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posted: 9/1/2012 7:03 AM

Samsung ambushed by Apple opens hedged patent bets

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BERLIN -- A year after Samsung Electronics was humiliated by Apple forcing it to remove a tablet on display at the Berlin IFA fair, the world's biggest consumer- electronics companies are racing to avoid similar gaffes.

Makers of mobile phones, computers and television sets have registered a record number of rights with German authorities this year to weed out imitations, said Claudia Rossow-Scholl, a customs officer who has worked at the annual gathering since 2005. Exhibitors have also taken licenses for more inventions than ever from peers as they seek to avoid their devices being drawn into scrutiny, she said.

Samsung, Sony and Acer are among companies preparing to show their wares at Europe's largest consumer- electronics fair, which generated $4.6 billion in orders last year. The event kicks off as makers are still digesting Apple's $1 billion patent victory against Samsung, a verdict that may lead to a U.S. sales ban of some of the South Korean company's phones.

"There are rights holders who approach us ahead of the show and say, have a look at this or that rival product," Rossow-Scholl said in an interview after weeks of reviewing gadgets that are delivered to Berlin to be displayed, declining to name specific manufacturers. "Companies have become a lot more watchful."

Germany is a hot spot for technology-patent litigation. While companies including Google's Motorola Mobility unit, Microsoft, Apple and Samsung have sued each other around the globe, one of the focus jurisdictions is Germany because its courts allow for swift action and cover an important market for mobile devices.

Following a decision by a Düsseldorf court last August in favor of Apple to temporarily ban the sale of Samsung's Galaxy 10.1 tablet in Germany, Suwon, South Korea-based Samsung redesigned the device by relocating the speaker and changing the shape. The smaller 7.7 model was removed a few weeks later during IFA after Apple won an injunction.

Device makers are under pressure to woo customers with machines that appeal to the masses while also having to dedicate large development teams to differentiating their designs. Profit margins are being squeezed as the economic slowdown hurts demand, be it in the fast-growing $219 billion smartphone market, or the laptop and television markets.

Samsung, the losing party in August's U.S. verdict, is set to unveil new products at IFA as it searches for a response to the ruling against its phones and tablets running the Android operating system. The company plans to show devices with Microsoft's new Windows 8 software, according to a person familiar with the plan. Samsung will also display the next version of its Galaxy Note tablet, which sold more than 10 million units in less than a year, the person said, asking not to be identified because the plans are confidential.

Samsung shares gained 2.9 percent to 1,230,000 won at the close of trading in Seoul, compared with a 0.6 percent rise in the benchmark Kospi index. That's still 3.5 percent lower than the stock's 1,275,000 price before the Aug. 24 verdict.

Franziska Heuer, a spokeswoman for Samsung in Germany, declined to comment on the company's legal strategy for IFA. Sally Osman, a spokeswoman for Tokyo-based Sony, declined to comment on any implications from the Apple ruling. A representative in Germany for Taipei-based Acer also declined to comment.

Very-high-definition TVs from LG Electronics and Toshiba will also be among products on display at the event, which attracted 240,000 visitors last year, according to the event's organizers. This year's IFA starts Friday.

About one out of 20 devices that pass through customs are set aside by officers for closer inspection by the company that claims the patent violation, according to customs officials. Such inspections can take about a week and some machines miss the exhibition because of the delay, Rossow-Scholl said.

If customs officials are convinced that infringement is involved, they will destroy the gadgets. The tools used to render them unusable range from hammers to forklifts.

To scout for any hardware that may be infringing a patent and hasn't been caught by customs, companies send intellectual- property lawyers, such as Magnus Hirsch from SKW Schwarz Rechtsanwaelte in Frankfurt, around the fair booths. It's possible to win and enforce an injunction within a day, he said.

"With the help of the police or the customs, you get the products taken right off the booth," Hirsch said. "Sometimes you can even get the complete booth closed down, but you'll achieve that only in extreme cases of infringements."

Police and customs can step in because illegal copying can be a crime under German law or a violation of import rules. The officers will only act in obvious cases where a product is close to identical with the protected original, Hirsch said. If the infringement is more sophisticated lawyers need to get an injunction from a court, he said.

Not clarifying the rights to use a certain technology, be it a software function or a design element, is a gamble. In making ad-hoc decisions on whether a product may be infringing a patent, authorities rely on information from the company that's claiming the violation, Rossow-Scholl said.

To keep patent disputes from breaking into the open during the fair, the organizers have set up a mediation desk to help settle conflicts ahead of time. The desk, which was introduced in 2009 to mainly assist Chinese companies, is adding mediators this year because of increasing demand from non-Chinese exhibitors, said Nicole von der Ropp, an IFA spokeswoman. She declined to name companies using the service.

The organizers' and German authorities' diligence has helped make IFA a more heated patent battleground than many other large exhibitions. The GSMA, which organizes the annual Mobile World Congress in Barcelona, said it's not offering any services to mediate patent conflicts and products there would only be removed from stands by court order.

IFA officials' alertness has also made exhibitors more obedient of patent rules. In 2008, more than 220 officials hauled off five truckloads worth of illicit electronics from IFA, according to Norbert Scheithauer from the Berlin- Brandenburg customs investigation. This year, he said he expects fewer than 30 items to be removed from the fair as companies seek to avoid reputational damage.

The Berlin Regional Court has also set up a special work schedule making sure judges are always available during IFA to handle bids for injunctions, court spokesman Ulrich Wimmer said. Several extra court officers will be on duty to help execute orders on the fair's premises if needed, he said.

"If there's a big clash during the event, it's not beneficial for any parties involved or for Germany as a technology location," said Maurice Shahd, a spokesman for the Bitkom industry association, which represents technology companies including device manufacturers. "That's why it's important that infringements are dealt with in a proactive way."

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