The recent Apple v. Samsung rulings in California were fiendishly complex, but experts at top business schools CEIBS and Chinese University Hong Kong say that on balance they're likely to stifle innovation, and ultimately leave consumers worse off.
In a patent war started by Apple in a California court, the firm claimed that Samsung had infringed copyrights linked to the design and functionality of its iPhone and iPad devices. These iincluded copying rectangles with rounded corners, glass screens, speaker and button locations, silver edges, the iPhone’s rectangular face, using two fingers to zoom, and the tap-to-zoom feature.
The US court found overwhelmingly in favour of Apple, ordering Samsung to pay US$1 billion-plus in compensation. This might sound like a lot of money, but professors Robert P Lee of Chinese University of Hong Kong's Centre for Entrepreneurship and Jeff Sampler of CEIBS believe there is more at stake than the fine: the very nature of innovation and competition in the tech industry, for a start.
Technology has come a long way from being proprietary. No piece of technology stands alone these days so it's hard to say who copied who if you can't define where one firm's piece of technology starts and another firm's ends. Prof Lee put it this way, “People shouldn’t blatantly copy other people’s products but its hard to say where an idea ends, where inspiration begins, and where copying begins. It's a grey area but there should be a certain sphere that is fair play.”
Professor Lee has been in the high tech industry for 35 years and now teaches a course called Management of Technology in China available to MBA students at Chinese University of Hong Kong (CUHK).
He knew Steve Jobs personally and did business extensively with Apple! Professor Lee spent the first half of his career managing large organizations and the second half as a serial entrepreneur serving as Chairman and CEO at firms such as Achievo Corporation, one of China’s largest IT services companies and Insignia Solutions, a software company he took public on NASDAQ in 1995. He was Executive Vice President at Symantec where he acquired and integrated six companies, including Norton Computing, which became a legendary M&A success story in Silicon Valley. He is also an advisor and investor in several tech firms - you can see his resume here!
Prof. Lee feels that the litigations were being used as a tool to exploit the legal system. Design patents in the US protect the way a product looks and a design patent holder can obtain the total profits made by the infringer for the accused products. Apple took full advantage of this law when it asked for Samsung's total profits, that it estimated to be $2 billion.
Similarly, CEIBS professor Jeff Sampler says that with this court case Apple sent warning shots at competitors which may change the pattern and pace of innovation: “The industry as a whole has a history of copycat innovation. Apple did not invent rectangular phones or tablet-like gadgets. It's difficult to say that no one company took inspiration from another when it came to design."
Prof. Sampler thinks that Apple is threatened by Samsung’s progress in the smartphone and tablet market: “The distance between Apple and Samsung is closing and when they feel people getting close, they use litigation”, he said.
Prof. Lee believes that this type of litigation is terrible for innovation since society has to bear the cost of less innovation, as firms become more cautious. Companies will spend a lot more resources amassing patents that they can use for both offensive and defensive measures, he said, "A sad commentary of how patents are misused to kill competition. Something counterproductive to consumers".
Prof. Jeff Sampler is an expert in strategy and technology, and teaches at Oxford University's Said Business School as well as CEIBS. He has also been aresearch scientist at the Center for Information System Research at MIT since 2001. In case you're interested, Prof. Sampler has not one but three smartphones: one each from Samsung, Apple and Blackberry.
The main question he tries to tackle with his students at CEIBS is how to make strategy more proactive and less reactionary. Essentially, it's more important to see beyond the present and ask if winning a lawsuit is worth it in the long run.
"Business leaders need to think more holistically and re-examine the basic tenets of their strategy", he said. Focusing solely on winning a court case may lull the company into a false sense of confidence and prevent them from pursuing more innovation. More open-mindedness is advised when it comes to exploiting perceived advantages.
For now, it's hard to say how this win will affect innovation in the industry but it looks like Apple just ushered in a litigious era in the smartphone world: LG recently filed a suit against Samsung for infringing seven of its patents related to an organic light-emitting diode!
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