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Obama Wades In on the Apple-Samsung Patent War

Companies / Tech Stocks Aug 13, 2013 - 11:30 AM GMT

By: Money_Morning

Companies

Greg Madison writes: President Barack Obama added an unexpected twist to the patent wars when he took the extraordinarily rare step of vetoing the International Trade Commission's own trade sanctions against Apple Inc. (Nasdaq: AAPL) last week.

The trade commission had ruled that Apple violated some of Samsung Electronics Co. Ltd's patents, and the commission was set to ban outright several key Apple products, such as the iPhone 3GS, iPhone 4, and the iPad 2 and 3G models - all sold by AT&T Inc. (NYSE:T), among others.


This marks the first time in 25 years that an American president has overruled an ITC ban or set of sanctions in such a way, drawing the White House - along with the rest of the Executive Branch - into the bitter patent dispute between the two technology titans.

Courts in the United States and the Republic of Korea have - unsurprisingly - turned in a split result. American courts tend to side with Apple, while Korean courts have tended to side with Samsung, although in neither country has support for the "home team" been unequivocal.

Judgments in other jurisdictions in the European Union, Japan, and Australia have all broken different ways, but again with no unequivocal "you-are-right-they-are-wrong" decision in any case. The global patent battle has continued for more than two years now, with no clear victor emerging - yet.

What the Obama Intervention Could Mean for Apple

But President Obama's veto brings the dispute into a dramatic new phase. With several years of indecisive court battles, this may prove to be just what Apple needs to bring this particular patent war to a close in its favor. The ruling has already had a devastating effect on Samsung's shares on the Seoul exchange.

When you consider all the issues at play, the tremendous sums of money at stake, the impact to the American economy, and the sheer number of jobs in the balance ...

The President had no choice — or did he?

You Couldn't Call It Unexpected

Although it is rare for Presidents to step into cases like this, it's as much of a no-brainer as the ITC decision is a head-scratcher.

Apple is one of the United States' top-tier companies, in the same rarified air as The Boeing Company (NYSE:BA) or the Big Three automakers. In 2012, Apple generated $156 billion in revenue and employed 80,000 people. It wouldn't make sense for a president to work against a company like Apple .

Yet that's not all that is going on here, as Apple has spent millions of dollars lobbying to provide favorable winds in Washington for its sails, or sales to be exact.

OpenSecrets.Org reports that Apple has spent close to $2 million on various campaigns, leadership PACs, political parties, and outside spending groups. The company really likes to lobby on taxes, education, and copyright, patent, and trademark issues. What's more, 86% of its current lobbyists have held positions in government.

President Obama's reelection campaign received more than $308,000 from Apple ( which also gave close to $30,000 to Mitt Romney's failed bid). Other than (relatively) modest amounts of money for Mitt Romney, Ron Paul and the Republican National Committee, Apple is a fairly consistent Democratic contributor.

Beyond Politics

There's considerable money at stake, with all parties having a lot of skin in the game. Apple dominates the global smartphone and tablet business, but it is losing precious market share year after year to Google Inc.'s (Nasdaq: GOOG) open-source Android mobile operating system .

According to MobiThinking, 96% of the world's population has a mobile phone subscription, and close to 40% of all mobile devices sold in 2012 were smartphones. This fact alone underscores the sheer size of the global market. There's little wonder that Apple and Samsung are willing to spend millions to duke it out in dozens of the world's courtrooms. With these numbers, any loss or gain in market share becomes critically important.

Bye-Bye Billions

The effects of President Obama's veto have been dramatic and fast-unfolding. In rapid fashion, Samsung's shares on the KSX have plunged. The drop has cost Samsung approximately $1 billion in market value. T witchy investors seemingly have taken the veto as a sign that the whole of Samsung's patent portfolio is somehow in jeopardy.

This is probably an overreaction with little basis in reality, but such is the nature of the markets. The $1 billion loss is very real, however.

Those twitchy investors may have the germ of a troubling idea, though. Intellectual property is only going to get more important as the global creative industry expands. Even now, far more than 50% of the world's intellectual property revenues flow into the United States - hard proof that we're still the most creative and inventive society on the planet.

But how long can we sustain this momentum? How safe is intellectual property?

Are patent wars the right answer? No...

As we've seen, patent wars are needlessly destructive. No one wins. They have been shown to actually stifle growth and creativity, and they can be a terrible drain on corporate coffers, to say nothing of tying up courts' time.

Instead of broadening frontiers and pushing the creative envelope, companies are content now to sit back and sue the living daylights out of anyone who gets in their way.

Apple and Samsung's global contretemps means that the patent wars will continue as they have, and may even accelerate - to the detriment of markets and consumers alike.

Apple and Samsung seem to be spinning their wheels, but the next big technology game-changer is out there. Are you already invested? Click here to find out.

Source :http://moneymorning.com/2013/08/12/obama-brings-the-stick-to-apple-samsung-patent-war/

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