Apple patent ruling victory redraws smartphone battle lines

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Friday's landmark verdict in Apple's San Jose battle with Samsung over smartphone design patents will – if Samsung is to be believed – usher in an era of iPhone dominance in the "post-PC" world.

Samsung, the biggest technology company in the world by revenues, responded forcefully to the Californian jury's verdict that it had infringed all but one of the patents Apple has asserted against it, calling it "a loss for the American consumer [that] will lead to fewer choices, less innovation, and potentially higher prices." It is challenging the verdict in San Jose and will appeal to a higher court if that fails.

Apple's victory, which came faster and more emphatically than most observers had expected, will have an impact on smartphone design beyond just Samsung. With the jury's validation of Apple's hardware and software patents, rivals such as HTC, Sony and Lenovo are on notice that Apple is not afraid to assert its ownership of fundamental design details such as rounded corners, edge-to-edge glass fronts and a grid of apps.

Friday's ruling "is a clear message to the rest of the industry to get busy licensing or get busy innovating," says Morgan Reed, executive director of the Association for Competitive Technology, a body that represents smaller technology firms.

Some analysts see the possibility that with Apple seeking an import ban on Samsung's infringing devices, other manufacturers' smartphones that use Google's Android operating system could also be affected. Taiwan's HTC had to delay the launch of its latest smartphones after earlier losing a similar patent court case against Apple.

Android vendors – including Samsung – had hoped that Google's $12.5-billion (U.S.) acquisition of Motorola Mobility, largely for its patent arsenal, would shield them from such a threat but may now be forced back to the drawing board.

"Samsung is already more consciously avoiding copying," says Horace Dediu, mobile analyst at Asymco. "The result is mostly symbolic but management at Samsung and other companies will perhaps hesitate more and be more fearful."

Yet if the short term is fraught with uncertainty and risk for Apple's rivals, longer term some see Apple's legal victory hurting it, as its rivals are spurred to create more novel devices.

"In the short to intermediate term, an Apple win forcing competitors to come up with different designs should be positive because Apple is a better designer and could have a monopoly on key features," said analysts at UBS in a note last week.

"In the long run, however, it could hurt Apple because the real threat is not a competitor beating Apple at its own game but instead changing the game. The likelihood of Apple being leapfrogged or a rival creating a new category is greater if they have to think out of the box."

Analysts see Microsoft as the most likely beneficiary of that, thanks to its original tile-based Windows Phone designs. Two decades ago, it was Apple that lost an epic patent battle to Microsoft, over the Macintosh's graphical user interface.

"Here's the irony – Apple driving a blow to support Microsoft." said Benedict Evans of Enders Analysis. "It does make Windows Phone more attractive to other people."

Microsoft has not officially commented on the case but its director of marketing communications for Windows Phone took to Twitter to gloat on Saturday morning. "Windows Phone is looking gooooood right now," Bill Cox tweeted.

Nokia's distinctive Windows Phone flagship, the Lumia, has sold poorly in the US but was given an indirect compliment by Apple's legal team during the trial, when it was included in a slide that sought to show not all smartphones have to be black rectangles with rounded corners.

Carolina Milanesi, mobile analyst at Gartner, said that Microsoft's support for vendors making Windows devices, and various other licensing requirements for using Android, can mean the two platforms are little different in terms of costs.

Nokia and Microsoft have both struck cross-licensing agreements with Apple, protecting them and suggesting that Apple's patent arsenal will be aimed at Android for the forseeable future.

Asymco's Mr Dediu says that impact of the "patent case of the century," as some have called Apple's fight with Samsung, may take as long to manifest as Microsoft's antitrust battle with the U.S. government in the late 1990s.

"The trial of the last century, in terms of technology, was Microsoft," he says. "It did have lasting effects but it took a very long time to see the consequences." If Microsoft had been broken up, Mr. Dediu suggests, "Microsoft might be a more dynamic company and maybe Windows would have been a better mobile player."

For now, though, the pressure is on Samsung. The Korean giant must decide whether its forthcoming devices must be redesigned to avoid being caught by the ruling. It has also suffered a broader reputational challenge in that a jury has in effect ruled it is less innovative than its biggest rival.

"The effect on Samsung's brand and reputation is the main issue for the company," said Mark Newman, analyst at Sanford C Bernstein. "$1-billion is a large amount of money, but it's fairly small in comparison with how much money Samsung makes in phones."

More harmful may be an injunction which Apple is seeking to block the sale of several Samsung devices in the U.S., with a hearing set for Sept. 20. Such a ban would not cover its newest models, including the popular Galaxy S3, but the infringing phones probably accounted for a significant, if declining, portion of Samsung's sales in the U.S.

In the meantime, Apple is readying the launch of its new iPhone, widely expected next month. Observers will be looking closely to see if it is resting on its laurels, as Microsoft did for so long, or continuing the innovation which brought its latest victory.