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updated: 8/28/2012 7:08 AM

Apple seeks ban on U.S. Sales of eight Samsung smartphones

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  • Kevin Johnson, right, and Victoria Maroulis, left, attorneys for Samsung, leave the US Courthouse and Federal building after a jury reached a decision in the Apple Samsung trial.

    Kevin Johnson, right, and Victoria Maroulis, left, attorneys for Samsung, leave the US Courthouse and Federal building after a jury reached a decision in the Apple Samsung trial.
    Associated Press

Associated Press

Apple Inc. is seeking a U.S. sales ban on eight models of Samsung Electronics Co. smartphones and the extension of a preliminary ban on a tablet computer after winning a patent trial against the South Korean company.

Apple, which won more than $1 billion Aug. 24 after a jury found Samsung infringed six of seven patents at stake in the trial, named the phones it wants barred in a filing yesterday with U.S. District Judge Lucy Koh in San Jose, California. The list includes several devices in the bestselling Galaxy lineup.

The effect on Samsung's sales will be negligible because Apple's list only includes older devices that will account for less than 1.4 percent of the Korean company's profits next year, said Mark Newman, an analyst at Sanford C. Bernstein who used to work at Samsung. The impact would be 6.3 percent if Apple manages to broaden a ban to newer devices and block 80 percent of all Samsung phones, he said.

"The older models aren't selling much now, and the penalty will only be a one-time cost," Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $29 billion, said by phone today. "There won't be big damage to Samsung's sales and operating profit."

'Necessary Measures'

Samsung gained 1.3 percent to 1,195,000 won at the close of Seoul trading, while the benchmark Kospi index fell 0.1 percent. The stock dropped 7.5 percent yesterday. In German trading today, Apple was little changed, changing hands at the equivalent of $677.42 as of 10:27 a.m. in Frankfurt.

"We will take all necessary measures to ensure the availability of our products in the U.S. market," Nam Ki Yung, a Seoul-based spokesman for Samsung, said in an e-mailed statement today.

The U.S. verdict's potential impact on Samsung's research spending and its plans for new products is negative for the company, Moody's Investors Service said in a statement today. It won't immediately affect its credit rating or outlook because the Suwon, South Korea-based company has "a strong diversified business position and substantial financial cushion to absorb the cash damages," Moody's said.

Apple, based in Cupertino, California, won a ban on U.S. sales of Samsung's Galaxy Tab 10.1 tablet in June that the South Korean company said wouldn't significantly affect its business. Apple, which seeks to make that ban permanent, said in a court filing yesterday that Koh should also bar U.S. sales of a version of the tablet that runs on mobile networks, even though the product wasn't covered by the Aug. 24 verdict.

Device Ban

Samsung sought to have the ban on the Tab 10.1 lifted on Aug. 26 after the jury found the device didn't infringe the Apple design patent on which the June 26 court-ordered sales ban was based. The jury instead found that the Galaxy Tab 10.1 infringed three of Apple's software patents.

Koh hasn't ruled on any of the requests. She scheduled a Sept. 20 hearing for arguments on the potential bans, adding that the date may change.

Of the 28 Samsung devices Apple says are infringing, the eight targeted for a U.S. sales ban include the Galaxy Prevail, which was the list's top seller by units in the U.S. from mid- 2010 to mid-2012, generating revenue of $378 million, according to data submitted by Samsung in a court filing.

Apple's List

Apple's list includes the Galaxy S II Epic 4G, ranked by Samsung as the third-best seller by units in the U.S. among the disputed products; the Galaxy S 4G, the fourth-best; and the Galaxy S II T-Mobile, the eighth-best during the past two years.

The other devices include the Galaxy S Showcase, the S II AT&T, the S II Skyrocket and the Droid Charge. Some of the models began selling in the U.S. more than a year ago.

Of the $1.05 billion in damages awarded against Samsung, the eight phones accounted for $461 million. Combined sales of the models totaled 9.1 million units from mid-2010 to mid-2012.

The U.S. accounted for about 12 percent of Samsung's smartphone sales in the second quarter, according to SK Securities Co. The company's biggest market in the first half was western Europe at about 23 percent, followed by the Asia- Pacific region at 22 percent and China at 16 percent, according to HMC Investment Securities Co. in Seoul.

The latest Galaxy S III phone wasn't targeted by Apple in the trial and isn't on the proposed ban list. That exclusion is "a positive for Samsung," Newman said.

Galaxy S III

"This would be equivalent to a situation if Apple was banned from selling its iPhone 3S in the U.S. market," Amir Anvarzadeh, Singapore-based manager for Asia equity sales at BGC, said in a note today. "The potential impact of the ban looks fairly limited."

In a related case in San Jose, Apple is seeking to block sales of the S III. In that case, also before Koh and scheduled to go to trial in 2014, Apple has won a preliminary order blocking U.S. sales of Samsung's Nexus smartphone.

Samsung has asked the U.S. Court of Appeals for the Federal Circuit in Washington to overturn the Nexus ban.

With Apple asking for Samsung to pay a $30 licensing fee for each handset the company sells, losing the sales of the handsets Apple is trying to get banned would be less harmful to the company's financial performance than paying the licensing fee, Newman said.

"If that was applied globally, it would have a massive impact on Samsung," he said.

Damage Award

A royalty of $5 per device would cost Samsung about $1.2 billion a year, Newman said.

Apple won less than half of what it sought in damages in the first lawsuit to go before a U.S. jury in the fight to dominate the global smartphone market, though Koh may later triple the damages under federal law. Samsung avoided a finding of damages for antitrust law violations or breach of contract.

The injunction will probably be more important than the monetary damages award, Mark Lemley, a Stanford Law School professor, said in an e-mail after the verdict.

"The real question is whether this is enough to derail the momentum the Android ecosystem has gained in the marketplace," Lemley said.

Samsung has used Google Inc.'s free Android operating system to reach the No. 1 spot in the phone market. Samsung, which counts Apple as its biggest customer for phone components, began selling its first Android-based smartphone in 2009.

The nine-member jury rejected Samsung's patent counterclaims against Apple, the world's largest company by market capitalization, and request for damages. The jury also determined that all of Apple's patents at stake were valid. Apple also won findings that Samsung devices diluted the value of its so-called trade dress, or how a product looks.

Samsung said in an Aug. 24 e-mailed statement it will ask the judge to reverse the verdict. If Koh doesn't overturn the award, Samsung said it will appeal. Samsung yesterday asked Koh to suspend final judgment in the case -- which is required before any sales ban can take effect -- until she rules on the company's filings challenging the verdict.

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