There is a Tendency to View Patent Prowess as a Function of Reputation and Perceived Innovation

Much of billion dollar verdict in Apple v. Samsung turned on brand reputation and perception of what it does that is truly innovative.

“What Apple v. Samsung Says About US Jury Trials” in Managing Intellectual Property quotes Ronald Beaton of Trial Graphix as saying “Juries in Silicon Valley are particularly IP-Savvy. The longer you live there the more it gets into your head.”

*     *     *

Apple’s brand reputation is tops, but what about its less than stellar IP performance? You can hardly argue with Apple’s virtually world leading market value (PetroChina is number one) and unrelenting growth. It’s patent strategy, while less cohesive, did not stop it from winning a billion dollar victory over a generally stronger patent (but not brand) rival. If nothing else, Apple is the consummate technology packager, and it takes every opportunity to let audiences know it. Its reputation as a design leader was at stake, as was its perception as an innovator. Samsung’s infringement of that asset, it could be said, is what the local jury rewarded.

Brand and IP reputation are intrinsically bound. Apple’s patent history is not the most auspicious. Many say it has the wrong or too few patents (probably less than 3,000 worldwide, excluding those it paid $2.6 billion for in the Rockstar Consortium). The company is believed to be vulnerable in many areas that it sells products. (See smart phone suit chart below.) Samsung has some 30,000 patents.

Faith in Proprietary Design

Putting so many eggs in its design patent basket was a bold move for Apple that paid off for now. The right combination of foreign infringer, venue (Silicon Valley) and jury pool,  clearly paid off. So did the company’s perceived value as a technology innovator.

One wonders if the chips would have fallen the same way if it were Google or Facebook defending itself in San Jose on a patent infringement charge asserted by a Silicon Valley neighbor. Apple to SV is what the General Motors was to Detroit. I’m not certain the others can claim the same loyalty.

At the end of the day Samsung is not likely to have to cut a check for $1 billion anytime soon, if ever. The effect on an injunction on its devices, should it be granted, will be negligible according to Sanford C. Bernstein analyst Mark Newman. The devices in question are older ones and will account for less than 1.4% of the Korean company’s worldwide profits. And bet you didn’t know this: Apple is still Samsung’s biggest customer for mobile device components.

In the end, Apple v. Samsung is really about a kind of court-ordered mandatory license that sets a high bar for any potential competitors. Samsung can certainly afford the “damages,” and what’s wrong with their having to live with an oligopoly if the high cost of entry narrows the competitive field? For smartphone outsiders the answer is simple: they will have to innovate better to succeed.

The uncharacteristic respect that the court and jury showed for design patents may have more to do with the fact they are Apple’s than any legal precedent or direction from the bench.  Brand can be powerful tool for enhancing patents and positioning a business as inherently innovative. It is something that Marshall Phelps realized at IBM in the late 1980s, as did Bill Gates at Microsoft starting in the late 1990s.

*     *     *

A Culture of Success

Patent portfolio holders would be wise to be more transparent about their IP activities, and, where appropriate, attempt to establish a culture of IP success and ROI. A company’s reputation for innovation and managing its IP rights proficiently, today, can be a valuable asset.  Often, it can hinge on its perceived ability to innovate.

Michael Hages, an IP attorney writes in Core 77, a design magazine, that “The traditionally meager status of design patents is the reason why many designers are likely surprised by the prominence of design patents in Apple v. Samsung.”

“The real potential for impact, however lies in the mere fact that the design and business worlds are paying close attention to the design patent side of this case in the first place. Design patents have been around for over 150 years and in that time have only seen limited usage. Sure, many people or corporations have sued in the past to enforce their design rights with some success, but both the number of design patent lawsuits and the number of design patents granted pale in comparison to those of utility patents.

” …In all reality, practically everyone who has an opinion holds design patents in the lowest esteem of all the different forms of IP protection.”

*     *     *

So, how did Apple pull off the design patent victory of a lifetime? What does it mean for other industries and products where design rights are crucial but not typically enforced?

That will depend on who else is willing to step up and defend their design patents as vigorously as Apple. It also will depend on who the parties are. The auto industry is one area where gentlemanly cross-licenses have trumped aggressive enforcement. Design patents can be useful, even if it is just to slow competitors down. But they have to be enforced, a nasty, expensive and somewhat speculative process that does not always result in direct financial return.  For Big Three U.S. automakers design enforcement has not been a cultural imperative. It will be interesting to see if Apple v. Samsung will have a lasting impact consumer electronics and other industries.

Illustration sources: hypebot.com; wsj.com; ritholz.com 

Disclosure: I have no position in the shares of or current business relationships with any companies mentioned in this article.

*     *     *

SIDEBAR:

Apple v. Samsung jury foreman, Velvin R. Hogan, is a 67-year old retired engineer who holds a patent and has had a 35 year career in hard-drive technology with Memorex, Storage Technology and Digital Equipment, companies that are either out of business or have seen better days. Fortune’s summary of interviews with Hogan about the case and what led the jury to its decision makes for fascinating reading.