Samsung makes all of Apple's smartphone CPUs, but pair also is suing each other in dozens of courts

"There is still a big gap".

That is how Samsung Electronics Comp., Ltd.'s (KSC:005930) mobile division chief JK Shin saw his firm's global patent war with Apple, Inc. (AAPL) in a recent interview with reporters in Seoul, South Korea.  He adds, "But we still have several negotiation options including cross-licensing."

An Apple spokeswoman, Kristin Huguet says her company is determined to protect itself against "blatant copying" -- something it claims Samsung has continually done.

I.  Friends Turn Bitter Enemies

Samsung and Apple have long enjoyed a close relationship.  The two companies had an estimated $8B USD in business together in 2011.  Samsung manufactures virtually all the system-on-a-chip  "brains" of Apple's best-selling tablets and laptops.  Additionally it supplies some memory to Apple and has competed with rivals like Toshiba Corp. (TYO:6502) for display contracts.

But much like another former Apple ally-turned-bitter enemy, Google Inc. (GOOG), Samsung has found its relationship with Apple deterioriating as the pair's competition in the smartphone market escalated.

Apple and Samsung are in a virtual dead heat for the top two spots in global sales.  Apple is representing its in-house iOS platform, while Samsung is the largest adopter of Google's Android operating system.  The pair took in an estimated 99 percent of smartphone industry profits last quarter, as rivals lag far behind in sales and try to resort to painful discounting to compete with these juggernauts.

King Kong v. Godzilla
U.S. smartphone maker Apple and Asian juggernaut Samsung Electronics have fought heatedly in the smartphone market and in the court room. [Image Source: Toho]

But Samsung and Apple's competition is not limited to merely the marketplace.  The pair have also been embroiled in an international legal war, spanning dozens of courts.  The lawsuits kicked off in 2011, with Apple suing Samsung on April 15 citing a number of design and patent violations.  Samsung followed in suit later that month, suing Apple in South Korea, Japan, Germany, and the U.S.

Both companies have suffered setbacks.  Samsung has seen temporary bans on its tablet sales in Germany and Australia.  And Apple has seen features of its iCloud killed off in Germany (such as push email).  The latter ban remains in effect.

The biggest battleground is in the U.S., the most lucrative smartphone market in the world and the second largest market in pure unit sales.  JK Shin and Samsung Electronics CEO Choi Gee-sung are headed to U.S. District Court for the Northern District of California -- a San Francisco federal court -- to meet with Apple CEO Tim Cook and other Apple executives for settlement talks.

Tim Cook and Choi Gee-Sung
Apple CEO Tim Cook (left) and Samsung Electronics CEO Choi Gee-Sung (right) meet in court for settlement talks this week. [Image Source: Reuters (right); Samsung Electronics (left)]

Both companies are expected to bring their large legion of lawyers in tow.

II. Talks Offer Last Chance to Avoid Total War

Reuters describes the setting colorfully, saying that the courtroom is located in "the seedy Tenderloin neighborhood."

The talks will be an interesting test of the two companies resolve to settle.  While late Apple CEO Steven P. Jobs seemingly relished an adversarial role with Android, calling it a "stolen product" and threatening to exhaust his company's fortune to destroy the rival product in "thermonuclear war", his more reserved successor Tim Cook has expressed distaste for the patent bickering.  Still, the lawsuit may continue if Mr. Cook feels that path will optimize Apple's profits.

Some are skeptical a settlement will be reached.  Vaughn Walker, a former northern California federal judge who now works as a mediator, states in a Reuters interview, "I can't imagine that the heads of a major enterprise of that kind would take any more seriously a decision of that magnitude, simply because they are in the room together."

Much of the skpeticism is due to the fact that the last major Android court case -- Oracle Corp.'s (ORCL) patent spat with Google concerning Java -- saw settlement talks reach a deadlock after Oracle rejected a settlement offer from Google.  That case is currently being tried.

The Samsung and Apple executives will meet in a setting carefully monitored by a federal judge -- Magistrate Judge Joseph Spero.  If the Magistrate feels the pair are developing a good dialogue, he may encourage the companies' CEOs to retreat together to private discussions to try to reach a deal.  However, if he senses the situation deterioriating, he may separate the firms, moving one side to the room in the courthouse reserved for jury deliberations.  If that hapens, the Judge will then serve as the go-between, shuttling information between the two parties.

Galaxy S3 v. iPhone 4S
The Galaxy S3 (left) and iPhone 4S are vying for supremacy in the marketplace as Apple and Samsung vie for victory in court. [Image Source: Android Authority]

Both Apple and Samsung have some of the largest international intellectual property portfolios in the world, owning tens of thousands of patents.  If the case does go to trial in the U.S., it will do so this summer at a court in San Jose, Calif.  While that case could conclude as soon as early next year, the effects of a full-blown patent war could be long lasting and severe for both companies.

Sources: Reuters [1], [2]

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation

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