Samsung Elec, Apple call end to patents war outside U.S.

SEOUL/SAN FRANCISCO Wed Aug 6, 2014 3:18pm IST

1 of 2. A sales assistant holding Samsung Electronics' Galaxy 5 smartphone (L) and Apple Inc's iPhone 5 smartphone (R) poses for photographs at a store in Seoul July 16, 2014.

Credit: Reuters/Kim Hong-Ji/Files

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SEOUL/SAN FRANCISCO (Reuters) - Samsung Electronics Co Ltd and Apple Inc said they had agreed to drop all patent litigation outside the United States, scaling down a protracted legal battle between the smartphone rivals.

The iPhone and Galaxy handset makers issued nearly identical statements announcing the global ceasefire while vowing to pursue ongoing litigation in the United States, which analysts say involves much bigger amounts of potential damages.

The stand-down is likely to enable Samsung Electronics, the world's top smartphone maker, to shift its focus to its Chinese rivals such as Xiaomi rather than fighting a costly and prolonged legal war with Apple around the world, analysts said.

"It appears that Samsung and Apple, the market leaders, made a strategic alliance as China's Xiaomi is emerging as a formidable rival," said Cho Chang-hoon, a business professor at Sogang University in Seoul.

Last week, Samsung Electronics posted its weakest earnings since the second quarter of 2012, partly hit by rising competition from Chinese smartphone makers.

Xiaomi took China's smartphone crown in the second quarter after replacing Samsung Electronics as China's largest smartphone vendor, data from Canalys shows.

The legal battle between Samsung Electronics and Apple began in the United States in 2011 when Apple first filed a suit alleging that Samsung "slavishly" copied elements of its iPhones, the device which launched the industry.

Days after the initial Apple suit was launched in the United States, Samsung Electronics sued its Cupertino, California-based rival in South Korea, Japan and Germany, kicking off a series of tit-for-tat cases that spread around the world.

The latest agreement ends patent disputes in Australia, France, Germany, Italy, Japan, the Netherlands, South Korea, Spain and the United Kingdom, countries where the smartphone market leaders had engaged armies of lawyers for what analysts said were questionable gains.

The South Korean and U.S. tech giants declined to disclose the terms of the deal, but said it did not involve "any licensing arrangements and the companies are continuing to pursue the existing cases in U.S. courts."

The litigation raged on even as business flourished between the two companies, with Apple depending heavily on Samsung Electronics for components such as chips and liquid crystal displays.

Apple and Samsung Electronics together dominate the global smartphone market with a combined market share of 37.1 percent in the second quarter, according to Strategy Analytics.

"They now see little need to wage a war around the world, which will only fatten the bills of lawyers," said Young Park, a Hyundai Securities technology analyst in Hong Kong, adding that the deal raised the possibility of a final licence agreement settling how the companies use each other's patented technology.

He and three other analysts whom Reuters talked to said they do not have estimates for the legal costs that Samsung Electronics and Apple are facing.

A Samsung Electronics spokeswoman declined to comment.

NO MERIT

The agreement comes about a month after Jay Y. Lee, vice chairman and heir-apparent of Samsung Electronics, met Tim Cook, chief executive officer of Apple, during the Allen & Co conference in Sun Valley, Idaho, according to media reports. Last week, Lee again made a business trip to the United States, reports said.

Samsung Electronics did not immediately comment on the reports.

The two companies "decided that there was no merit in dragging on these lawsuits", an industry source familiar with the matter told Reuters, declining to be identified due to the sensitivity of the matter.

Nicholas Rodelli, an attorney and adviser to institutional investors for CFRA Research in Maryland, said there had been a "trend towards gradual de-escalation of patent hostilities between Apple and Samsung".

"It's not yet clear whether this is signal or noise, in terms of prospects for global settlement," he said.

In the United States, Samsung Electronics is appealing the result of a blockbuster 2012 trial, seeking to undo $930 million in damages.

While Apple says those damages should stand, the iPhone maker last week withdrew its request for a permanent sales ban against several older Samsung Electronics phones, according to court filings.

Separately, Apple went to trial against Samsung Electronics on a second batch of patents earlier this year and won a $120 million verdict. Apple still has a request pending for a sales ban against newer Samsung phones in that proceeding.

On another front, Samsung Electronics is fighting Microsoft Corp over allegations it refused to make a royalty payment last year on patent licenses after the U.S. company announced plans to acquire Nokia's handset business.

Meanwhile, Apple and Google Inc's Motorola Mobility unit agreed in May to settle all patent litigation between them over smartphones.

Apple and companies that make phones using Google's Android software, such as Samsung's top-selling Galaxy series, have filed dozens of such lawsuits against one another around the world to protect their technology.

Samsung Electronics shares closed 1.2 percent lower on Wednesday, compared with the wider market's 0.3 percent drop.

(Writing by Se Young Lee; Additional reporting by Kahyun Yang in SEOUL; Editing by Stephen Coates and Ryan Woo)

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