Apple versus Samsung “Copy That”

The Economist, 25th August, 2012

AFTER a jury in a federal court in California ruled on August 24th that Samsung had violated
some of Apple‘s patents, one wag online began referring to the South Korean company as
―Samesung‖. But for Samsung, the verdict is no laughing matter. As well as vindicating Apple,
the jury awarded it $1 billion in damages—an amount that could be tripled because Samsung is
deemed to have ―willfully‖ copied some aspects of Apple‘s wildly popular iPhone and its iPad
tablet computer.

The outcome of the case will have significant repercussions in the tech world. For a start, it will
encourage Apple to lob even more lawsuits at firms it believes are ripping off its intellectual
property. It will also encourage other companies that make smartphones and tablets either to
license patents from Apple or to modify the design of products to minimise the risk they will be
hit with lawsuits too. And the whopping size of the damages will intensify the debate over
whether or not America‘s system for protecting innovations needs revamping.

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Samsung has already made clear that it intends to appeal against the ruling, a process that could
take months or, more likely, years. But legal experts think the chances of getting it overturned
are slim. The jury concluded that the company had violated a number of Apple‘s patents
covering things such as a ―rubber-banding‖ feature in its firm's operating system, which makes
lists jump back when pulled beyond their limit, and a ―pinch-and-zoom‖ feature which is now
found in a wide range of mobile devices. It also upheld Apple‘s claim that Samsung had
infringed on its design patents by copying aspects of the iPhone's design, such as the system used
to display icons.

At the same time, the jurors tossed out Samsung‘s charge that Apple owed it money for violating
several of its patents, including one that allows a user to listen to music in the background while
carrying out another task on a device. On the same day that the American ruling came out, a
court in South Korea that had been hearing a similar case between the two firms concluded that
both were guilty of violating patents and banned some of their devices from being sold in the
country. But because America is the world‘s largest market for consumer electronics, the
Californian ruling will have a far bigger impact.

The fight between the two companies had been brewing for some time and was a litmus test for
Apple‘s determination to thwart the progress of Android, a rival mobile operating system
championed by Google and embraced by Samsung and a host of other mobile-device makers.
(Gartner, a research firm, says that more than two-thirds of the smartphones shipped in the
second quarter of 2012 were powered by Android.) Before his death last year, Apple‘s co-
founder, Steve Jobs, told his biographer Walter Isaacson that he believed Android had stolen
important features from Apple‘s iOS operating system and said he would wage ―thermonuclear
war‖ on it.

His successor, Tim Cook, who celebrated his first year at the helm of Apple on the same day that
the court ruling came out, isn‘t about to declare a truce. During the trial, the notoriously secretive
American firm revealed details about its design process and put on the stand a couple of its most
senior executives. It also crowed about the verdict. In a statement the firm thanked the jury for
sending ―a loud and clear message that stealing isn‘t right‖ and said that the evidence presented
in court ―showed that Samsung‘s copying went far deeper‖ than even Apple had suspected.

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Samsung, unsurprisingly, had a different view of the outcome, describing the ruling as ―a win for
Apple, and a loss for the American consumer‖. ―It is unfortunate,‖ it added, ―that patent law can
be manipulated to give one company a monopoly over rectangles with rounded corners, or
technology that is being improved every day by Samsung and other companies.‖ The South
Korean firm did, however, have a couple of consolation prizes: the jury found that its Galaxy
Tab tablet computer had not copied the iPad‘s design, as Apple claimed, and it refused to grant
Apple the full $2.5 billion in damages it had asked for.

Robert Scoble, a tech pundit, has even argued that the outcome of the case could be seen as a
victory for Samsung on the ground that the penalty is a small price to pay for copying stuff that
has helped the firm become a powerhouse in mobile devices. But other experts have pointed out
that Apple has a huge stash of patents that it is now likely to defend more aggressively. And it is
bound to step up its efforts to have offending Android devices banned from sale. The firm has
already asked for a preliminary injunction against Samsung to stop it selling the products that
infringe on Apple‘s patents in America. A hearing is set for September 20th.

As a result of all this, makers of Android devices will either have to fork out money to license
Apple‘s technology, which will push up the price of their gadgets, or alter the design of their
products sufficiently to shield them from legal challenges. That could slow the roll-out of new
devices in the short term. But it could also spark a new round of innovation in the long run, as
firms in the Android ecosystem seek to differentiate their offerings to protect them from more
legal strikes by Apple.

The case will also stir up further debate about the way America‘s patent system operates. Its fans
are already hailing the California ruling as proof that the patent system protects inventors and
that its benefits outweigh the costs. But critics will seize on the ruling as evidence that the
litigation frenzy and a proliferation of software patents are having a chilling effect on innovation,
leaving society worse off. If Samsung pursues its appeal all the way through the America's legal
system, the Supreme Court may end up having to decide which camp is right

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The patent war between Apple and Samsung: Game Theory
Posted on April 13, 2013 by John Smith K

―AFTER a jury in a federal court in California ruled on August 24th 2012 that Samsung had
violated some of Apple‘s patents, one wag online began referring to the South Korean company
as ―Samesung‖. But for Samsung, the verdict is no laughing matter. As well as vind icating
Apple, the jury awarded it $1 billion in damages—an amount that could be tripled because
Samsung is deemed to have ―willfully‖ copied some aspects of Apple‘s wildly popular iPhone
and its iPad tablet computer.‖ The Economist (2012)

The current situation Apple and Samsung are now facing can be depicted as a Duopolistic
market, when ”only a couple of firms provide a lot of the output” In this type of markets, firms
are quite concerned about how its rival is reacting . This interest is one of the drive rs behind the
‗Apple and Samsung Patent war‘.

Decision making in these situations requires strategic thinking and implies that companies take
each others decisions into account. On similar lines as the Prisoner‘s Dilemma, each of the two
companies would have to decide on whether or not to file a lawsuit against the other. Assuming
that a company that files a lawsuit also wins it against its competitor, the competitor would have
to either license the technology or invest heavily in R&D for alternate technolo gies. This would
push up the price of its products resulting in a drop in profits.

The following would be consequences of each company‘s individual choice on whether or not to
file a law suit against the other:

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The asterick(*) represents the profits made by a firm. The higher the number of astericks – the
greater the profits made.

If Apple files a suit against Samsung – given Apple’s action Samsung’s profits maximise if it files a
suit in response.

This is supported by the article – Samsung had to pay $ 1 Billion in damages to Apple. The cost
incurred on its products would increase in future because of licensing/R&D. Also there would be
a shift in customers from Samsung to Apple due to loss of reputation. (This explains greater
profits to Apple when Samsung does not respond by filing a suit)

If Apple does not file a suit against Samsung – given Apple’s action Samsung’s profits maximise if
it files a suit in response.

As we see : Whether or not Apple files a suit, Samsung files a suit in responce. So, fi ling a suit is
Samsung‘s Dominant strategy.

If Samsung files a suit against Apple – given Apple’s action Samsung’s profits maximise if it files a
suit in response.
If Samsung does not file a suit against Apple – given Apple’s action Samsung’s profits maximise if
it files a suit in response.

As we see : Whether or not Samsung files a suit, Apple files a suit in responce. So, filing a suit is
Samsung‘s Dominant strategy.

The Nash equilibrium is for both companies to file a suit. Given the payoffs, it is always in the
interest of each firm to increase output and their actions are non- cooperative

The Nash solution is for both companies to collude and restrain from filing a suit thus increasing
their joint profits.

Apple‘s strategy is not to compete on cost but on differe ntiation. The company needs to protect
its products uniqueness, securing its capabilities of positional advantage through patents that
cover Design and Operating System features. Patents and licences are restrictions that protect
Apple‘s innovations from being copied. They provide the firm a great market power and also the
first mover advantage, the result of pioneering certain market segments.

From a business model perspective Apple‘s key choice is Premium Price Positioning which is
supported by a high Willingness to Pay. Apple has to prevent imitation of its resources that drive
the highest Reservation Price for customers, thus supporting it’s R&D costs and a higher
competitive advantage than Samsung.

Nash Equilibrium: It is an outcome reached when the actions of the participating firms are non
cooperative. Each firm takes decisions that maximize its own profit, given the actions of the
other firms. The firms do not collude to maximize the joint profits.