Two weeks ago, the United States Court of Appeals for the Federal Circuit held a hearing on the damages award and underlying liability issues in the first Apple v. Samsung case. In my commentary on the official recording of the hearing, I also talked about something that was not discussed at the hearing at all: Samsung's challenges to the validity of the '915 pinch-to-zoom API-related patent. The fact that the judges didn't ask questions about it and that counsel had a different focus does not at all mean that the related part of Samsung's appeal is going nowhere. The only thing it suggests is that everyone felt that everything had already been said and that the issue was ripe for decision. And it would increasingly be a surprise if that decision was favorable to Apple:
Earlier this week Samsung informed the appeals court of a decision by a Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO) that could cost Apple up to $150 million just in that one lawsuit. The '915 patent, Apple's relatively most valuable software patent in the first Samsung case (most of the damages related to design patents, but Apple's per-unit royalty claim was higher for the '915 patent than for rubber-banding and tap-to-zoom-and-navigate), has been on a rough reexamination ride for some time. From the first Office action two years ago, the USPTO's Central Reexamination Division has consistently held all claims of this patent, including the one Apple asserted against Samsung (claim 8), invalid. Another thumbs-down Office action (called "final" though it wasn't "final" in the true sense of the word) came down in July 2013. About a year ago, Apple realized that the only option it had left was to appeal the examiner's rejection decision within the USPTO, to a PTAB. On appeal, the examiner stood by his decision as I reported in July (this year). A PTAB hearing was held recently, and the three-judge panel just affirmed the examiner's rejection of all claims (this post continues below the document):
14-12-16 PTAB Decision Affirming Rejection of Apple's '915 Patent by Florian Mueller
In a notice filed with the Federal Circuit, Samsung's counsel argues that "[a] final decision by an administrative body has collateral estoppel effect" and describes this as "an additional reason to reverse the $114 million in lost profits awarded for infringement of the '915 patent and to vacate the $35 million in royalties awarded for infringement of the three utility patents-in-suit."
The latter part about vacating that award would, even though the amount is relatively small by the standards of these companies and their dispute, require a damages retrial involving more or less all products at issue. And a retrial may be necessary anyway because of the design patent and/or trade dress damages issues in the case (which the appellate hearing focused on).
So for the first Apple v. Samsung lawsuit, there is no end in sight. And the process concerning the '915 patent isn't over either. Apple can choose to immediately appeal the '915 decision to the Federal Circuit. Samsung's notice to the appeals court also says that "Apple can request a discretionary [PTAB] rehearing."
Even if the appeals court disagreed with Samsung on collateral estoppel, the USPTO decision can't be ignored. The credibility problem the '915 patent faces is that no one at the USPTO who looked at this patent after an anonymous requester presented some new invalidity theories-- by now, four persons: the (re)examiner and the three PTAB judges--believed at any point that a single claim of this patent deserved to be upheld. That is, frankly, pretty damning. Of course things can always change, but it's less and less likely.
If the appeals court didn't agree with Samsung on collateral estoppel, it would still have to make its own decision on Samsung's invalidity theories. The legal standard for invalidating a patent in an infringement litigation is higher (clear and convincing evidence) than at the USPTO (preponderance of the evidence), but the consistent stance of the USPTO (again, four persons) has been clear and convincing.
Apple's decision in the summer to drop its cross-appeal (i.e., not to pursue an injunction anymore in that case) may also have to do with Apple's realization that this patent is going down the tubes even though it still can appeal the USPTO's final decision to the Federal Circuit. The '915 patent was the only patent in the first California case with respect to which Apple argued that Samsung continued to infringe (though Samsung said it had a workaround). If there was any patent in the first Samsung case over which Apple would have liked to win an injunction (in order to then have a debate over whether the workaround indeed is a workaround), it would have been this one. But Apple is now, instead, fighting hard for an injunction in the second California case against Samsung, which Judge Koh denied in August. Samsung had a deadline this week to respond to Apple's opening brief on appeal, and the docket indicates that the filing was made but it's not yet publicly accessible (I'll comment on it when it's available).
The state of Apple's patent enforcement efforts and the strategic landscape
Apple's patent assertions, despite the undoubtedly great work performed by the lawyers involved, have massively underperformed the expectations I used to have for some time (even in the summer of 2013 I still thought that, after some setbacks, there were signs of Apple still turning this around). I do know that a lot of people in different places were very surprised when they felt this year that my tone had changed. I can understand that, but conspiracy theories are a poor substitute for facts. The reason I adjusted my position was that after the summer of 2013, several important things happened that showed to me Apple wasn't going to get huge leverage. There came a point when I had to face those facts and draw the appropriate conclusions. And I was indeed thoroughly disappointed when I saw Apple bring an outsized damages claim in the second Samsung case. It looked to me like a desperate act after repeatedly failing to win (lasting) sales bans, and it was inconsistent with Apple's own positions on the value of patents in other contexts--positions I always supported and never disagreed with.
Apple itself vindicated the adjustment of my positions through its strategic retreat. It agreed with Google/Motorola to drop all pending litigation between those companies; it then agreed to confine the once-earth-spinning Samsung dispute to only one jurisdiction, the United States. And it hasn't brought any new cases, neither against long-time rival Samsung nor against any other Android device maker, in a long time. So it wasn't just me who determined this year that this was going nowhere for Apple. Apple's leadership recognized this and decided accordingly.
Even the remaining part of the Apple-Samsung will go away at some point--I find it hard to imagine that they (meaning both companies, but particularly Apple because it started this) really want to have a third California trial in just their first lawsuit (or a fourth trial in total).
For as much as Apple's supposedly "thermonuclear war on Android" underperformed my expectations, Apple's ability to command premium prices and still sell incredibly high volumes of products, has to a comparable extent outperformed them. According to Gartner's latest data, more than 83% (five out of six) of smartphones sold in the world run on Android, and more than 12% on iOS. But then there's also data that shows iPhone and iPad users are really much more active, and obviously many low-cost Android phones are technically smartphones but practically used as feature phones. In fact, just for app testing purposes I bought various low-cost Android phones (all of them in the 50 euro price range) from different vendors with screen sizes from 3" to 4". If you look at it strictly through a functionality lens, those are smartphones and you can run a million apps or so on them. But Apple is still doing very well. Incredibly well in fact.
I also bought an iPhone 6 Plus and an iPad Air 2. I now use the iPhone alternatingly with an Android phablet. My Android phablet has a significantly higher resolution, and when you view photos, it's quite a difference, and it's even noticeable when you just look at the standard user interface. But there's definitely some magic detail about the iPhone user experience. For example, when switching (in a test program for a component of an app I'm working on) from portrait to landscape (or the other way round), it's not just a sudden repositioning of all items but a smooth animation that I haven't seen in any Android app to date. That animation won't be patentable. But it's one example (and I could give more of these) of how Apple still manages to differentiate. Without litigation. Without injunctions.
What also still helps Apple to justify a price premium (and also has nothing at all to do with patent litigation) is the average quality of the apps available for the two platforms. I regularly look at many apps on both platforms. The two game categories I follow most closely are trivia games and puzzle games. In the trivia game genre, there's no noticeable difference in quality between Android and iOS, thus no reason to pay a premium price for an iPhone. In the puzzle games field, however, the difference is rather significant. While Candy Crush and some other titles from major publishers look and feel the same on both platforms, I've seen some really great games in this genre from smaller developers that exist only on iOS (or all you may get for Android is an unauthorized clone of inferior quality). There's still a lot of talented developers who develop primarily for iOS and invest more heavily in their iOS versions, despite the fact that you can reach so many more people in the world with an Android app. That's because iPhone users have more purchasing power than Android users.
It turns out that patent litigation was neither a winning strategy nor a necessary last resort for Apple. I can still understand why they thought they had to enforce their rights, but Apple's greatest strategic assets appear to be unprotectable by patents. IP has never been the only entrance barrier in this industry. It will continue to be important, and even Apple may at some point get more leverage out of its patents in different contexts. But stuff like a patent on a pinch-to-zoom-related API turned out to be of no value in the end. It's time for the U.S. part of Apple v. Samsung to end. With the Holiday Season so close, it may not happen this year, but next year is most probably the year for the definitive settlement.
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