Ina Fried

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Apple vs. Samsung Judge Encourages “Horse Trading” to Narrow Case

Aiming to avoid burdening the jury with hundreds of pages of claims, the judge in the Apple-Samsung case on Thursday urged the parties to narrow their legal case against one another.

Judge Lucy Koh pointed out earlier this week, for example, that there are three phones that have been partially tossed from the case. Perhaps, she suggested, Apple might drop those phones entirely.

Beyond that, though, Koh suggested the parties might do some bargaining with one another.

“I’m also hoping there can be some horse trading going on,” Koh said. “Now is the time.”

On Wednesday, Koh also encouraged the sides to continue pursuing a settlement, urging the companies’ chief executives to meet one last time. They said they would, at a minimum, meet by phone.

“I see risk here for both sides, if we go to a verdict,” Judge Lucy Koh said on Wednesday.

Koh continued to express hope for a settlement on Thursday, noting that she was perhaps “pathologically optimistic.”

Update, 9:30 a.m.: Testimony is fast and furious as both sides are running short on time. First up was Tim Sheppard, VP of finance for Samsung Telecommunications America, who testified as to Samsung’s expenses — an important metric when it comes to profitability, which will be an issue if the jury finds Samsung did infringe Apple patents.

On cross examination, Apple lawyers introduced evidence that Samsung created a number of different spreadsheets in the case, at least some of which had errors.

Next up was Michael Wagner, a Samsung-retained accounting expert. Samsung lawyer Mike Price called Wagner his “least favorite” expert because he is the one that estimates damages if the jury agrees that Samsung has infringed on Apple patents.

The issue here is that Apple’s expert counted profits basically just using revenue and subtracting the cost of manufacturing goods. Samsung argues other costs should be included when calculating profitability.

“You can’t sell a phone just because you made it,” Wagner said, noting there are also costs to sell and market a device, as well as general administrative and research costs.

9:34 a.m.: Wagner notes that companies spend a lot to make customers aware of their products, noting he saw several Samsung ads a night during the Olympics and that such ads cost money.

Price also gets Wagner to note that Apple also includes such costs in its financial statements, pointing to Apple’s filings with the Securities and Exchange Commission.

What Apple called gross profits for Samsung, Wagner said, is often referred to as “gross margin” but a figure that doesn’t include either research and development costs or sales, general and administration costs.

9:45 a.m.: Wagner is also taking issue with the fact that Apple calculated a period during which Samsung would have to exit the market while it designs around patents. He says Samsung might just choose to remove certain features during that time.

Wagner also notes that Samsung has other products that aren’t accused of infringing on Apple design patents or trade dress. He says Samsung could focus on those.

9:55 a.m.: Wagner loudly taking issue with a chart Apple’s expert showed that indicated a steep rise in Samsung smartphone market share after the 2010 Galaxy S introduction.

Wagner notes that the graph includes phones that aren’t accused of infringing as well as those that are accused. In addition, he said Samsung was introducing new phones with better screens and faster processors.

“That’s why they are doing well, it has nothing to do with what is at issue in this case,” Wagner said.

And while he agreed design is one factor, he said that technology is the key decision making characteristic and Samsung has lots of it.

Further, Wagner said even if Samsung’s allegedly infringing products weren’t on the market, Apple could not have sold more products because it was capacity constrained. In other words, Apple couldn’t meet demand with Samsung on the market. So, if Samsung’s products weren’t on the market, Apple wouldn’t have made more profits because it literally couldn’t produce more phones and tablets for large periods of time.

10:00 a.m.: A few more points of contention from Wagner. He says that Apple’s expert, Terry Musika, used Apple’s higher worldwide average price instead of the lower average price paid in the U.S. Also, because Apple’s prices are higher than competitors, Wagner said many people wouldn’t buy Apple because of price.

10:05 a.m.: Wagner now taking issue with Musika’s estimate of a “reasonable royalty” on Apple’s design patents. Musika suggested a figure of $24 per phone for those patents. Wagner said that figure actually relates to the total value customers place on the Apple brand, including the apple logo, all its designs, their trademarks.

That figure “dramatically overstates” the value, Wagner said. “Samsung didn’t take (they) whole brand value. They took some specific elements.”

By contrast, Wagner suggests a better royalty would be the $27,000 he calculates it would cost Samsung to design around Apple’s patents.

10:09 a.m.: Apple is now getting its crack at Wagner. Wagner admits even he had trouble getting the financial information it needed for the company.

He also noted that, given the schedule in the case, Wagner had only three weeks to do his report with some data coming in the day before his report was due.

10:21 a.m.: Things are getting testy with Wagner now accusing Apple of having frequently made math errors.

10:24 a.m.: Apple is showing Wagner a bunch of internal Samsung documents that appear to show influence of iPhone and iPad.

This doesn’t seem to have a lot to do with damages. Perhaps, Apple just needed to still get them admitted and they were among the documents that Wagner’s staff looked at in preparing his report.

With that, Apple is done with its questioning and Price asking a few questions for Samsung on re-direct.

Apple versus Samsung Full Coverage


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