Analysis of Patent Negotiations between Apple Inc. and Samsung Electronics

Introduction

Apple, Samsung, Microsoft, Intel, and IBM are just a few of the names currently dominating the technology industry. While there is substantial competition between these companies, there is also a decent amount of collaboration. The new and burgeoning technology market has recently erupted with innovation, new ideas and various forms of technology. It has become a slippery slope between building on technological innovations and infringing on the copyrights of other companies. It comes as no surprise that when there is conflict between these colossal companies, it is no small deal.

When looking at a picture of an Apple iPhone and a Samsung Smartphone side-by-side, the similarities are undeniable and although many assumed that that these technology giants would be able to successfully negotiate a mutually beneficial outcome to their disputes, it is not surprising that only recently was their 7-year patent dispute resolved.

Background

Apple and Samsung are steady occupants of two of the first three spots of the top cell phone manufacturing companies in the world (IDC Worldwide Quarterly Mobile Phone Tracker, July 31, 2018). Apple Inc. was founded in 1976 by Steve Jobs, Steven Wozniak and Ronald Wayne and is currently run by CEO Tim Cook. Apple has an estimated net worth of around 1 trillion dollars (CNN Business “”Apple reaches $1 trillion value””, 2018) and is known for creating top of the line consumer technology products. This includes an array of devices such as cellphones, laptops, earphones, speakers and other handheld devices. Samsung’s profile is quite similar to this. Founded in 1938 by Lee Byung-chul and now led by CEOs Ki Nam Kim, Hyun Suk Kim and Dong Jin Koh, Samsung’s current net worth is estimated to be around $295 billion (Luke Christou “”Samsung net worth: More than just a tech company – Compelo”” 2017). Samsung is a South Korean company that has 58 subsidiaries, Samson Electronics being the largest. Samson electronics produces everything from televisions, to home appliances, to smartwatches.

Samsung and Apple have a long, complex relationship. While clearly competitors in the cellphone market, they also have an important working relationship. Samsung is an extremely important supplier for apple. According to Slicing an Apple– Apple and Samsung’s Symbiotic Relationship, Samsung provides apple with some of the most important parts including the flash memory that holds the phone’s apps, music and operating software; the working memory, or DRAM; and the applications processor that makes the whole thing work (The Economist “”Slicing an Apple”” 2011). In total, the parts supplied by Samsung makes up over a quarter of the component cost of an iPhone. Who knew such fierce competitors could also be such close business partners? This is why the technology world was shocked when in spite of this close working relationship, Apple picked a fight with Samsung.

It all started in In 2007, when Apple released its new product: the iPhone. This product single-handedly revolutionized the cellphone market and took the world by storm. With its sleek design, easy-to-use interface and slim profile, the iPhone was a hit. However, in 2010, Samsung released their new smartphone– the Galaxy S– which looked eerily similar to apple’s popular iPhone (Levine 2012, figure 1). In the summer of 2010, Steve Jobs told Samsung executives that he considered the Galaxy S to be an illegal copy of the iPhone (Levine 2012). Hoping that this dispute could be settled outside of the courtroom, in August of this same year, Apple flew a team of their lawyers to the Samsung Headquarters in Seoul, South Korea. During a meeting with Samsung, the lawyers from Apple presented a slideshow essentially accusing the tech giant of copying the iPhone. The second slide even read: Android is designed to lead companies to imitate the iPhone product design and strategy. Unfortunately, instead of diffusing the tension, the meeting only enraged Samsung attorneys who were offended by the accusations made and in turn, came up with a list of their own patents that they claimed Apple had been illegally using. The initial attempt at negotiation failed almost immediately after it began as Samsung made it clear it was ready to fight back and the multi-year patent war between these two giants ensued.

Issues

It soon became apparent that this would not be solved by conference room discussions alone, and both companies realized the only way to settle this dispute would be by taking some kind of legal action– even though neither of them originally wanted to do so. Apple and Samsung both felt like multiple innovations that they had patented were illegally used by the other party. Apple made the first power move in April of 2011, suing Samsung for infringement of design and utility patents, trademarks, and trade dress. Apple also claimed that multiple Samsung products copied Apple’s patented product designs and infringed upon their intellectual property. Namely, Apple thought that Samsung’s products mimicked Apple’s iPhone’s black rectangular front face, round corners, bezel… and sixteen-icon grid (Shin & Brown 2016). Samsung then countersued Apple only weeks later, filing federal charges in courts in Seoul, Tokyo, and Mannheim, asserting that Apple infringed Samsung’s patents for mobile-communications technologies (Yang 2011). By July of 2012, Apple and Samsung had more than 50 ongoing lawsuits between the two of them around the globe (M??ller 2012).

Over the seven year patent dispute between the two companies, a multitude of lawsuits were filed. However, the negotiations primarily revolved around the same set of issues: firstly, the question of whether or not Samsung had infringed on Apple’s multiple patents. Secondly, if they had found guilty of illegally using these patented features, how much money they should have to pay. For both sides, this became about a lot more than money.

For Apple and more specifically Tim Cook, it was about originality and the setting the precedent in court that it is not okay for other companies to take advantage of somebody else’s innovations. Cook was quoted in an article in Fortune saying this:

I’ve always hated litigation and I continue to hate it…We just want people to invent their own stuff. So if we could get to some arrangement where we could be assured that’s the case and a fair settlement on the stuff that’s occurred, I would highly prefer to settle than to battle. But it the key thing is that it’s very important that Apple not become the developer for the world. We need people to invent their own stuff (Elmer-Dewitt 2012)

Cook made it clear that Apple was not enthusiastic about this grueling judiciary process, but felt that it was a necessary evil. As the author of that article astutely noted, it is likely that Cook was signaling that Apple is willing to settle those things that Samsung is required to negotiate. But when it comes to protecting Apple’s inventions, Cook’s heels seem to be as deeply dug in as his predecessor’s were (Elmer-Dewitt 2012).

Results

Apple and Samsung put an end once and for all on this back and forth legal battle in June of 2018. The judge that had been overseeing the most substantial and high steaks disputes between the companies, Lucy Koh, released a statement on June 27th, 2018 saying that the companies had informed her that they reached a settlement, but the exact terms of the settlement were not disclosed. However, the most recent verdict had been that Samsung was to pay Apple $539 million for illegally using their patents in devices like the Galaxy S and the Galaxy Tab. Apple CEO Tim Cook also released this statement after settling with Samsung:

We believe deeply in the value of design, and our teams work tirelessly to create innovative products that delight our customers. This case has always been about more than money. Apple ignited the smartphone revolution with iPhone and it is a fact that Samsung blatantly copied our design. It is important that we continue to protect the hard work and innovation of so many people at Apple. We’re grateful to the jury for their service and pleased they agree that Samsung should pay for copying our products (Kastrenakes 2018).

Overall, Negotiation Tactics

This specific negotiation was very unique in the sense that even though the two companies had an important, even symbiotic, business relationship, they ended up largely taking the approach of hard positional bargaining. Both Apple and Samsung had similar overall interests that came with the nature of their companies: they both wanted their patents to be respected, their innovations not to be copied and to earn as much revenue as possible in the cell phone/communication market. However, after the initial cordial meeting, the dispute rapidly escalated in intensity and exploded into numerous lawsuits and court battles. The confidential nature of the meetings between Apple and Samsung and the sealed records makes it difficult to identify exact negotiation strategies used by either side. Within the public information, however, it is clear that both sides used a variety of techniques, both deceiptive and by-the-book, in order to achieve the outcome they wanted.

The initial negotiations that took place at the Samsung Headquarters in 2010 reflected an optimistic outlook. Apple entered with a combination of a rights and interest-based approach (Thompson 2015, 100-101). Apple was open and honest about what they wanted. They asserted that they believed Samsung had infringed their patents, and believed that they had the right to compensation for said infractions (rights-based approach). They also acknowledged that they did value Samsung as a valuable business so they would be happier settling this outside of court and offered Samsung to pay a royalty fee for every device sold that had patent violations. Although Apple intended to keep things amicable by being open, honest, and matter-of-fact, this completely failed. As it turned out, Samsung was so offended by Apple’s claims that they essentially copied the iPhone that they let their emotions and egos get in the way, Without knowing it, Apple had threatened Samsungs face. In a negotiation, face is the value that a person places on his/her pubic image, reputation and status comparative with the other participants in the negotiation. Fact threat sensitivity (FTS) is the likelihood dog having a negative reaction to the face threat (Thompson 2015, 53). Samsung, possibly in part because of the different culture in East Asian Companies’ mindset, had a very high FTS and reacted extremely negatively to what they perceived as a face threat. To them, it was not only offensive, but embarrassing when Apple (an equally established and historically larger technology producer) had accused them of taking advantage of innovations that were not their own. Samsung then immediately wrote up their own list of their patents that Apple had illegally used in their devices. This marked the beginning of the extreme positional bargaining. After apple recognized that this dispute was not going to be resolved outside of the courts like they had hoped, they made the first move by suing Samsung in California. The number of lawsuits only skyrocketed after this. From then on, Apple strongly insisted that Samsung had completely based their new products off the look and feel of the iPhone, which infringed on intellectual property. Meanwhile, Samsung adimatley denied all of these claims and insisted that the said designs they were accused of copying were purely new industry standards.

This positional style of bargaining continued until late 2012 when per Judge Lucy Koh’s suggestion they cut the number of disputed patents in half and showed some willingness to compromise in an effort to avoid going to court (PON Staff, 2018). The ineffective positional bargaining then resumed again, until 2014 when a California court insisted that the parties participate in a mediation session. Both parties showed more of a collaborative style of negotiation when they were willing to work through a mediator in order to settle some of the issues. In this session, Apple’s CEO Tim Cook and top Samsung executives attended a day long meeting hosted by a mediator. However, this attempt at mediation ultimately failed. An analysis of this case by Harvard Law School’s Program on Negotiation staff proposed that mediation failed because too much time and energy had already been spent in the previous court cases, so Apple and Samsung were reluctant to give in to any agreement.

Mediation as a dispute resolution technique between business negotiators is far less likely to succeed when the parties are grudging participants… When negotiators feel they have spent significant time and energy in a case, they may feel they have invested too much to quit. Moreover, the longer they spend fighting each other, the more contentious and uncooperative they are likely to become (PON Staff, 2018).

References

  1. Apple just became the first American public company to cross $1 trillion in value. (2018, August 2). Apple reaches $1 trillion value. Retrieved from https://money.cnn.com/2018/08/02/investing/apple-one-trillion-market-value/index.html
  2. Elmer-Dewitt, P. (2012, May 21). Why Samsung must negotiate. Why Apple won’t settle. Retrieved from https://fortune.com/2012/05/21/why-samsung-must-negotiate-why-apple-wont-settle/
  3. Example of Negotiation in Business: Apple and Samsung’s Dispute Resolution Case Study. (2018, November 09). Retrieved from https://www.pon.harvard.edu/daily/business-negotiations/apple-v-samsung-an-example-of-negotiation-in-business-gone-bad/
  4. Kastrenakes, J. (2018, June 27). Apple and Samsung settle seven-year-long patent fight over copying the iPhone. Retrieved from https://www.theverge.com/2018/6/27/17510908/apple-samsung-settle-patent-battle-over-copying-iphone
  5. Levine, D. (2012, August 27). Analysis: How Apple overwhelmed Samsung’s patent case tactics. Retrieved from https://www.reuters.com/article/us-apple-samsung-legal-idUSBRE87Q02K20120827
  6. Luke Christou. (2017, May 19). Samsung net worth: More than just a tech company – Compelo. Retrieved from https://www.compelo.com/samsung-net-worth/
  7. Press, T. A. (2017, December 20). Mediation Fails for Samsung and Apple. Retrieved from https://www.nytimes.com/2014/02/23/technology/mediation-fails-for-samsung-and-apple.html
  8. Shin, A., & Brown, D. (2016, October 10). Samsung Electronics Co. v. Apple. Retrieved from https://www.law.cornell.edu/supct/cert/15-777
  9. Slicing an Apple. (2011, August 10). Retrieved from https://www.economist.com/graphic-detail/2011/08/10/slicing-an-apple
  10. Thompson, L. L. (2015). The mind and heart of the negotiator. Pearson.
  11. Unknown. (2015, September 28). Negotiation Final Project: Apple v. Samsung. Retrieved from https://timwilsonadminmastersportfolio.blogspot.com/2015/09/negotiation-final-project-apple-v.html
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