Apple and Samsung are set to take their battle for mobile supremacy to court this week in one of the biggest-ever technology patent trials, with the potential to reshape a fast-evolving market they now dominate.
The tech titans will lock horns in a federal courtroom in San Jose, California, just miles from Apple's headquarters. The stakes are high, with Samsung facing potential US sales bans of its Galaxy smartphones and tablet computers, and Apple in a pivotal test of its worldwide patent litigation strategy. Both sides are seeking financial damages from the other.
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Samsung has rapidly overtaken Apple, creator of the iPhone and iPad, and Nokia to become the world's largest smartphone maker. Together, Apple and Samsung account for more than half of smartphone sales globally.
Apple sued Samsung last year in San Jose, claiming its smartphones and tablets slavishly copied the iPhone and iPad. The South Korean company countersued. Since then, the two have expanded their fight to courtrooms in nearly a dozen other countries.
At this trial, Apple is seeking at least $US2.53 billion in damages, though US District Judge Lucy Koh could triple that figure if she finds Samsung willfully infringed Apple's patents.
The dispute has reached deep into the tech sector, with companies including Microsoft, IBM, Nokia and Research in Motion filing court papers this week to try to keep their own patent licensing agreements from being disclosed during the trial.
A loss for Samsung could lead to permanent sales bans against products including the flagship Galaxy S III phone, said Nick Rodelli, a lawyer and adviser to institutional investors for CFRA Research in Maryland.
While the S III is not at issue in the trial, if Apple prevails the company could later ask Koh to block sales of that product.
Upward of 20 percent of Samsung's global consolidated profit could be affected if it loses this case, he said.
"Samsung is a big company with operations all over the world, but this is actually a needle-mover for them on the bottom line," Rodelli said.
Apple will try to use Samsung documents to show its rival knowingly violated the iPhone maker's intellectual property rights, while Samsung argues Apple is trying to stifle competition to maintain "exorbitant" profit.
In a statement Friday, Samsung said Apple has been "free-riding" on its technology "while using excessive legal claims against our products in their attempt to limit consumer choice and discourage innovation".
An Apple spokesman reiterated the company's previous statement that it wasn't a coincidence Samsung's latest products looked a lot like the iPhone and iPad, and that Samsung blatantly copied its products.
A loss for Apple could be significant, not only if it were ordered to pay financial damages but also because of the competitive threats. That is because the Galaxy S III is a better phone than the latest iPhone 4S, said Michael Yoshikami, chief executive of Destination Wealth Management.
"Apple is all about slowing Samsung down," said Yoshikami, whose fund holds Apple shares.
"Apple will try to buy time until iPhone 5 launches."
Apple shipped 26 million iPhones in the quarter ended in June, fewer than in the previous quarter and well below the 28 million to 29 million that Wall Street had predicted.
Samsung is estimated to have increased sales to around 50 million smartphones. That helped the South Korean giant to report a record quarterly profit of $US5.9 billion on Friday.
Financial data comes to light
The companies have supplied some detailed financial data in court filings in recent days, including that Apple's gross margins for its iPads are about half of those for the iPhones. The information was included in newly unsealed papers and was not previously known, giving Wall Street a rare glimpse into Apple's financial breakdown for specific products.
The companies had initially sought to keep many documents from public view, but Judge Koh rejected the bulk of the requests on July 17. Her order came hours after Reuters filed court papers opposing the companies' efforts to seal the documents.
The lawyers on both sides are well known: Apple is represented by law firm Morrison & Foerster, which led Oracle's patent case against Google earlier this year over the Android operating system. Samsung, whose products run on Android, hired lawyers from Quinn Emanuel Urquhart & Sullivan, which also represents Google and which led Yahoo's short-lived patent lawsuit against Facebook this year.
A 10-member jury will hear evidence over at least four weeks, and it must reach a unanimous decision for Apple or Samsung to prevail on any of their claims.
Apple says Samsung violated four of its design patents, which cover the look and feel of its products. It also says Samsung has infringed three patents for technology such as how the phone distinguishes between scroll and multi-touch gestures.
Meanwhile, Samsung says Apple violated patents on mobile communications systems, as well as features like taking a photo on a phone and seamlessly emailing it.
In a last-ditch attempt to avoid a trial, Apple Chief Executive Tim Cook and Samsung Vice Chairman Choi Gee-sung participated in a mediation on July 16. But a settlement prior to trial is unlikely, sources have told Reuters.
It has been tough going so far for Samsung in the case. Koh halted US sales of the Galaxy Tab 10.1, giving Apple a significant early win. This was followed by a pretrial ban on the Galaxy Nexus phone. Samsung has appealed both orders.
The stakes for Apple are also high due to competitive threats from other Asian phone makers such as China's Huawei, Rodelli said.
"It's arguably the most commercially and doctrinally significant U.S. patent case in the modern era," he said.
(Reporting by Dan Levine and Poornima Gupta; Additional reporting by Miyoung Kim in Seoul; Editing by Martha Graybow, Matthew Lewis and Tim Dobbyn)