosystem for future purchases.
"Apple is all about slowing Samsung down," Michael Yoshikami, chief executive of Destination Wealth Management, told Reuters. "Apple will try to buy time until iPhone 5 launches," which should occur in September.
Apple vs. Samsung: Who's the Favorite?
Patent battles rarely end up as a clear-cut victory for either side. So it's unlikely either company will reap a licensing bonanza from the other.
"I would be surprised if any outcome here had as its consequence giving either party domination in the cell-phone business that was anything like Polaroid's victory over Kodak," Harold Edgar, a professor of law and technology at the Columbia Law School, told CNNMoney.
Polaroid won an extended battle with Kodak in 1985 over instant photography patents, forcing Kodak out of the market.
But Apple would be happy just to throw a wrench in the Samsung sales juggernaut, and it has a fair chance of doing so.
Based on court filings so far, several patent experts believe AAPL has the stronger case and is likely to get at least some kind of remedy. Apple could even succeed in sustaining the sales bans.
Still, the case is just one battle in the larger struggle between the tech titans. Even if Apple prevails, the war will go on.
"There is no single killer patent in this lawsuit," Florian Mueller, a patent analyst and blogger, told The New York Times. "Apple cannot deal a knockout blow to Samsung."
Apple stock (Nasdaq: AAPL) is up about 4% this week, and 50% year-to-date.
Related Articles and News:
- Money Morning:
Apple Earnings Miss Points to Slowing Growth
- Money Morning:
Apple's (Nasdaq: AAPL) Patent Wars: This Little-Known Swedish Company is the Key
- Money Morning:
Mobile Computing Patent Wars Could Cost Google $2 Billion Annually
- Money Morning:
How to Spot Winners as Facebook (Nasdaq: FB) and Friends Fight Patent Wars
- The Wall Street Journal:
Samsung Widens Lead Over Apple in Smartphone Market
Apple, Samsung Take Smartphone War to First U.S. Jury
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.