Apple Inc (Nasdaq: AAPL) scored a sweeping legal victory over Samsung Electronics (Seoul: 005930) on Friday as a U.S. jury found the Korean company had copied critical features of the hugely popular iPhone and iPad and awarded the U.S. company $1.05 billion in damages.
The verdict -- which came after less than three days of jury deliberations -- could lead to an outright ban on sales of key Samsung products and will likely solidify Apple's dominance of the exploding mobile computing market.
Apple's victory is a big blow to Google, (Nasdaq: GOOG) whose Android software powers the Samsung products that were found to infringe on Apple patents. Google and its hardware partners, including the company's own Motorola unit, could now face further legal hurdles in their effort to compete with the Apple juggernaut.
Samsung lawyers were grimfaced in the quiet but crowded San Jose courtroom as the verdict was read, and the company later put out a statement calling the outcome "a loss for the American consumer."
The jury deliberated for less than three days before delivering the verdict on seven Apple patent claims and five Samsung patent claims -- suggesting that the nine-person panel had little difficulty in concluding that Samsung had copied the iPhone and the iPad.
Because the panel found "willful" infringement, Apple could seek triple damages.
Apple upended the mobile phone business when it introduced the iPhone in 2007, and shook the industry again in 2010 when it rolled out the iPad.
It has been able to charge premium prices for the iPhone -- with profit margins of as much as 58 percent per phone -- for a product consumers regarded as a huge advance in design and usability.
The company's late founder, Steve Jobs, vowed to "go to thermonuclear war" when Google launched Android, according to his biographer, and the company has filed lawsuits around the world in an effort to block what it considers brazen copying of its inventions.
The legal win on Friday came one year after CEO Tim Cook assumed the helm of the company. Shares in Apple, which just this week became the biggest company by market value in history, climbed almost 2 percent to a record high of $675 in after-hours trade.
Brian Love, a Santa Clara law school professor, described the verdict as a crushing victory for Apple: "This is the best-case scenario Apple could have hoped for."
CHALLENGE FOR COMPETITORS
The verdict comes as competition in the mobile device industry intensifies, with Google jumping into hardware for the first time with its Nexus 7 tablet, and Microsoft'(Nasdaq: MSFT)'s new touchscreen friendly Windows 8 coming in October, led by its "Surface" tablet.
Apple's victory could present immediate issues for companies that sell Android-based smartphones and tablets, including Google's own Motorola subsidiary, which it acquired last year for $12.5 billion, and HTC of Taiwan.
Amazon (Nasdaq: AMZN) -- which has made major inroads into the tablet market with its cheaper Kindle Fire -- uses a modified version of Android for its Kindle products but has not yet been subject to legal challenge by Apple.
Sterne Agee analyst Shaw Wu said the entire Android universe may now have to consider "doing something different."
"It doesn't take a rocket scientist to look at it and figure it out," he said. "Prior to the iPhone, none of the phones were like that. Android, if you look at it, is very similar."
Some in the industry say Apple's legal offensive is bad for consumers.
"Thx Apple it's now mandatory for tech companies to sue each other. Prices go up, competition & innovation suffer," Mark Cuban, an Internet entrepreneur and owner of the Dallas Mavericks basketball team, said in a Twitter message.
But the legal battles are far from over. In a separate but related case, Apple has won a pre-trial injunction against the Google Nexus tablet. Another lawsuit, against Motorola, was thrown out recently by a federal judge in Chicago, but litigation between the two at the International Trade Commission continues.
Earlier on Friday, a South Korean court found that both companies shared blame for patent infringement, ordering Samsung to stop selling 10 products including its Galaxy S II phone and banning Apple from selling four different products, including its iPhone 4.
Still, the trial on Apple's home turf -- the world's largest and most influential technology market -- was considered the most important test of whether Apple would be able to gain substantial patent protection for the iPhone and the iPad.
FAST-PACED, HIGH-STRESS TRIAL
The legal fight began last year when Apple sued Samsung in multiple countries, and Samsung countersued. The U.S. jury spent most of August in a packed federal courtroom in San Jose -- just miles from Apple's headquarters in Cupertino -- listening to testimony, examining evidence and watching lawyers from both sides joust about patents and damage claims.
Jurors received over 100 pages of legal instructions from U.S. District Judge Lucy Koh on August 21, prior to hearing the closing arguments from attorneys.
Lawyers from both tech giants used their 25 hours each of trial time to present internal emails, draw testimony from designers and experts, and put on product demonstrations and mockups to convince the jury.
At times, their questions drew testimony that offered glimpses behind the corporate facade, such as the margins on the iPhone and Samsung's sales figures in the United States.
From the beginning, Apple's tactic was to present what it thought was chronological evidence of Samsung copying its phone.
Juxtaposing pictures of phones from both companies and internal Samsung emails that specifically analyzed the features of the iPhone, Apple's attorneys accused Samsung of taking shortcuts after realizing it could not keep up.
Samsung's attorneys, on the other hand, maintained Apple had no sole right to geometric designs such as rectangles with rounded corners. They called Apple's damage claim "ridiculous" and urged the jury to consider that a verdict in favor of Apple could stifle competition and reduce choices for consumers.
Samsung's trial team appeared to suffer from strategic difficulties throughout the case. Judge Koh gave each side 25 hours to present evidence, but Samsung had used more time than Apple before Samsung even began calling its own witnesses.
By the end of the trial, Samsung attorneys had to forgo cross-examination of some Apple witnesses due to time constraints. During closing arguments, Samsung lead attorney Charles Verhoeven played mostly defense, spending relatively little time discussing Samsung's patent claims against Apple.
The jury had not been expected to return a decision so rapidly. Even on Friday, Samsung's lead lawyer was spotted casually clad in a polo T-shirt and jeans.
But late Friday afternoon, a court officer announced a verdict had been reached. After the verdict was read, Koh found some inconsistencies in the complex jury form and asked the jury to revisit it, ultimately resulting in a reduction of about $2 million in the damages award.
The jury decided Samsung infringed six out of seven Apple patents in the case, and that Apple had not infringed any of Samsung's patents. Apple's protected technology includes the ability for a mobile device to distinguish one finger on the screen or two, the design of screen icons, and the front surface of the phone.
The jury also upheld the validity of Apple's patents, and said Samsung acted willfully when it violated several of Apple's patents. That could form a basis for Koh to triple the damages tab owed by Samsung.
"This is a vindication of Apple's effort to create significant airspace around their design, and that's relevant not just for Samsung, but for firms coming over the horizon," said Nick Rodelli, a lawyer and adviser to institutional investors for CFRA Research in Maryland.
Apple's lawyers said they planned to file for an injunction against Samsung products within seven days. Koh set a hearing for September 20.
The case in U.S. District Court, Northern District of California, is Apple Inc v. Samsung Electronics Co Ltd et al, No. 11-1846.
(Additional reporting by Poornima Gupta and Edwin Chan; Editing by Gary Hill)