U.S. District Judge Lucy Koh removed the $450.5 million from the award because the jury award ”rested on impermissible legal theories” to determine damages. The amount corresponds to 14 Samsung devices that she says should get a new hearing as to whether they did infringe on Apple’s mobile patents. Those devices include, according to FOSS Patents:

Galaxy Prevail, Gem, Indulge, Infuse 4G, Galaxy SII (AT&T), Captivate, Continuum, Droid Charge, Epic 4G, Exhibit 4G, Galaxy Tab, Nexus S 4G, Replenish, and Transform

If these products are still found to infringe on Apple’s patents in a new trial, Apple could win back that $450.5 million in damages, or perhaps get even more depending on what the new jury determines.

Updated with more detail several times, the latest at 1:05 p.m. PT.

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HTC agreed to a broad licensing agreement with Apple over the weekend that put aside all their patent disputes for 10 years. J.K. Shin, who leads Samsung’s mobile division, told the AFP on Wednesday, “We have no such intention” of settling like HTC did.

Which: duh. If Samsung was going to settle this dispute, it should have done so long ago. It has already experienced the worst-case scenario in going head-to-head with Apple in the courtroom. It lost its U.S. case and was tagged with a $1 billion verdict. The public relations damage from being called a copycat by a jury has already been done. Investors and customers have already had to process what the huge damages bill would mean to the company’s finances and prospects for building future products. None of this can really be undone.

Looking at the overall dispute, things have actually not been all bad for Samsung, either. In other countries, Samsung has had better luck, winning the dismissal of patent disputes with Apple in both the Netherlands and Japan and getting a U.K. judge to side with it on the “copying” charge. On the business side, the company continues to make a killing selling Android phones — and it’s the biggest smartphone brand in the world.

HTC, in contrast, was not in that same position. The company’s market share was shrinking and it has been obvious for a while that HTC is having a difficult time making money selling Android devices.

Samsung doesn’t have much more to lose by going forward with its appeal of the U.S. verdict. So why back down now?

Thumbnail image courtesy of Flickr user familymwr

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Background

The jury in Apple-Samsung confronted hundreds of questions, some of them on topics obscure enough to make an intellectual property lawyer blanche — design patents, patent exhaustion and so on. Yet, they were done in less than three days. As Abovethelaw editor, Elie Mystal, mused “It would take me more than three days to understand all the terms in the verdict! Much less come to a legally binding decision on all of these separate issues. Did you guys just flip a coin?”

A more damning criticism came from the popular Groklaw site which pointed out a series of basic errors by the jury: a decision to award $2 million for a patent that Samsung hadn’t infringed in the first place; a decision to assign damages based on punishment, not compensation.

This type of slapdash decision-making lends support to Judge Richard Posner and others who argue that it’s time to end jury trials in patent cases. Here are three more reasons Apple v Samsung should not have gone before a jury:

Reason 1: Jurors can be influenced by brand loyalty

Let’s remember that the jurors who decided the case were not Blind Justice but consumers who are influenced by brands.

That influence can be considerable. According to Robert Kozinets, a marketing professor at York University, “brand communities” that emerge around products like Apple’s are supplanting religions or neighborhoods as a source of personal identity. He says that Apple today has greater ideological power than many countries.

“That identification with Apple will lead to community and a sense of loyalty. It also leads to a sense of empowerment that can lead people to step up and protect it because they know there are so many others like them.”

There’s nothing wrong, of course, with defending Apple (or Google or Microsoft). The problem is that brand loyalty can interfere with patent policy. When asked to decide a patent case, juries are likely to go with emotion over evidence — deciding a case based on brand loyalty rather than the law at hand.

In the case of Apple-Samsung, the trial was about a beloved American brand versus a foreign competitor. Not only that, but the trial took place in Silicon Valley, right in the heart of Apple land. This was like asking Boston Red Sox fans to judge the conduct of the New York Yankees.

In this climate, it’s no wonder that the jury appears to have made their decision based on a desire to “send a message” to Samsung rather than parsing harder technical questions about whether Apple’s rectangle and “bounce-back” patents should have existed in the first place.

Reason 2: Juries are too easily swayed by “he’s a copycat”

During the trial, Apple offered an easy-to-follow narrative that is familiar to anyone who has been in grade school: “That’s my idea. He took it and pretended it was his.” Samsung on the other hand had to explain why, even though Apple had patents, it was not infringing and that the patents were not actually valid patents and so on. One story is crisp and clean, the other is furtive and guilty-sounding. Guess which story has more punch in the hands of a trial lawyer?

In the words of Posner: “patent plaintiffs tend to request trial by jury because they believe that jurors tend to favor patentees, believing that they must be worthy inventors defending the fruits of their invention against copycats.”

Unfortunately, these simple narratives distort what patents are all about. Patents are not primarily about stopping copycats (that’s why we have trademarks) but are instead a form of industrial policy based on 20-year monopolies. If the policy is effective, it produces more innovation. If the patent policy is not effective, it creates monopolies that harm competitors and consumers. In Apple-Samsung, there’s a good chance we’re doing the latter; we may regard Apple as an innovator and Samsung as a copycat — but that doesn’t mean it’s a good idea to award Apple sweeping monopolies that may raise prices and stunt the smartphone market.

Patents are as complex as other industrial policies like subsidies or regulatory regimes. When disputes arise, they should be put before an expert tribunal rather than a jury that is easily swayed by schoolyard “copycat” narratives.

Reason 3: Jury trials over patents are a waste of money

Apple and Samsung will spend  from $20 million to $500 million in legal fees, according to sources surveyed by the Wall Street Journal. While the companies would have blown a bundle no matter what, the jury presence added millions to the tab. This figure doesn’t even take account of the costs to the federal justice system or to the jurors and their employers. And for what? To respond to questions likely beyond their capacity and that will, in any case, be picked apart on appeal.

There’s a faster, cheaper and more efficient way to handle this. As Judge Posner proposes, it makes sense to stuff future patent disputes into a corner of the US Patent and Trademark Office.

Juries are not responsible for all that ails the patent system. But getting rid of them would be a useful step.

(Image by Junial Enterprises via Shutterstock)

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• Despite Apple’s victory over the smartphone and tablet side of Samsung’s house, the South Korean company still has no intention of losing Apple’s extremely lucrative mobile processors business, Reuters reports.
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The devices at issue are:

• Galaxy S 4G
• Galaxy S2 AT&T
• Galaxy S2 Skyrocket
• Galaxy S2 T-Mobile
• Galaxy S2 Epic 4G
• Galaxy S Showcase
• Droid Charge
• Galaxy Prevail

Most of those devices on this list were found to infringe two or three Apple patents, according to the verdict reached Friday night in California. Apple’s decision to get these products pulled off of store shelves here in the U.S. looks to be a strategic move and not simply a symbolic one: all of them, with the exception of the Galaxy S 4G, are still for sale in the U.S. Before the trial, Apple successfully obtained an injunction on sales of the Galaxy Tab 10.1 tablet and the Galaxy Nexus; though the Tab was already an out-of-date product when the injunction was placed.

There is still much more to come in this case, including the judge’s decision to allow Samsung to still sell these products. Apple can also ask for ongoing infringement damages if these offending devices remain on the market and Samsung does not obtain a license, my colleague Jeff Roberts wrote after the verdict was announced on Friday.

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Shortly after the stock market opened Monday morning, Apple shares had already hit their highest price ever, $680.87, after closing at $663.22 Friday before the verdict was announced. Its market capitalization also reached a new high of $637.92 billion. Samsung’s stock dropped 7.5 percent on the Korean Stock Exchange, which equates to a loss of about $12.5 billion in market capitalization, Reuters reports. Google, whose Android software is used by the infringing Samsung devices, is also feeling some fallout. Its stock was down 2.41 percent to $662.29 on Monday.

Based on what went down Friday night, Wall Street analysts are making their best predictions about the future of both companies. Here’s what some of them are telling investors on Monday morning:

JP Morgan on what it means for Google:

We believe the Apple Samsung patent verdict out Friday night after the close is a negative for the Android ecosystem as it likely puts more pressure on Android OEMs to clearly differentiate devices and it suggests the courts may be willing to tightly enforce software and design patents in the future. For Google and Motorola in particular, the ruling may help shape the development of future devices and also put more pressure on Google to increase Motorola’s market share in smartphones. We believe Google shares could see some near-term weakness on the ruling.

Barclays on the overall impact on Android:

While the verdict is not a positive for Google and the broader Android ecosystem, we believe this event alone will have a minimal near-term impact on Android’s global momentum in the smartphone arena. However, we admit that a potential sales injunction against Samsung products could impact Android’s strength in the U.S. Although $1.05 billion in damages is a large sum, most of Samsung’s devices that were found to infringe upon Apple’s patents are older models, and, importantly, in our view, Samsung’s current flagship phone, the Galaxy S III, was not included.

UBS on a new revenue stream for Apple:

If Apple is successful in its patent cases to conclusion (appellate, district, Supreme courts, and U.S. President) and if it is willing to settle, we believe it could result in a royalty revenue stream–Apple calculated Samsung owed it $250MM in 2010 (on an estimated 25MM smartphones and 2MM tablets), assuming certain discounts. We think this amount would be higher in 2012 at that rate with Samsung having sold an estimated 50MM smartphones in Q2 alone (hence, even a lower rate could result in a royalty greater than $250MM/yr). We est[imate] that every $250MM in royalty revenue equates to roughly $0.20 in EPS, all else equal.

Macquarie Equities Research on the Apple-Google relationship:

 We believe that this can and inevitably will impact the important search distribution arrangements between GOOG and AAPL (although the true financial impact remains unclear). The damaged relationship has already pushed Apple to find alternatives for maps and information providers related to Siri. We also view the fact that YouTube will not be a native app on iOS 6 (despite the fact that it is unclear if AAPL pushed or GOOG jumped and the fact that GOOG will likely see improved economics from YouTube without the native app) as indication of the frayed GOOG/AAPL relationship. We expect this type of fallout to reach the search business as well, possibly as early as with the iOS 6 release.

It could be that the lasting damage isn’t to Samsung. Google is indirectly affected by the verdict against Samsung, and the company is feeling the impact anyway; not only on its stock, but perhaps in the future too, with how its Android partners deploy its mobile software.

Image courtesy of Flickr user Alex E. Proimos

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In a blog post, Robert Scoble said while Samsung will take a big PR hit and lose $1 billion, it was worth it to copy Apple because it vaulted the company ahead of other smartphone rivals. Samsung also sells an array of products that Apple doesn’t and setting up the comparison with Apple worked out well for the entire company, Scoble said.

“It only cost $1 billion to become the #2 most profitable mobile company. Remember how much Microsoft paid for Skype? $8 billion. So, for 1/8th of a Skype Samsung took RIM’s place and kicked HTC’s behind…I bet that RIM wishes it had copied the iPhone a lot sooner than it did. So does Nokia, I bet. Samsung is a much healthier company than any of those BECAUSE it copied the iPhone,” he wrote.

Analyst Jeremiah Owyang, of Altimeter Group, agreed saying Samsung still comes out ahead despite the potential ban on sales and punishment. He said Samsung does $1 billion in revenue every 2.4 days.

“The PR upside is that now people associate Samsung’s phone at the same competitive set as Apple’s. I just did a Google search for “Apple phone” and there are multiple Samsung links on the second half of the page. PR win: Any phone Samsung launches will be super hyped — and compared to Apple,” he wrote.

Reuters also highlighted some of the potential upside for Samsung in the verdict, saying it could actually help cement Samsung’s place atop the  global smartphone market. As a “fast executioner”, Samsung should be able to churn out new devices that don’t infringe on Apple patents and avoid any potential ban. And if Apple is able to get Samsung to pay $10 per device and force other smartphone makers to do the same, Samsung is still better positioned than others to absorb the cost.

Samsung still faces the stigma of being a copy cat and there is the looming threat that the damages could be tripled because of willful infringement. But it might have been worth it if Samsung’s brand gets elevated to Apple’s level, said Reuters.

“If anything, the blaze of publicity from the high-profile, high-stakes U.S. litigation has made Samsung’s brand more recognizable…Despite, or because of, the publicity from the U.S. case, and more than a dozen pending cases elsewhere around the globe, the Samsung brand has gained recognition — as an equal to Apple rather than merely a supplier,” Reuters said.

I think it’s too early to declare Samsung a clear “winner” in this case. A lot will depend on how the damages pile up, whether it can appeal and potentially secure a licensing deal and how much future devices are impacted. Being branded a patent infringer is not something you want to brag about. So Samsung may not emerge a real winner, but the argument can be made it would accept the “loser” tag in exchange for keeping its place atop the smartphone market.

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Why does Samsung owe $1 billion in the first place?

After a month long trial in San Jose, a jury found Friday that Samsung’s phones and tablets infringed on various Apple patents related to the iPhone and iPad. The jury said the various infringements added up to $1.05 billion.

So what is this about tripling damages?

If a jury finds that someone willfully infringed on a patent, the Patent Act says ”the court may increase the damages up to three times the amount found or assessed.” (emphasis ours) Guess what? The jury found that Samsung’s actions were willful. This means that Apple can now go to Judge Lucy Koh and ask her to triple the figure. But that doesn’t mean she has to do it.

Can Judge Koh do anything for Samsung?

Yes, the judge has the power to lower the damages if she finds that no “rational jury” could have awarded such an amount. This has occurred in previous tech cases. Koh can also overrule the jury’s findings that Apple’s patents are valid in the first place.

But what about the products that Samsung is still selling? Can Apple put a stop to that?

This is where it gets interesting. Since some of Samsung’s products are still on the market, Apple is coming back to court next month to ask Judge Koh to issue an injunction to ban them. But this appears unlikely due to a 2008 Supreme Court decision that made injunctions far less common.

Apple, however, can also ask for ongoing damages since Samsung is still selling the offending products.

This will end up on appeal, right?

Yes, almost certainly. But not right away. First Samsung will take a crack at knocking down some of the jury’s findings before Judge Koh. They will ask for a “judgment not withstanding verdict” — asking Koh to substitute her conclusion for that of the jury. But again, she will only do so if she believes a “rational jury” couldn’t have made such decisions in the first place.

Could this happen? According to Professor Sarah Burstein, a patent authority at the University of Oklahoma, Judge Koh is unlikely to disturb the jury’s finding. Burstein predicts that Samsung will try to raise “lots of nit-picking stuff about the evidence,” but that Koh won’t bite.

Once Koh replies to requests for a “judgment not withstanding verdict,” then the final verdict will be entered and the parties can appeal to the Federal Circuit in Washington, DC.

Anything else I should know?

The most important thing to take away is that this is far from settled. According to Burstein, the Federal Circuit has been very active in reviewing district courts, especially when it comes to damages.

“Whatever happens in the coming days, for now you have to just pencil in the damages,” she said.

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Samsung is much more than a phone maker, but its smartphone business has been a growth juggernaut in recent years as its Galaxy line has emerged as the flagship brand for Android phones and the iPhone’s one legitimate challenger in the smartphone wars.

Samsung sold 50.2 million smartphones in the second quarter, nearly doubling Apple’s iPhone sales of 26 million. What’s more, 10 million of Samsung’s sales were of the new Galaxy S III, it’s most direct competitor to the iPhone. Of course, Q2 isn’t the best indicator: iPhone 4S is past its half-life as Apple gears up for a new iPhone launch next month, and the S III is a new device. But 2011 sales showed that Samsung and Apple were evenly matched in 2011.

The danger for Samsung is the long-term repercussions of today’s verdict. If Apple’s patents are held to be valid, Samsung could be forced to redesign its phones and their user interfaces. It’s found a recipe for success in the Galaxy line, but now it may have to change up the ingredients.

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