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Samsung can appeal against Apple, but the damage is already done

One of the most common responses we’ve heard since news of the Apple-Samsung ruling broke last week boils down to: “Who cares? Samsung will appeal it.” That’s both true and remarkably irrelevant when evaluating the potential effects of the verdict. Trials and appeals take months or even years; companies can’t afford to wait for judicial instruction when it comes to planning roadmaps. With that in mind, we’ve put together a short list of the most significant potential impacts of the case.

Long-term damage

Firstly, there’s the effect on Samsung itself. Because the jury found the South Korean manufacturer guilty of deliberate infringement, Judge Koh has the right to triple the award and slap lawyer fees on top of it. That could come out to between $3.2 and $3.5 billion (£2 billion and £2.2 billion). The judge could also issue an injunction against Samsung shipping infringing devices. Apple was told to file a list of phones it wants to ban by 27 August (yesterday), and will hold a hearing on the matter on 20 September. Banning device sales would potentially cripple Samsung’s earnings and cause far more long-term damage than the initial $1 billion (£630 million) fee.

While this case dealt with older phones, Apple had already filed suit against Samsung over a number of newer devices in the U.S. That case, scheduled for 2014, covers the Galaxy S II, Skyrocket, Epic 4G Touch, Galaxy Nexus, Illusion, Captivate Glide, Exhibit II 4G, Stratosphere, Transform Ultra, Admire, Conquer 4G, and Dart. The Galaxy Tab 7.0 Plus and Galaxy Tab 8.9 are also named. With a sweeping win here, Samsung has every reason in the world to settle the second case – if Apple will let it.

There’s also the matter of modifying future products to avoid infringing on Apple’s patents. The verdict against the company was more damning than most analysts expected. If Samsung played its cards cautiously and began adjusting product designs months ago, the net effect should be small. If, however, it was banking on a victory, the upheaval could take months to sort out. Between the delays, potential injunctions, and the second follow up case, Samsung could lose tens of billions, not to mention critical market share.

Secondly, there’s the impact on the wider Android handset market. Apple focused on Samsung because it viewed the South Korean company as the most egregious offender and the greatest threat. In the US, however, most patent litigation defences focus on attacking the validity of the patents in question. Samsung utterly failed to overturn any of its rival’s patents, which means no other company is likely to prevail, either.

This gives Apple a much stronger bargaining position – and the company will likely use it. Say, for example, that Apple and mobile phone manufacturer XYZ were in the midst of an on-going discussion regarding certain patents that Apple believed XYZ was infringing. On 1 August, XYZ might receive a license offer for said patents that worked out at $5 per device, per patent. After Friday, a new copy of that letter goes out, bumping the price to $8. Attached is a note that says: “This offer is only good until 20 September. After 20 September, we’ll file a lawsuit. Any agreement reached after that date will have a minimum fee of $15 per device per patent. XYZ will also be responsible for all of our legal fees. By signing this agreement, you agree to pay us the specified amount regardless of any judicial ruling in other cases.”

Samsung was the only Android manufacturer in a real position to challenge Apple. Motorola Mobility may be owned by Google, but it’s in the middle of restructuring and refocusing its own brands. HTC’s profits have fallen for three quarters in a row, and Nokia is flailing like a bleeding swimmer in a shiver of sharks. LG’s sales are falling, Sony Mobile Communications is haemorrhaging money. Apple isn’t likely to be too worried about ZTE and Huawei, at least not when it comes to the U.S. market at the moment – though they may be players in the States in the future.

Fallout on Android

Thirdly, there’s the radioactive fallout on Android itself. Some people have dismissed this point on the grounds that Apple didn’t really go after Android, and because Google has lots of money. (If this last point seems a bit vague to you, then you aren’t alone). Google’s funds, at least, are indisputable. Whether or not it’s going to use those funds in ways that help the larger group of handset manufacturers is a lot less certain. The company clearly wasn’t anywhere to be seen in this Samsung case.

Samsung was one of the only companies actually making any money on Android devices. This decision threatens that profitability and gives Apple a heavy stick it can use to beat even more money out of the other IDMs. With Apple holding an estimated 77 per cent of the entire smartphone market’s profit share – see the above graph, courtesy of Asymco, for a visual illustration of how bad things have got – one wonders why the Cupertino company feels the need.

Is it fair to blame Android for Samsung’s infringements? No. But the handset manufacturers currently drowning in the Android Sea aren’t going to care. You can bet both RIM and Microsoft are going to redouble their efforts to attract vendor attention, particularly if Apple gears up to go after other Android handset manufacturers in a prominent way.

Does this mean Android is doomed and Samsung is going to exit the mobile business? Of course not. But Apple – already by far the largest and richest company in the smartphone industry – is now even more powerful than it was before. It can create licensing terms that give the other beleaguered handset manufacturers little choice but to sign. This ruling may ultimately do nothing positive for Microsoft or Research in Motion, but it hurts Android in ways that can’t be easily fixed. It may be the most common mobile OS, but it’s increasingly the OS of companies that don’t make any money.

Sure. Samsung can appeal. But no matter what the ruling, it’s not going to undo the damage that’s been done.