Five shades of grey on Apple-Samsung

The big IP news this week was the verdict in the Apple-Samsung trial. The jury found (mostly) in favour of Apple in its claims that Samsung had copied patented technology. There were many patents that were under consideration but the ones that appear to have been most significant were the ones that related to the design of mobile devices (the rectangular screen and full face touch panel with limited buttons) and to the use of gestures (for instance, the pinch to zoom in or out). In many respects, this looks like a textbook case of how the current patent system works. Apple is able to obtain patents on these features and is able to (now, well assuming the verdict sticks through appeals) enforce those rights with more certainty. Depending on your perspective, the result is protection for innovative efforts or a blow to competition and, of course, it may, theoretically, be both. But that is the black and white way of looking at it. What I’d like to offer here are a few shades of grey (since I hear large volumes of readers are into that).

First, there was some discussion that the design of smart phones (where lots of them look iPhone like) should not be patentable but should follow the norms of the fashion design industry. This TED talk summarises those norms nicely. Basically, designers make designs and others copy them. Some consumers end up valuing the brand of the designers and that is their market, then the rest get to take something similar next year. Designers get some fame as they are copied. With respect to phones and technology, some argue that the norms should be the same. Apple should design stuff, others should copy them and that is how it should be. Apple can then be the leader and get profits from the lead users while the designs diffuse.

That is all very well but there is a difference in scale and cost. No designer faces the development costs and then the eventual scale that many technology firms get. So it is not clear whether that norm would sustain innovation in that industry. After all, in this case, the imitators are taking out patents too. But there is an additional issue: the fashion industry has norms and the designers and their consumers understand that. The smart phone industry does not have those norms. Thus, when a consumer enters a carrier’s mobile shop, the retailer can sell them on a Samsung phone claiming it is just like an iPhone but cheaper — just look at it. While some consumers may understand the difference, it is also possible that the ‘brand value’ that accrues to Apple is not the same sort of premium that goes to leading fashion designers. If it was, an iPhone would cost 10 times as much as the competitor and not just a little bit more. Could the norms evolve? Possibly. But there are few industries that are like fashion.

Second, and related, when people copy other people’s writing, that is considered plagiarism. But the ‘designer’ norms could apply to that as well. Why is copying someone’s written work repugnant while copying someone’s dress design is not? And where does technology fall into that repugnance spectrum? At the very least, if Samsung or others want to assert their rights to copy design elements, don’t we think a system of citation is in order. Should their phones say ‘Manufactured by Samsung, Designed by Samsung and Apple’ or something like it?

Third, Matt Yglesias articulates the strong view that this verdict will have an impact on competition. And, to be sure, competition is good for consumers. But there is an issue about the sort of competition. If Samsung can just copy an iPhone, then Samsung can have an incentive to position itself close to the iPhone in ‘product space’ and rely on price competition to ensure market share. Apple has to reduce price or cede share. But if Samsung cannot just copy an iPhone, then Samsung has to position itself differently. So when copying is possible, those consumers who most like the iPhone design and gestures get benefits while when copying is not possible, consumers who don’t like the iPhone design and gestures get benefits because Samsung will try and think of things that will attract them. As Macro Arment remarked, if you are looking for something that will fundamentally disrupt the iPhone, it will come from something different rather than something similar. And we all know that pinch to zoom, for instance, works well sometimes (one pinch) but is a big pain other times (if you want to zoom out a long way). Yes, more competition is good but what the patents on design and gestures are doing is changing the type of competition that occurs. Indeed, there are situations where antitrust authorities have looked dimly on license agreements between competitors precisely because they are worried about muted incentives for more radical innovation.

Fourth, there is an alternative issue on whether the verdict really punishes Samsung in making them regret their past actions. The one thing closer imitation gets you is speed to market as you don’t need to spend time proving the concept. Samsung, like Apple, is really the new entrant in the smart phone game. The incumbents, Nokia and RIM, didn’t believe the Apple design would be so important and so went slow. As Farhad Manjoo points out, even with a large payout and any future license payments to Apple (if they don’t innovate around them that is), Samsung have achieved a strong incumbent position that is unlikely to go away. This surely suggests that, while direct copying may pause some efforts at direct copying, it is not certain that this won’t prevent strong and swift competition when there are future radical innovations.

Fifth, there is the issue of market power. There are suggestions that this hands a monopoly to Apple. Again, Matt Yglesias is worried about ‘pinch to zoom.’ But ‘pinch to zoom’ from a single supplier does not translate into smart phones from a single supplier. What Yglesias wonders is whether that gesture is something akin to a standard because consumers won’t switch to phones without it because it is unfamiliar and confusing. And patents over standards are a concern in competition in the mobile industry precisely because the patent on the standard can translate into market power in the final product market. For this reason, mobile manufacturers place much weight on patents that are considered ‘standard essential.’ That gives them sponsorship and potential market power but at the same time regulates the exercise of that market power through broad licensing terms. Is the ‘pinch to zoom’ gesture essential to a standard? Personally, I think that is giving it too much weight but the evidence may prove otherwise. But even if it were a standard, there is no presumption elsewhere that that means it is a free gift to others. It means that an agreement to licensing terms that promote the standard are appropriate.

Image Credit: MacLife

[Update: there has been discussion that Apple has a patent on ‘pinch to zoom.’ That is far from clear.]