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Alternative Dispute Resolution in Patent Disputes

A Worthwhile Alternative to the Current Patent Dispute Between Apple Inc. and SAMSUNG Electronics?

Term Paper 2013 44 Pages

Law - Civil / Private / Trade / Anti Trust Law / Business Law

Excerpt

Table of Contents

Executive Summary

1. Introduction

2. Status Quo of the Patent Dispute between Apple and Samsung

3. Basics of Patent Law
3.1. Patents as a Part of Intellectual Property Protection
3.2. Patent Creation
3.3. Recent Developments

4. Alternative Dispute Resolution Procedure
4.1. Mediation
4.2. Arbitration
4.3. Expert Determination

5. Alternative Dispute Resolution as an Option for Businesses
5.1. Court Litigation compared with Alternative Dispute Resolution
5.2. Enforcement of Alternative Dispute Resolution
5.3. Growing Importance of Alternative Dispute Resolution in Patent Disputes
5.4. The Current Use and Expected Benefits of the Techniques

6. Discussion: Alternative Dispute Resolution – A Worthwhile
Alternative to the current patent dispute between Apple Inc. and
SAMSUNG?

7. Bibliography

8. Appendix

Table of Figures

Figure 1: Growth in patent filings worldwide

Figure 2: Flowchart showing the requirements for patent applications

Figure 3: ADR techniques compared

Figure 4: Percentage Change in Cases Commenced

Figure 5: Percentage Change in Cases Terminated

Figure 6: Use of the techniques compared

Figure 7: Measurement of the techniques' benefits compared

Alternative Dispute Resolution in Patent Disputes

1. Introduction

In the past two years the news have been filled with reports on lawsuits between smartphone[1] producers. One company accuses another of infringing patents on their latest big seller.

Intangible assets have become at least as important as tangible assets and their protection has become a key factor in economic success (WIPO, n.d. (d), p. 2). An effective way of protecting intellectual property is to file a patent. Increases in filing rates all over the world prove the growing demand for global protection (WIPO, n.d. (d), p. 2).

However, the past has shown that in spite of patent protection, businesses feel that others copy their inventions. Usually parties try to avoid such a dispute, but if either one sees their competitive advantage being used by someone else without a contract it induces a conflict.

As one can gather from the news, many disputes have led to court litigation. Nonetheless many could be resolved out of court using Alternative Dispute Resolution. In the past few years public awareness of Alternative Dispute Resolution has enhanced its visibility. It is increasingly used in the business world, mostly for negotiations, mergers and joint ventures (Duve, Eidenmüller and Hacke, 2011, p.9). Lately, parties also look to private dispute resolution in conjunction with intellectual property disputes (WIPO, n.d. (d), p. 2). But what are the specifics of using Alternative Dispute Resolution for resolving patent conflicts? Is every patent dispute suitable for an out-of-court solution? And is Alternative Dispute Resolution overall a worthwhile alternative in patent disputes?

Concerning these questions, the main focus of this paper lies on the patent dispute between Apple Inc. (in the following referred to as Apple) and SAMSUNG Electronics (in the following referred to as Samsung). Furthermore, it only covers issues relating to the smartphone market, since the length of the paper does not allow for more.

The starting point preludes the company’s profile to make their position within the conflict clear. The priority here is to outline what has been happening in the dispute so far in order to establish a knowledge base for the argumentation used.

The subject of intellectual property protection is delineated in the next section. Patents are defined here as one part of the protection and the requirements for successful patent filing are outlined. This part also pertains to the use of patents in the smartphone industry as well as to their use by Apple and Samsung.

Attention is then focused on Alternative Dispute Resolution. Different processes are presented in this section and procedures are examined in terms of their usability for the Apple-Samsung dispute.

Afterwards the advantages and disadvantages of Alternative Dispute Resolution are considered and compared with court litigation. An overview of enforcement mechanisms is also presented. A review of the development of Alternative Dispute Resolution as a practiced method to resolve patent disputes is given on the basis of surveys from the 1990s. A study of Alternative Dispute Resolution techniques used in international business disputes is discussed at the conclusion of this section.

Lastly, Alternative Dispute Resolution as a worthwhile alternative to the current patent dispute between Apple and Samsung is examined critically. Possible actions for Apple and Samsung are outlined and alternative actions based on best practices are noted.

2. Status Quo of the Patent Dispute between Apple and Samsung

California-based Apple, one of the biggest producers of consumer electronics worldwide, focuses mainly on media devices, portable digital music players, and the design, development and marketing of personal computers. Nonetheless, Apple is also involved in selling related software, services, networking solutions, and third-party digital content and applications (Market Line, 2012, p. 3).

Samsung on the other hand is part of the worldwide Samsung Group, headquartered in Seoul, South Korea. Like Apple, Samsung is one of the leading consumer electronics companies in the world (Datamonitor Plc., 2011, p. 4). Samsung has a far-reaching range of products: media devices (digital TVs, monitors, printers, mobile phones, communication systems, air conditioners and refrigerators) and components (memory chips, system LSIs[2] etc.). Unlike Apple, the Samsung group manages its global business network through nine subsidiaries in different countries that are independently responsible for production and sales (Samsung Electronics, 2012, p. 6).

In 2012 The Wall Street Journal stated: “Apple has become an epicenter of a global patent war among industry titans” (Sherr, 2012a), which hits the global situation on its head. Since 2010 Apple has been, and in several cases still is, involved in dozens of lawsuits and countersuits all over the world (Lohr, 2012). The battles, fought mainly about patent infringements on the smartphone market, have involved companies such as HTC, Motorola Mobility and Nokia (Lohr, 2012). However, probably the biggest and, media-wise, the best known battle is currently being fought out between Apple and Samsung. The two companies accuse each other of copying the look, product design, packaging and user interface of their respective smartphones. The dispute is being carried out in several courts worldwide and has eventually led to bans and sanctions for both companies (The Associated Press, 2012a; CMP TechWeb, 2012; Gibson, 2012).[3]

The court battles affect both Apple and Samsung. Resources such as money and staff are involved in litigation. Reputation and share prices might suffer from negative press coverage. Even the innovation process might become influenced.

Moreover, Apple and Samsung are not only competitors but also business partners, and in some respects depend on one another.

To understand the interrelation between them, one must understand their management control and supply chain. With Samsung being involved in the full manufacturing process (“from raw materials to electronic components to fully assembled products”), it uses a model of vertical integration that makes the company somewhat independent (Vergara, R., 2012, p. 78).

Apple on the other hand uses another form of vertical integration. It owns the four companies critical to their supply chain: (1) a hardware company which designs Apple’s own hardware, (2) a software company which owns, develops and optimizes their software, (3) a service company which provides the products with services (e.g. iTunes) and (4) a retail company (Apple Stores) (Vergara, R., 2012, p. 78). Still, “Apple is not a manufacturing firm – it is a design firm” (Vergara, R., 2012, p. 78); it has outsourced production.

To be precise, one of Apple’s main suppliers is Samsung, which produces microprocessors, flat screens and memory chips for the iPhone, iPad and iPod (Reuters, 2012). These parts account for 26% of the iPhone (Vergara, R., 2012, p. 78).[4] Overall, Samsung is one of the biggest suppliers of electronic components in the world and orders from major competitors such as Apple, Sony, Dell and Hewlett-Packard account for about a third of its revenues per year (Vergara, R., 2012, p. 78).

As recent articles claim, Apple has already started to reduce orders for memory chips from Samsung. Still, Samsung remains the only producer of Apple’s microchips that power the iPhone and iPad (Reuters, 2012).

On the one hand, it is apparent that the business relationship is vital for both companies; however, on the other, fronts stiffen as a result of the ongoing lawsuits.

3. Basics of Patent Law

Intellectual property is of utmost importance to the contemporary knowledge economy. A company has to protect and exploit its intangible assets in order to be competitive. Requirements for patent filing are outlined below, the current development is analyzed and the dispute between Apple and Samsung is addressed.

3.1. Patents as a Part of Intellectual Property Protection

“Intellectual capital is recognized as the most important asset of many of the world’s largest and most powerful companies, it is the foundation of the market dominance and continuing profitability of leading corporations.” (King cited in O’Connel, 2008, p. 3)

Intellectual property rights generally protect intellectual capital. However, there are many different ways to secure one’s intangible assets and the respective rules applicable differ (O’Connel, 2008, p. 12). Existing rights include copyrights, trademarks, designs, utility models, semi-conductor topographies, database rights and trade secrets (O’Connel, 2008, p. 13). Only patent rights are examined further below.

“A patent protects an invention” (O’Connel, 2008, p. 13). Once granted, it is an exclusive right that covers products or processes containing new, non-obvious, and commercially applicable functional and technical aspects (O’Connel, 2008, p. 38; WIPO, 2012, p. 9). This distinctive protection bars others from making, using, distributing or selling the invention commercially without the owner’s consent and lasts for a limited period only, usually 20 years from filing (O’Connel, 2008, p. 38).

illustration not visible in this excerpt

Furthermore, patents offer recognition to an inventor and encourage businesses to establish research and development departments. Owners decide freely if others may use their invention and by doing so they have the right to define the terms of such use. The right may be permitted, licensed or even sold (O’Connel, 2008, p. 38).

As Figure 1 shows, patent filings worldwide have increased in recent years. Companies have realized the importance of intellectual property rights and how patents can lead to a competitive advantage (O’Connel, 2008, p. 13). The ongoing increase started around 1995, the time when computers and mobile devices became popular to the public. Electronic devices are touched by thousands of patents and may be one factor that has led to the growth of patent filings worldwide.

Apple and Samsung have gone to court, trying to determine the real value of their patents – their validity and strength (Lohr, 2012).

3.2. Patent Creation

Everybody has the right to file a patent. However, the road to a granted patent is long and costly.

At the very beginning stands an invention that

(1) has to be new or novel,
(2) involves an inventive step, and
(3) is industrially applicable (O’Connel, 2008, p. 50).
In particular this means that the invention cannot have been published before, for example in a journal article, and must also be different from all publicly existing ideas, inventions and products (O’Connel, 2008, p. 51). Furthermore it has to be “determined whether the invention would be obvious to a reasonably skilled worker” (O’Connel, 2008, p. 52). This means that it may not immediately be apparent to someone who has good knowledge and experience in the respective area (O’Connel, 2008, p. 52). In the end a patent protects a technical solution, not an idea. Therefore it must be useful as well as usable in a form of industry and must have the ability to be reproduced or used in this industry (O’Connel, 2008, p. 55).

The following flowchart (Figure 2) sums up the requirements for a patentable invention.

illustration not visible in this excerpt

Figure 2: Requirements for patent applications

In case the inventor holds the view that the invention is patentable, an application has to be filed. At this point it should be noted that a patent only applies to one country or region (such as the European Union) (O’Connel, 2008, p. 91). This means that one has to decide if the invention will only be protected in a certain country or in every country of the world. Apple and Samsung, who sell their products worldwide, seek international protection.

Correspondingly, an application must be filed in every country of the world. However, the Patent Cooperation Treaty (PCT) with all of its contracting countries offers something close to an international application (O’Connel, 2008, p. 91).

[...]


[1] According to Oxford Dictionaries y (2010b), a smartphone is “a mobile phone that is able to perform many of the functions of a computer, typically having a relatively large screen and an operating system capable of running general-purpose applications”.

[2] Part of the semiconductor industry.

[3] E.g., bans have been declared in South Korea; Samsung had to pay $1.05 billion after a court ruling in San Jose, California; both companies must pay attorneys’ fees pursuant to Fed.R.Civ.P. 37 in California; payment of monetary compensation to one another in South Korea.

[4] Also see Appendix a)

Details

Pages
44
Year
2013
ISBN (eBook)
9783656421849
ISBN (Book)
9783656422648
File size
2.8 MB
Language
English
Catalog Number
v213917
Institution / College
Berlin School of Economics and Law
Grade
1,1
Tags
alternative dispute resolution patent disputes worthwhile apple samsung electronics

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Title: Alternative Dispute Resolution in Patent Disputes