Apple’s $1 Billion Patent Win Over Samsung Rattles Google’s Cage

Apple‘s huge intellectual property victory over Samsung last Friday night was both dramatic and overwhelming. South Korea-based Samsung was hit with a $1.05 billion verdict after a federal jury of nine California residents found that it had infringed Apple’s smartphone patents. In other words, the jury found that Samsung ripped off the iPhone. Apple is now asking U.S. District Judge Lucy Koh, who presided over the trial, to bar Samsung, the world’s largest mobile phone manufacturer, from selling eight of its popular mobile devices in the United States. That’s a big deal.

Apple’s already-soaring stock price rose nearly 2% to an all-time high Monday. Samsung, meanwhile, plunged to a four-year low, wiping out some $12 billion in market valuation. (For perspective, that’s almost what Google paid to purchase Motorola Mobility, Samsung’s smaller rival.) Despite Apple’s victory, this dispute is far from over. Samsung has said it will appeal the verdict, and the two giants are squaring off over intellectual property in several other jurisdictions around the world. (TIME‘s Jared Newman breaks down the specific hardware implications of the decision here.)

Any billion-dollar jury award will grab headlines, but this case is about much more than just money. The judgement represents 2% of Samsung’s global revenue. This is a drop in the bucket — a rounding error — for global corporate giants like Samsung and Apple. So, if not money, what’s this story about? It’s about market dominance in the exploding global smartphone race. Apple’s victory is the most high-profile outcome thus far from Silicon Valley’s escalating intellectual property war. The biggest winners? Lawyers. Can you imagine the litigation fees on a $1 billion jury judgement?

The verdict was also a big win for the spirit of Steve Jobs, who raged against Google for stealing his ideas. Jobs was convinced that Google ripped off most of the Android OS and form-factor from the iPhone. The rift caused Google chairman Eric Schmidt to be politely dismissed from Apple’s board of directors three years ago this month. Google has invested heavily in Android in order to give it a foothold in the mobile space, which is the next great battle in the web advertising wars.

(READ MORE:  Patent Wars!)

This case should be viewed as just one (admittedly huge) front Apple is waging against Google worldwide, by proxy. Google’s Android OS has been the subject of speculation about its IP-weakness for some time now. That’s why Google purchased Motorola Mobility for $12.5 billion. Google wisely opened the platform to mobile-phone makers and developers. Today, Android is activating nearly one million phones per day worldwide. Last quarter Samsung sold twice as many units — many running Android — as Apple.

There’s just one problem, as nine jurors in Apple’s home jurisdiction of Silicon Valley concluded on Friday. Samsung violated Apple’s intellectual property. In plain English, the jury found that Samsung stole Apple’s smartphone designs. That’s a major problem. “In a few years, the San Jose jury verdict may — I repeat, MAY — be remembered as the tipping point that sent Android on a downward spiral,” tweeted patent expert Florian Mueller of FOSS Patents. (Mueller is a consultant to two Google rivals, Microsoft and Oracle.)

Beyond the consequences for tech-giants like Apple and Google, this case says a lot about the terrible state of the current U.S. patent law regime — a system many observers feel is woefully broken. In addition to this billion-dollar case, all the major tech giants are engaged in litigation and counter-litigation in dozens of jurisdictions worldwide. There’s an arms race gripping the tech world right now. The weapons of choice are patents.

(READ MORE: Apple Stock Jumps on $1B Samsung Verdict)

Generally speaking, there are two schools of thought coming out of this verdict. This first is that Apple’s decisive victory means that its competitors — ie. Samsung, HTC, and Google-owned Motorola — will have to redouble their efforts at innovation now that a jury has told them to stop ripping off Apple’s designs. In other words, the decision will benefit consumers by fostering a diversity of designs and products in the smartphone market.

The second school of thought is that Apple is big-footing its way around the U.S. IP system, obsessively patenting hundreds, if not thousands, of ticky-tack features like a square with rounded edges, or the flick-of-a-finger on a touch-screen. In this view, the current U.S. IP system — in which the big winners always seem to be high-priced IP lawyers and tech firms with deep pockets — is stifling innovation, because it allows one powerful company, Apple, to essentially have a monopoly on basic mobile smartphone features. Like a square with rounded edges.

The truth is that the US intellectual property regime is in desperate need of reform. Inventors should be protected — otherwise what’s the incentive to create anything? On the other hand, there is general agreement inside the tech community that the current method of adjudicating patent disputes is badly broken. “The patent system is in crisis, and it endangers the future of software development in the United States,” according to the Electronic Frontier Foundation, a West Coast digital rights group that’s been at the forefront of patent reform advocacy. EFF is not proposing that we eliminate patents altogether, obviously, but the group is calling for a smarter, more streamlined approach. But with so many powerful forces interested in maintaining the status quo — from patent-rich companies like Apple to the legal community — it’s unlikely that reform will happen anytime soon, and certainly not during an election year.