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Good for Apple?

Posted by: Kevin Perlmutter on August 27, 2012

Apple 

A jury in San Jose, California has just determined that Samsung willfully infringed on six patents held by Apple, all related to the innovation and design elements of certain Samsung smartphones and tablets. The jury has awarded Apple with $1.05 billion in damages to be paid by Samsung. Further, it is reported that Apple is now filing a motion to prohibit the sale of certain Samsung products.

Of course, Samsung will appeal.

This article is not about who is right or wrong. It’s about what happens next, and how the Apple and Samsung brands will be impacted.

In terms of sales, Apple and Samsung together represent 55% of the global smartphone market, according to NPD Group. Over the last few years, both Apple and Samsung have been very strong brands, winning the hearts and wallets of consumers, and adding value to their business.

 

In 2011, according to Interbrand’s Best Global Brands ranking, both brands were among the top five risers in brand value, Apple up 58% in brand value ranked at #8, and Samsung up 20% ranked at #17. This means that prior to this verdict, both brands were predicted to have ongoing financial success with products that people will continue to choose over the competition and be willing to buy at premium prices.

In the grand scheme of things, the current verdict of $1.05 billion in damages should not be either brand’s biggest concern. It should be the future reputation and strength of their brand.

The rhetoric in the press is already heating up in an election-like manner. As reported in the Wall Street Journal, an Apple spokeswoman said "The mountain of evidence presented during the trial showed that Samsung's copying went far deeper than even we knew."

 

Samsung was reported to say “Today's verdict should not be viewed as a win for Apple, but as a loss for the American consumer. It will lead to fewer choices, less innovation, and potentially higher prices." Samsung added, it is "unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners… This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple's claims."

Samsung clearly has a lot to lose. The brand has steadily improved its consumer appeal and business performance over the last several years, but now its innovation credibility is being called into question. One option is to continue to fight for credibility through appeals and in other cases pending around the world, all for the possibility of redemption or at the risk of further brand damage. Alternatively, Samsung can chose to quietly settle all claims and move on, in which case consumer memory of the events will likely fade away quickly. Time will tell which path they take.

Samsung 

 

Apple perhaps has an even bigger challenge to consider. On a steady path of rising market share and market capitalization thanks to ingenious innovation and design, Apple is adored by many, many super-loyal followers. The brand has gained strength by being incredibly and consistently authentic, relevant to the point of giving people amazing things they didn’t even know they wanted. And now, emulating another hallmark of brand strength, Apple has made a big step in protecting its patented areas of differentiation.

However, what happens if Apple pushes protection too far? Up to now, one can say that they’ve done the right thing. And based on the current verdict in San Jose, they were just. But how Apple handles this will not only impact the future of Samsung, perhaps the entire Android ecosystem, but also Apple’s reputation as a loved brand.

One scenario is that Apple takes steps to settle this with Samsung and any other potential infringers quietly. They negotiate business deals to permit or prevent certain uses of Apple patent-protected innovations. Presumably, these deals would be in the best interests of consumers, and allow other well-loved brands to save face and continue offering products at fair prices. This may also stimulate greater innovation as other manufacturers work to develop clearly differentiated products to avoid what’s being referred to in the press as the “Apple Tax.”

On the other hand, Apple can continue to play this out in the courts and media. They can leverage this win, exert their influence, make other manufactures pay dearly, and cause other innovators to fear infringement with every new idea. This scenario could stifle innovation and drive up costs for consumers. It could also cause Apple’s reputation to move toward that of a schoolyard bully and monopolist.

These are only two hypothetical and extreme scenarios, and many others certainly exist that will be influenced by how the brands, the courts, the innovation community and the media all respond to this latest verdict.

So the big question is, what should Apple do?

Kevin Perlmutter is a Senior Director of Brand Strategy in Interbrand’s New York office.




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