Samsung’s ‘Eyes Wide Open’ Sinks Australian Galaxy Tab 10.1

Apple Inc. v Samsung Electronics Co. Limited [2011] FCA 1164 (13 October 2011)

Application for interlocutory injunction – prima facie case of infringement – balance of convenience – relative weight of factors contributing to balance

As we reported briefly yesterday, Apple has been successful in obtaining a preliminary injunction barring Samsung’s Galaxy Tab 10.1 from the Australian market.  The full written decision of Justice Annabelle Bennett has now been published (link above), enabling us to look at the court’s reasoning in greater detail.

We consider the grant of an injunction in this case to be significant – indeed a high-water-mark in the grant of injunctive relief for patent infringement in Australia.  The way this case has played out may have a significant impact on the way in which patent-owning competitors conduct business and litigation in this country for some time to come.  In our view, this impact will not be positive.

A number of factors distinguish this decision:

1. it is the first time, to our knowledge, that a preliminary injunction has been granted barring the sale of a mass-market consumer product;
2. due to the high level of interest in the product and the parties, the hearing took place in the spotlight of Australian and global media attention;
3. ultimately, the basis for the injunction, barring the Galaxy Tab 10.1 from Australian sale in its entirety, is just three claims of two patents (discussed in Back in Court, Apple Blames Samsung for Failure to Reach a Deal) covering the interface of a product with literally thousands of underlying valuable software and hardware functions; and
4. the timing of the injunction is critical, keeping a desirable competitive product off the market in the lead-up to Christmas, and thus impacting not only upon Samsung, but also upon Australian consumers and retailers.

As a measure of the level of public interest in this case, Patentology found ourselves chatting about it with Red Symons on his popular Melbourne breakfast radio program, for the second time in the last few weeks.  Never – as far as we can recall – has there been such wide-ranging interest in Australia in the subject of patent law.  Not even the gene patents debate of the past couple of years – which attracted the attention of the ‘serious’ media – has received such intensity of coverage.

REASONS FOR DECISION

As we discussed recently (in Refusal of Preliminary Injunctions – a Recent Case) the main factors to be considered by the court when determining whether or not to grant a preliminary injunction are:

1. whether there a ‘serious question to be tried,’ i.e. whether the patentee has made out a prima facie case in the sense that, if the evidence remains the same, there is a probability that a court will grant a permanent injunction at trial;
2. whether the patentee will suffer ‘irreparable harm’ for which any damages awarded at trial would not be an adequate remedy; and
3. whether other factors relevant to the ‘balance of convenience’ (i.e. the relative impact of the preliminary decision upon the parties) favour the grant of a preliminary injunction.

In various decisions, the courts have treated these either as three distinct factors or, as Justice Bennett has done in this case, as two factors where the second (‘irreparable harm’) is viewed as an aspect of the third (‘balance of convenience’).  The distinction between these two approaches is subtle, and would not have made any difference to the outcome in this case, since Justice Bennett found that one of the parties would suffer irreparable harm regardless of her decision.

Prima facie case

There are two competing issues in consideration to determine whether Apple has established a prima facie case of infringement:

1. first, assuming the patent claims to be valid, and assuming that the evidence at trial establishes the facts upon which Apple relies, whether there is a probability (in a general, rather than mathematical, sense) that Samsung will be found to infringe (see decision at [21]); and
2. second, whether Samsung is able to establish that those claims are, in fact, invalid.

The first difficulty faced by Samsung is that, in order to establish the first point, Apple needs only to put forward a plausible case for infringement.  Even if Samsung were to put forward an equally plausible case of non-infringement, as the party bringing the infringement action Apple’s argument prevails.

The second difficulty faced by Samsung is similar.  Although at full trial a patent is not presumed to be valid, it has been established by earlier cases that at the interlocutory stage there is to be a presumption that the Patent Office has done its job properly in the examination process, and that, accordingly, the patent is to be presumed valid unless convincingly shown otherwise.  Thus, even if Samsung puts forward a prima facie case of invalidity, at the interlocutory stage this is not enough.  (See decision at [28].)

Apple was therefore able to succeed in establish a prima facie case of infringement of both patents (see decision at [58] and [127]).  Although Samsung had put forward some plausible arguments for non-infringement, there was insufficient evidence before the court at this stage to make a final determination as to which side was most likely correct (see, e.g. [54] and [121]-[127]).

Justice Bennett also found that Samsung had made out a prima facie case of invalidity of the ‘touch screen patent’ (at [75] and [88]).  However, this is not sufficient to override Apple’s infringement claim.

Samsung did not (at this stage) challenge the validity of the ‘heuristics patent’.

Balance of convenience

There were a number of issues raised under ‘balance of convenience’, many of which have been discussed here and elsewhere during the course of the hearing.

Justice Bennett put the question well in paragraph [10] of the Summary.  What is involved is:

…a consideration of whether the inconvenience or injury that Apple would be likely to suffer if an injunction were refused outweighs or is outweighed by the inconvenience or injury which Samsung will suffer if the injunction were granted.

The factors considered, and Justice Bennett’s conclusions, may be summarised as follows:

1. the detriment, both to Apple from a refusal to grant the interim injunction, and to Samsung from a grant of the interim injunction, would be significant (DRAW);
2. damages would not be an adequate remedy for either party for the detriment that they will experience from an adverse outcome (DRAW); 
3. however, Samsung’s unwillingness to be available for a limited early final hearing in November 2011 contributed to the fact that damages would not be an adequate remedy (AGAINST Samsung, FAVOURS Apple);
4. Apple’s argument that the status quo in the Australian tablet market should be preserved is not a relevant factor distinct from ‘irreparable harm’, since the status quo is that Apple is the dominant player in the tablet market, which stands only to lose share from competition (DRAW);
5. Samsung’s allegations that Apple delayed in commencing proceedings were unfounded (NO WEIGHT);
6. Samsung proceeded with its ‘eyes wide open’ in respect of the launch of the Australian Galaxy Tab 10.1, knowing that it could face similar claims by Apple in Australia as in a US patent case which was commenced by Apple in April (SLIGHTLY FAVOURS Apple); and
7. the existence of a prima facie case of infringement in respect of not only one, but two separate patents, strengthens Apple’s overall prima facie case for relief (FAVOURS Apple).

Although Justice Bennett concluded (at [240]) that the ‘balance of convenience is almost evenly weighted’, the ‘green lights’ to Apple above tell the ultimate story.  Samsung’s attempt to enter the Australian market, despite having its ‘eyes wide open’ to the possible consequences in respect of multiple patents, along with its lack of cooperation in moving along the pace of proceedings, has been the undoing of the Galaxy Tab 10.1.

POTENTIAL CONSEQUENCES OF DECISION

This decision may be legally correct, although it has to be said that the ‘balance of convenience’ factors have a subjective element, and that the judgment could have gone the other way without any different legal principles being applied.

Regardless of legal correctness, however, we believe that this could prove to be a detrimental decision for patent litigation practices in Australia.  Courts were once reluctant to grant interlocutory relief in patent cases.  In our view, this was a cautious, and correct, approach.  While innovative, patent-holding companies are perfectly entitled to enforce their hard-won intellectual property rights in court, decisions such as this one have impacts well beyond the parties involved.

Impact on consumers

In this case, for example, consumers have been denied a significant choice in the lead-up to Christmas, and beyond.  If Apple’s case is ultimately upheld, this would arguably be a just outcome.  However, if it ultimately fails then it is not only Samsung who will be irreparably harmed, but potentially also the balance of competition in the Australian marketplace, for which consumers could be paying for some time to come.

Impact on retailers

We hardly dare to consider what the retailers – already reeling from the impact of online shopping – might think about being denied the opportunity to sell a potentially popular product.

Selective deployment of minor patents

There are two further aspects of the decision that we also find troubling.  Firstly, Justice Bennett’s consideration that Apple’s success in establishing a prima facie case of infringement of two patents contributes to tipping the balance of convenience, in our view, ignores the context of the specific technology.  It is not out of the question that, once all manufacturing, hardware and software features are taken into account, a product such as a tablet computer might be covered by hundreds of patents (and probably thousands in larger jurisdictions, such as the US).  A tablet also includes numerous features – perhaps a majority – that are not subject to patent rights at all.  And yet in this case the entire complex product has been kept completely from the market by just two patents.

It remains to be seen whether Samsung can bring out an alternative product without the offending features, although it might be particularly difficult to work around the ‘touch screen’ patents, as this would require a different physical implementation of the display panel.

While it is no doubt right that two is better than one, when it comes to the strength of a case, we wonder whether the actual contribution of the corresponding features to the overall value of the product ought not to be a relevant consideration.  A patent over a relatively insignificant, yet difficult-to-avoid element, should surely not be given the same weight as a patent that covers a key feature that is critical to consumers’ purchasing decisions.  This, of course, does not imply that Justice Bennett’s decision is necessarily wrong – the patents in this case do cover fairly substantial usability features – but we think this issue should have been considered.

Impact on the Australian economy

Finally, we note that in the current globalised market, with online retailers operating in an internationally-competitive retail market, there is no shortage of overseas sources from which Australian consumers might obtain the Samsung Galaxy Tab 10.1.  Apple does not have patents in every country in which Samsung operates, and Australia has no customs seizure provisions for patent infringement.

In practice, therefore, one quite probable effect of the injunction will simply be that those consumers wishing to obtain the Galaxy Tab will simply do so online.  Indeed, even if the product had launched in Australia, it is likely that purchasers would shop around internationally for the best price.

If this is an outcome of the injunction, the harm is not to Samsung, which makes its sales all the same, but to the Australian retailers who do not have the opportunity to compete.

If we could ask one question of Justice Bennett in the wake of her decision it would be this: does she really believe, in a global consumer economy, that there is any practical value in an Australian court slapping an injunction on a mass-market consumer product that is, in any event, widely available for purchase online?

Of course, even if the answer is ‘no, not really’, it might be argued that the law is the law, and if it does not achieve the right outcomes for the country it is up to the parliament, not the courts, to address that.

What could Samsung have done differently?

In light of this decision, if we now found ourselves acting for a client in Samsung’s situation, we would certainly advise pre-emptive action, perhaps a couple of months prior to launch, and before making any announcements, applying to the court for orders revoking the patents of greatest potential concern.  This would obviate the ‘eyes wide open’ argument, and it would place the patentee on the back foot, forcing them to become the cross-claimant in an infringement action.

Had Samsung done this, it would have been much better placed to set the timetable for the proceedings.  The fact is, an invalidity case is complex and requires extensive evidence.  It is our view that Justice Bennett’s expectations regarding the time in which Samsung might be able to prepare for trial were unreasonable, and Samsung was right to resist, even though it cost them in the end.

We wonder, however, whether dealing with revocation actions before an actual dispute has arisen is really a good use of the court’s time and resources?  We think it would be most unfortunate if this became a standard practice in Australian patent litigation.

FINAL WORDS

Apple deserves to benefit from its innovations.  If it holds valid patents covering those innovations, competitors should not be free to copy desirable features with impunity.  Intellectual property rights – which both Apple and Samsung possess – ought to be respected and upheld.

However, in looking at the big picture, we wonder whether injunctions issued by national courts are an effective remedy in case such as this.  Australia is a tiny corner of the global playing field, and while there is perhaps some ‘psychological’ benefit to Apple in its success, at the end of the day Samsung will still get its products out into that global marketplace.  And in the long run, there will be competing products, and Apple’s market lead will be eroded.

The current actions  -- not just in Australian but elsewhere – are a delaying tactic by Apple.  The delays might be significant, possibly staving off a really strong competitor for a couple of years.  And how many iPad 2 sales does that represent?  So as a strategy for Apple, it is sound.  Indeed, we would advise no differently if we acted for Apple.

But we do not act for Apple, and when we look at the bigger picture we cannot help but wonder whether the balancing act performed by the patent system is not teetering a little in this case.

Ultimately, we expect that global cross-licensing agreements will be reached, probably when Apple decides it has squeezed all the value it can out of the current strategy.  But in the meantime, the collateral damage will continue.

Tags: Apple-v-Samsung, Australia, Interlocutory injunction, Smartphone wars