Samsung Electronics Fourth Quarter Profit Sags

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Jury to Decide How Much More Samsung Must Pay Apple in Patent Case

In August last year, a California jury found that Samsung infringed on a series of Apple patents and needed to pay more than $1 billion in damages. But the judge later revisited that price tag and vacated about $450 million of that original award, saying it was unclear how the jury calculated the original figure.

Samsung was still required to pay Apple $600 million. And the judge, Lucy H. Koh, of the Federal District Court for Northern California, ordered the new trial to assess whether Samsung should pay more or less than the $450 million that was vacated.

For Samsung and Apple, the two biggest profit makers in the electronics industry, a single handoff of $1 billion would not greatly affect the companies’ finances. But the fight over damages is more about the future than the present. Samsung and Apple are embattled in multiple patent disputes, and the final award could influence another jury to make similar damage calculations in future cases.

“This is a judgment based on some of its products, particularly old products,” said James E. Bessen, a lecturer in law at the Boston University School of Law. “Samsung doesn’t want similar judgments on more recent products as well.”

In the original case, Apple accused Samsung of violating several of its patents and “ripped off” its iPhones and iPads. In the trial, which lasted about a month, Apple’s executives and designers detailed their design processes and compared Apple’s products with Samsung’s to illustrate how the products were similar.

Jury selection for the trial on the damages award started Tuesday, and is expected to last about a week. Some of Apple’s top leaders, including Philip W. Schiller, Apple’s senior vice president of worldwide product marketing, are expected to testify.

The trial will involve five patents, including one that covers the design of the face of a mobile device. It will also cover 13 products, including Samsung’s Galaxy Tab tablet and Samsung’s Captivate smartphone.

Much of the trial is likely to focus on how the damages should be calculated. The jury could decide Samsung has to pay for Apple’s lost profit as a result of Samsung’s products being in the market. Or it could also decide that Samsung must pay royalties for each device it has sold that carry the features covered by the patents.

The amount of damages may have become muddied in last year’s trial because the jurors were required to fill out a complex 20-page form when calculating the amount owed to Apple. In the new damages trial, jurors will instead be required to fill out a much simpler one-page form.

Apple and Samsung declined to comment.

In the trial last year, Samsung was criticized for engaging in some foul play, like when it publicly released some evidence that the judge had ordered to be excluded.

Samsung was scrutinized again last week in a separate case, in which a judge determined that the company violated a court-ordered agreement to keep some Apple documents secret. During the discovery process, Apple had given Samsung confidential patent licensing agreements with Nokia, Ericsson and other companies — privileged information only for Samsung’s lawyers working on the case.

But Samsung was found to have shared the documents internally with employees and unauthorized lawyers so it could leverage its negotiations with Nokia and Ericsson. Apple and Nokia are expected to recommend a punishment for Samsung in a hearing on Dec. 9.

In its patent feud with Samsung, Apple has been largely victorious in the United States. Both companies convinced the United States International Trade Commission that the other had violated patents, resulting in bans on each other’s products. However, the Obama administration ultimately vetoed the ban on Apple products, but upheld the ban on Samsung products.

Another battle between Apple and Samsung is not far away. The two companies are scheduled for another trial in March 2014, which involves a different set of Apple patents and some newer products, including Samsung’s popular Galaxy S III smartphone — a product that surpassed the iPhone in sales at one point. That lawsuit, which will also be overseen by Judge Koh, could result in even larger damages if Samsung were to be found guilty.

That lawsuit is most likely what Samsung is most concerned with, Mr. Bessen said. “People already are aware that Samsung was found guilty,” Mr. Bessen said. “Their new trial is coming up on some of the later products. If Samsung can show they were able to reduce the damages, it might help them.”

Bits Blog: Samsung Throws Another Jumbo Phone Against the Wall

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Samsung Drops Action to Block Apple in Europe

PARIS — Samsung said Tuesday that it had dropped its request for a ban on sales of certain Apple phones and tablet computers in Europe, a sharp tactical turn in a patent war that the companies have been fighting on multiple fronts around the world.

Samsung, the South Korean electronics giant, had been seeking injunctions in a number of countries, including Britain, France, Germany, Italy and the Netherlands, contending that Apple, Samsung’s biggest rival in the smartphone market, had infringed on Samsung patents.

The move came only a day after a ruling in a related case in San Francisco, where a U.S. District Court judge rejected a request by Apple, which is based in California, for an injunction to block sales of certain Samsung devices. The decision followed a previous jury ruling that Samsung had violated Apple patents.

After the latest twist in the European case, Samsung said it had acted “in the interest of protecting consumer choice.” Analysts said other factors might have been in play, including a possible nudge from the European Commission.

In January, the commission opened a formal antitrust investigation of Samsung’s terms for licensing patents covering wireless technologies. Under a previous agreement, Samsung had pledged to make the patents available to competitors on “fair, reasonable and nondiscriminatory” terms.

“The scope of what was withdrawn precisely matches the area in which the European Commission has been investigating,” said Florian Müller, a patent consultant in Germering, Germany. “It’s not just that the plot is thickening; in my view, there can be no other plausible view than that there is pressure from Brussels.”

The commission had said previously that it was concerned about possible abuse of patents like the ones at issue in the Apple-Samsung injunction request, those covering technologies needed for a device to function. Without some of these “standard essential patents” from Samsung, for example, phones cannot connect to high-speed wireless networks.

“Regulators have been saying, if the patent holders try to abuse these patents, then they are going to get in trouble,” Mr. Müller said.

The commission declined to comment directly on whether there might be a link between Samsung’s announcement Tuesday and the antitrust case in Brussels. “We take note of this development,” said Antoine Colombani, the spokesman for the E.U. competition commissioner, Joaquín Almunia. “Our investigation is ongoing.”

Samsung, meanwhile, said it could not comment on the proceedings. It said it was “fully co-operating with the European Commission.”

“Samsung remains committed to licensing our technologies on fair, reasonable and nondiscriminatory terms, and we strongly believe it is better when companies compete fairly in the marketplace, rather than in court,” it said in a statement.

There has been speculation that Samsung and Apple have been in talks to try to reach a settlement, though the broad scale of the litigation between the two companies, with lawsuits seeking sales bans or damages continuing on several continents, could make that challenging.

“We cannot comment on details of ongoing legal proceedings, but we believe a commercial resolution is achievable,” Samsung said in a statement.

Alan Hely, a spokesman for Apple, declined to comment.

The announcement by Samsung does not end litigation between the two companies in Europe. Samsung said it planned to pursue lawsuits seeking damages from Apple for what it contends is patent infringement.

Apple and Samsung have also been battling over other patents, covering nonessential features of their devices, like design.

Apple, too, has previously secured bans on the sale of certain Samsung products. Last year, for example, a court in Düsseldorf ruled that Samsung could not sell one of its Galaxy tablet devices in Germany because it bore too close a resemblance to the iPad 2 from Apple.

While some analysts cited regulatory pressure as a possible reason for Samsung’s decision Tuesday, others said the company might have decided that the lawsuits were simply a distraction. Samsung’s phones, especially its Galaxy S3, have been selling well.

In the third quarter, the S3 surpassed the iPhone 4S to become the world’s best-selling smartphone, according to Strategy Analytics, a research firm.

“Maybe the market was telling them that they were succeeding and their time was better spent promoting sales of their product,” said Charles Golvin, an analyst at Forrester Research.

James Kanter contributed reporting from Brussels.

Samsung Expected to Reach End of Record Run

SEOUL — Samsung Electronics reported a record quarterly profit of 8.1 trillion South Korean won, nearly double the figure of last year, as strong sales of high-end televisions and Galaxy smartphones more than offset reduced orders for chips and screens from Apple, its main rival and leading customer.

Most analysts, however, expect a run of four record quarters — the most recent worth $7.3 billion — to end in December, as the South Korean group, one of the world’s leading makers of smartphones, televisions and memory chips, increases its marketing, countering the new Apple iPhone 5 and other products in a crowded smartphone market, valued at $200 billion globally.

Credit Suisse Group, an international financial services company, estimated that Samsung might have spent about $2.7 billion on marketing in July to September alone during the Olympic Games in London and on Galaxy promotions.

The expected record profit of 28 trillion won would mean higher payouts for performance to many of Samsung’s 206,000 staff members early next year. And Samsung may have to set money aside this quarter if it fails to overturn an appeal of a U.S. court verdict that awarded more than $1 billion in damages to Apple on Aug. 24 for patent infringements by Samsung.

“Fourth-quarter profit will be pressured by one-off expenses: performance payouts and some $1 billion in legal provisioning relating to the Apple litigation,” said Lee Sun-tae, an analyst at NH Investment & Securities.

“Excluding those, core earnings will remain solid, and a swing factor is how much Samsung spends on marketing.”

Analysts expect earnings to decline until the second quarter of next year as a slump in computer sales and a weak global economy sap demand for chips and electronics products.

“The biggest risk for Samsung is competitive product lineups from its rivals, such as the iPhone 5,” said Byun Han-joon, an analyst at KB Investment & Securities.

“Because handsets drive most of its profits, one misstep in handsets could result in losses for the whole Samsung group,” Mr. Byun said.

Profit at Samsung’s mobile division is likely to have more than doubled in the July-to-September period to about 5 trillion won as smartphone shipments topped 58 million, including as many as 20 million of the Galaxy S III.

Ahead of full quarterly results due Oct. 26, Samsung estimated that its July to September operating profit jumped to 8.1 trillion won from a year ago, beating an average forecast of 7.6 trillion won in a survey of analysts.

Strong handset sales made up for reduced profits from its chip business. Prices of dynamic random access memory, or DRAM, chips — used in computers and mobile phones — dropped 14 percent in the September quarter. Such chips now trade below what it costs most contract manufacturers to make them and will squeeze near-term earnings, analysts say. Tablets and smartphones, the real growth areas, use far smaller memory storage.

Samsung is expected to invest less in chips next year because of the drop in demand, which could be bad news for equipment manufacturers. Kwon Oh-hyun, who became chief executive of Samsung in June, said late last month that the group had yet to complete its 2013 investment plans.

Samsung is strengthening its product lineup, with its latest phone-tablet, the Galaxy Note, expected to go on sale in the United States this month; its ATIV smartphones, which run on Microsoft’s new Windows system, will compete with Nokia’s Lumia series.