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Apple vs. Samsung, Day Four: $2.191 billion

updated 12:41 am EDT, Wed April 9, 2014

Apple reveals total damages and royalties sought from Samsung

The fourth day of testimony in the second Apple vs. Samsung trial has ended, with various Apple-hired experts and employees going over the nature of the patents at stake in Apple's part of the case. The jury also got a dose of history borrowed from the first patent trial, details about Apple's manufacturing process, and finally heard the full, exact amount that Apple is seeking from Samsung in terms of both damages due to lost sales as well as what it owes in royalties for its infringement: $2.191 billion.

The day began by resuming the cross-examination of patent expert Alex Snoeren by Samsung lawyer David Nelson, focusing on the "background sync" patent that enabled iOS to keep items such as mail, contacts, calendars, notes and bookmarks continuously synced. For the most part, Samsung's lawyers have opted during Apple's presentation to limit their cross-examination of witnesses to largely just clarifications of what was meant by some of the testimony, and the perfunctory challenge-and-denial that is a routine part of cross-examinations.

Following Snoeren's 16-minute cross, Apple attorney Harold McElhinny read to the jury various statements of fact agreed to by both sides in the dispute that were established during the first patent trial, which Samsung lost. This included things like the time and date when Apple first notified Samsung that it believed Samsung was violating some of Apple's patents -- the notification process began in August of 2010, three years after the release of the first iPhone but fairly quickly after Samsung began actively redesigning its products to resemble Apple products.

After that, McElhinny played for the jury a number of videotaped depositions made by Samsung executives in 2012. As in the first trial, no Samsung executives have opted to testify in court -- a factor that was judged to have been a mistake by observers in the first trial, as Apple's attorneys made great hay of the "cowardice" of Samsung executives afraid to show up in court during closing arguments.

The first executive, Jun Won Lee (who serves as director of licensing at Samsung), at least had a reasonable excuse -- he speaks no English, and lives in South Korea. He answered questions from Apple attorneys through a translator, and acknowledged that Apple had approached Samsung in 2010 to let them know that in Apple's view, the company was copying Apple's technology. Apple at the time provided Lee and other Samsung executives with a detailed worksheet showing what products were violating which patents. Samsung refuted Apple's allegations and demanded evidence of infringement beyond the worksheet, Lee said.

Other depositions included US-based Samsung executives, making the non-appearance of the company's leaders even more curious. Justin Denison, who is chief strategy officer of the US branch of Samsung, and VP of Finance for Samsung USA Tim Sheppard both testified by deposition, detailing Samsung's corporate hierarchy and acknowledging basic facts such as reiterating the Apple confrontation and receipt of the "copying" presentation. Yet another Samsung USA VP, Nick DiCarlo, admitted that Samsung's strategy is to convert iPhone users to Samsung products. None of the men were asked, or offered an explanation for why they could not testify in person.

Following the depositions, Apple's Vice President of Supply Demand Management Rory Sexton took the stand to testify on a dull but very key point: Apple's manufacturing capability during the period covered by the trial, 2011-2013. This period is key to the entire trial, as it is the period where Apple's patents are being violated on a massive scale (according to Apple), and the period on which Apple is basing its damages claims from lost sales and royalties. Apple cannot claim lost sales if it can't prove that it could have made more iPhones to meet the theoretical increased demand had Samsung not stolen sales by copying its technology.

Sexton told the court that the company has about 16,000 employees working operations, handling aspects such as supplier relations, anticipating demand and handling AppleCare sales and claims. He said that typically Apple builds product to meet high demand for four months before levelling off as demand and supply balance out, and that Apple made over 500 million iPhones during the last three years, but adds that it could have made more units if required.

The jury was then shown a confidential document labelled PX128 that showed how many iPhones Apple produced in a typical month during that period, and how many it could have produced. Sexton, ahead of the cross-examination, does note that unsold inventory varied at times between 1.5 million units to nine or 10 million. During Sexton's cross, Samsung attorney Victoria Maroulis repeatedly asks how, if Apple had extra capacity, that it often saw shortages of its newest models on introduction. Sexton says that Apple's supply usually took about 13 weeks to catch up to demand, but in the case of the iPhone 4 it took 26 weeks to balance out.

Maroulis pointed out that shortages were also seen when the iPhone 4S and 5 came out, saying that the iPhone 4S supply was not "stable" until December, despite launching in October. Sexton was followed by John Hauser, a professor at the MIT Sloan School of Management, who conducted a survey to gauge demand for Apple products and specifically the patented features at stake in the trial.

Hauser used a "conjoint study," a technique he has written "well over a thousand" papers on, to quantify how much a particular feature influenced buying decisions. He found that "the features associated with the patents in the case have a measurable impact on consumer demand" and measured the impact of individual factors by asking consumers to choose between product profiles with and without the features in question.

The survey Hauser conducted covered 507 smartphone buyers and 459 tablet buyers, making the specific patent descriptions consumer-friendly so that those surveyed could choose whether they preferred one implementation (like background sync) over an alternate method. Oddly, "slide-to-unlock" was not one of the features tested in the survey -- but on the others, Hauser found that "the features that were enabled by the patents at issue in this case have a measurable impact on consumer demand for Samsung devices."

Samsung attorney Bill Price, on cross-examination, questioned Hauser about his previous conjoint studies, attempting to show that they weren't the best way to quantify consumer desire for a given feature. Price noted that it was odd to leave "brand choice" out of his survey, saying that brand name, operating system, LTE compatibility and battery life are major influencers on consumer buying choices, but were not covered in the survey. Price claimed (without evidence or citation) that only 25 percent of Android buyers have ever considered buying an iPhone.

Price argued that Hauser's survey overstates the value of the Apple patents by focusing on them and ignored other important factors. Unlike most of the other witnesses (apart from Phil Schiller), Samsung is spending real time trying to undermine Hauser's study. Ironically, one of the factors Hauser did include -- overall ease of use -- was illustrated in court when Price struggled to demonstrate a feature on a Galaxy SIII, and required an associate's help. Another observer in the courtroom tweeted "I wonder how much he'd pay for those ease-of-use features" during the demonstration.

After Hauser's exit from the stand, another Apple paid expert, Christopher Vellturo, was brought in to testify on the specifics of Apple's damages claim. Vellturo is the CEO of QES, a micro-economics consulting firm that Apple has used previously on some 15 patent cases (and earns $700 per hour for his work). QES has 15 economists on staff, eight with PhDs in the subject.

Vellturo told the court that Apple based its large request for damages on the number of allegedly infringing devices Samsung sold over the three-year period in question: 37 million units, according to Samsung (the number is based on sales to retailers rather than end-users; the jurors were shown a document with actual end-user sales and revenue). Vellturo specified the exact amount, $2.191 billion, and said it is a combination of lost profits and reasonable royalties Apple would have collected, adding that the pool of smartphone customers expanded exponentially during that period.

The amount, he said, is based on the scale of infringement, time span, the use of the patents by Samsung to build its rivalry and the value of the patents themselves. Vellturo told the jury that one factor is the importance of a user's first smartphone choice, as it usually shapes their future buying. Apple attorneys then showed another Samsung internal document showing that Samsung CEO GS Choi visited Samsung USA and shortly afterwards, Samsung's share of the US smartphone market soared -- presumably because the decision taken to copy Apple products as closely as possible, perhaps at the US branch's urging.

Vellturo also mentioned the Law of Revealed Preferences as a method of showing how Samsung benefitted by infringing Apple's patents, which was accompanied by a Google document showing that users were complaining about Gmail being slow to sync as an illustration of the value of Apple's then-superior background sync. Vellturo will return to the stand on Friday to complete his testimony when the trial resumes.

Finally, in a side note to the proceedings, Judge Lucy Koh's intermittent Wi-Fi connection -- which has caused her much consternation, as she relies on it for the live transcript and other functions -- continued to behave poorly, in part because of the large number of people in court making use of the same network, from the lawyers to the spectators. She was in the process of asking most of the spectators to move to the overflow room to reduce the use of the courtroom network when an Apple attorney, speaking on behalf of both parties, offered to have Samsung and Apple pay to have the courtroom hard-wired so that the lawyers and the judge don't lose their live transcripts. After some discussion with the court's IT people, this was agreed and should clear the way for smoother sailing across the next three weeks.

For those keeping score, Apple has used 11 hours and 14 minutes of its 25-hour allotment before the jury, whereas Samsung has used only six hours and 29 minutes -- but will use much more time when they present their case, likely to begin next week. The trial continues on Friday.

by MacNN Staff



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