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June 27, 2014

Apple-Samsung Wars Are Hurting Innovation


According to the OECD, as of June 2013, the U.S. had 299.45 million wireless broadband subscriber connections, a number three times that of fixed connection subscriptions. The overwhelming consumer response to wireless makes clear how interwoven the mobile industry is in American life. But the continuous focus on lawsuits rather than a relentless focus on innovation is a dark cloud that threatens future advances.

"Frenemy" and "co-opetition" are common relationships in the tech world, and one could hardly find better examples than in the relationship between Samsung and Apple, given that Samsung is one of Apple's main component suppliers. But when the "enemy" overwhelms the "friend" resulting in harm to consumers it is time to take notice.

In the first Apple-Samsung lawsuit, Samsung was forced to pay its rival $930 million in damages, in addition to suffering from an importation ban directed by an International Trade Commission exclusion order. Apple also sought a full sales ban on the Samsung products in question which was ultimately blocked by the judge.

In a second trial, Apple sought sky high damages of $40 per device for all Samsung devices sold in the U.S. that were named in the lawsuit, and sought to block the sales of Samsung products. While substantial, that dollar figure paled in comparison to the opportunity costs incurred by this fixation on legal action. In the end, the jury decided that while Samsung relied on some of Apple's patented technology, Apple too was caught relying on some of Samsung's patented technology. The jury awarded Apple financial damages but not nearly the amount they sought, which was also somewhat offset by an award to Samsung. The decision has been appealed both by Apple and Samsung, with Apple still trying to block Samsung sales, and with Samsung appealing the verdict in total.

If this litigious acrimony continues unabated, consumers, mobile innovation, and perhaps even the companies themselves will suffer. One sign that such damage has already occurred is that news about the technology industry seems to increasingly be about litigation rather than about new technological advances. And given recent announcements by Apple, innovation may already be flagging.

Apple became one of the largest and most highly-respected companies in the world by innovating and offering consumers products that were not even imagined before they were unveiled. It is disappointing that Apple's maturation as an industry heavyweight seems to have led it away from the cutting-edge innovation that defined its entry into the top tier of American businesses and into an embrace of legal warfare as its primary tool for regaining market dominance.

Instead of trying to trip up its competitors in the smartphone wars, Apple should be putting all of its focus on staying in front of the pack. By directing its energies toward tying up its competitors' time and resources in endless court battles, Apple mires the industry in litigious quicksand, diverts resources from innovation, and deprives consumers of new products and services that become the foundation for the next round of economic prosperity.

Bartlett D. Cleland is resident scholar of tax and innovation policy at the Institute for Policy Innovation(IPI).


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