The battle for smartphone supremacy has become a two-horse race, with Samsung taking the lead from Apple and its vaunted iPhone. Now Apple is trying to wrest it back by pummeling Samsung over alleged patent infringement. Here's a peek into Apple's patent-litigation playbook - and prospects.
Apple wants Samsung to pay $2.5 billion and take 25 devices off the market for copying its iPad and iPhone designs. Samsung figures that it owes Apple $28,000 at most. That is less than the cost of a new Mercedes Benz. Obviously, the companies are not close to reaching a settlement outside of court.
The Best Defense is a Good Offense
Apple's iPhone and iPad are considered the best of the best mobile devices on the market. The average consumer in the United States will likely think of an iPhone when someone says the word smartphone. So why is Apple pursuing Samsung so relentlessly?
Because Apple is not the world’s most successful smartphone maker. That honor belongs to Samsung.
Samsung shipped nearly 50 million smartphones in the second quarter of 2012. Apple shipped 26 million. For the quarter, Samsung controlled the mobile industry with 32.6% of market share against 16.9% for Apple. That is an impressive figure for Samsung and disappointing for Apple, but the fact is that Apple is competing with an aging product (the iPhone 4S) that was released in October 2011. Samsung releases new smartphones every quarter replete with robust marketing campaigns.
“[Apple's] quarter-over-quarter shipment decline came six months after it unveiled its latest iPhone," research firm IDC stated in its quarterly smartphone market share report. "The decline is not unusual as iPhone shipment volume is highest in the first two quarters after its release. The company’s once-a-year release cycle usually results in two quarters of lower volumes leading up to the next-generation model introduction.”
It makes sense that Apple would be down for the quarter as consumers wait for a new iPhone, which is expected in the fall. Apple’s Q2 results are actually very similar to same quarter last year, when shipments were depressed until the iPhone 4S came out. Apple then dominated the holiday shopping season and beginning of 2012.
During Apple's lulls, though, Samsung bests the iPhone with a wide variety of Android Galaxy smartphones. Samsung’s approach lacks subtlety. It releases a plethora of devices across different price points and makes deals with as many carriers as possible. It has proven effective to the tune of 50.2 million devices shipped in Q2.
Samsung has a very long tail of devices and one of Apple’s goals is to limit its backlog. Why would someone spend $199 on an iPhone 4S or even $99 on an iPhone 4 with a contract when Samsung offers Galaxy devices for next to nothing? Every Galaxy sold is one less iPhone in a consumer’s pocket. This is what Apple is trying to stop.
Apple's Prospects for Victory
A total victory for Apple would be gaining the full $2.5 billion award (or more) and a ban of all 25 products from the United States. The court must decide not only if Samsung’s devices copied Apple, but also if Samsung willfully and malevolently copied Apple to steal market share from the iPhone maker. If Samsung made conscious choices to copy the design of the iPhone and iPad, then the award could be much higher.
However, a full victory by Apple is not likely. As the plaintiff, Apple faces the burden of proof. It has to prove that everything it says about Samsung is true beyond doubt. That will be very difficult to pull off in a trial where time is limited. Samsung will claim - rightfully - that it is also an innovator of mobile products, and that Apple is unfairly trying to limit competition.
Samsung’s biggest win would be to get Apple off of its back so it could continue business as usual which, as we have seen, is very good. Samsung has already addressed many of Apple's complaints in more recent Galaxy models, such as the brand new Galaxy S III, so those are insulated from the possibility of being banned for the time being.
No matter the outcome, Apple's campaign against Samsung (and every other significant Android manufacturer) is not going to stop. Once one series of patents is litigated and a round of devices affected, Cupertino will find fault with the next bunch of devices. The Galaxy Note, Nexus, S III, and all of Samsung’s newest line of Galaxy Tabs are likely to become bones of contention in 2013.