The Supreme Court Sticks It to Apple Inc. (AAPL)

Advertisement

Patents make the tech world go ‘round. And in the case of iPhone and consumer tech giant Apple Inc. (NASDAQ:AAPL), it’s the heart of what it does.

The Supreme Court Sticks It to Apple Inc. (AAPL)

Sure, there are patents that cover the “guts” of its successful i-line of products. But the real heart of AAPL — and why it’s a powerhouse — comes down to design and aesthetics. So it’s no surprise that Apple isn’t afraid to stand its ground (and even go on the offensive) against rivals like Samsung (OTCMKTS:SSNLF) or Alphabet Inc (NASDAQ:GOOGL).

Apple’s war with Samsung — the best-publicized of the lot — just turned in Samsung’s favor. The Supreme Court just handed down a major victory to the Korean electronics giant.

But while Samsung might have won the latest battle, in the long run, it might not even matter to AAPL.

The Supreme Court Says “No” to Apple

Back in 2012, when Samsung’s Galaxy line of smartphones was really beginning to challenge Apple for mobile supremacy, the whiz kids in Cupertino sued the Korean tech giant. Apple alleged that Samsung stole or used various patents and trademarks in its products. Specifically, the patented designs of the iPhone’s rounded-corner front face, top ring/bezel and the now familiar and standardized colorful grid of icons that represent various apps on almost all smartphones.

The Galaxy line became one of the most successful series of smartphones outside of the iPhone. AAPL naturally didn’t like that.

Apple initially won the day back in 2012, scoring a massive $930 million settlement from Samsung that lower courts later cut down to about $550 million. That’s not exactly chump change — especially one that had been stagnating before its Galaxy hit. So Samsung did what any firm would do. It appealed the ruling once again.

The case went all the way to the Supreme Court, which brings us to the present day.

The problem is the term “article of manufacture.” It centers on the whether patent damages are calculated as a whole finished product (e.g., the entire phone), or just a component in the product, such as the buttons or case.

The high court told Apple that it’s just the component in question, and sent the case back to the lower courts for them to reconfigure the award. At stake is roughly $400 million in penalties that Samsung has already paid Apple.

Big Issue at Play With AAPL Stock

The money quote and bigger issue for Apple comes down to the money quote from Justice Sotomayor: “An award of a defendant’s entire profits for design patent infringement makes no sense in the modern world.” Also, “Those are policy arguments that should be directed to Congress.”

In short: If someone basically copies your design, only those pieces it copied will be subject to awards unless Congress acts to change that “article of manufacture” definition and the roughly 100-year-old law.

For Apple, that’s a problem. Technology patents are basically what separates and differentiates smartphone markers from each other. It keeps the riffraff from stealing AAPL’s designs and using them to sell their own products. Apple’s products aren’t the most high-tech or powerful (sorry, they’re not), but they are some of the best-designed out there. That’s why Apple went to bat against Samsung in the first place.

Closely watching the outcome of the legal battle between Apple and Samsung are tech giants such as Facebook Inc (NASDAQ:FB), Alphabet, Dell and China’s Lenovo. All have been targets of Apple’s recent legal and patent war. The outcome of this case could (and likely will) significantly alter the outcomes of the other various cases on Apple’s docket.

It also could spur some lesser tech players to decide that it’s worth the penalty to chase Apple’s designs.

Firms such as Nike Inc (NYSE:NKE) — who have partnered with Apple and other tech firms on design projects — are nervously waiting to see the final outcome, too. It’ll impact their ability to sue as well.

For AAPL, The Award Isn’t The Issue

If Apple has to send some cash back to Samsung because of the lower courts, it won’t be the biggest problem. Apple has more than $230 billion in cash and investments.

What’s at issue is the patents and fierce protection of those design patents; what helped build that cash hoard in the first place.

It’s too early to tell what the overall effect will be. But the fact the highest court in the land just stripped Apple of a little protection decidedly isn’t good for Apple.

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/apple-inc-aapl-stock-supreme-court/.

©2024 InvestorPlace Media, LLC