By Troy Stangarone

As we look back at the events that helped to shape the Korean peninsula in 2015, it is also an opportunity to review the events we highlighted on The Peninsula in our annual 10 Issues to Watch For on The Korean Peninsula in 2015 blog and the key events that we did not predict.

Looking back at the 10 issues raised in last year’s blog, all have resonated on the Korean peninsula this year, but not all in the ways we thought they might. On five of the issues, things have largely played out as we expected, while one did not and for four others the outcomes are less clear.

Here’s a brief look back at the 10 issues and what happened:

1.      Dealing with North Korea: Understanding North Korea is never easy and it is only made more difficult by the regime’s continued pursuit of nuclear weapons. One area we highlighted to watch in 2015 was progress on North Korea’s weapons programs and discussion of the deployment of the U.S. Thermal High Altitude Area Defense (THAAD) system in South Korea to protect against the nuclear and missile threat from North Korea. While North Korea took a major step towards developing submarine launched ballistic missiles, which would give it a second strike capability, South Korea has indicated it will not be discussing the deployment of THAAD with the United States. On this issue, our prediction was half right as North Korea has continued developing its weapons programs, but there has been less progress on deploying THAAD, or some other missile defense system than we expected.

2.      Key Summits in 2015: Here we highlighted a series of key summits for the year ahead. While Kim Jong-un ultimately did not go to Russia for the May 9^th ceremony commemorating the end of World War II or make any international visits, thus eliminating the prospect of a meeting with South Korean President Park Geun-hye, each of the summits played a key role this year. Japanese Prime Minister Abe Shinzo did make a positive statement on issue of history with the 70^th anniversary of the end of World War II approaching, even if it did not meet everyone’s hopes. Trilateral summits among Korea, China, and Japan also resumed. Lastly, Indian Prime Minister Narendra Modi held a bilateral summit meeting with President Park in what could become an important relationship in the future.

3.      Korea-Russia Relations: In 2014, North Korea began courting Russia and our expectation was that greater cooperation would be announced at a meeting between Kim Jong-un and Russian President Vladimir Putin. However, that meeting never happened and cooperation between the two seems to have fizzled. Though, Russia and South Korea did announce efforts to expand relations at the end of the year.

4.      Better Relations Between Korea and Japan: Here our key insight was correct, as the bilateral summit meeting took place between President Park and Prime Minister Abe after Prime Minister Abe had issued his statement on World War II. At the summit meeting, both sides agreed to work on resolving the Comfort Women issue and recently announced that resolution laying the groundwork for improved relations between the two countries.

5.      Constructing Legacies: With President Barack Obama’s term in office coming towards an end, our expectation for 2015 was that he would seek to build on his legacy as president, but not look to North Korea for a potential legacy issue. While President Obama has cemented deals on Iran’s nuclear program and climate change, there has been no progress on North Korea. For President Park, the agreement reached with North Korea in August to reduce tensions seemed to be a way forward, but subsequent talks with North Korea failed to make progress.

6.      Two Major Moves on Trade: South Korea has had an ambitious free trade agenda  that we expected to continue in 2015 with two major efforts – concluding and implementing an FTA with China and making efforts to join the Trans-Pacific Partnership (TPP). The FTA with China was implemented in December, but while South Korea has continued to express interest in joining TPP, the agreement’s late conclusion has limited Seoul’s ability to join.

7.      A New Nuclear Energy Cooperation Agreement: The United States and South Korea were looking to conclude a new agreement on civilian nuclear cooperation, or 123 agreement, to replace an extension to the 1974 agreement that was set to expire next year. The two sides successfully reached an agreement in June of 2015 and updated agreement is now in effect.

8.      The Diversification of South Korea’s Energy Supplies: South Korea is highly dependent on imported fuel with more than 85 percent of its petroleum imports passing through the Strait of Hormuz. Our expectation was that in 2015 South Korea would begin to diversify those supplies. While there have been efforts to import more condensate from the United States, low petroleum prices have made imports of U.S. LNG less attractive. However, now that Congress has passed legislation allowing for the export of oil, this will be an issue to continue to watch in the years ahead.

9.      Samsung’s Future and Its Frenemy Relationship with Apple: After a loss of market share in key markets such as China and India for its smartphones, as well as falling revenues and profits, 2015 was expected to be an important year for Samsung to reverse its fortunes while managing its beneficial and competitive relationship with Apple. While Samsung saw an increase in profits in the 3^rd quarter, it was due to strong results in the semiconductor and display sectors as its smartphone segment continued to face challenges. It relationship with Apple continued to remain complex as Samsung has appealed part of their legal case with Apple to the U.S. Supreme Court, but also been chosen by Apple to supply microprocessors and displays for the iPhone.

10.  Feeling the Effects of Social Change in Korea: This was perhaps our most bold insight for 2015 and in truth one that reflected more long-term trends rather than issues that might specifically come to a head over the past year. As South Korea ages and continues to grow in prosperity, it will face the social changes that come with those trends. The level of social welfare and the definition of what it means to be Korean are issues that will continue to shape South Korea. Some social issues, such as public health, came to the fore in 2015 due to outside events such as the spread of Middle East Repertory Syndrome.

Beyond the issues we expected to see addressed in 2015, other important developments included:

1.      North Korea’s Provocation in the DMZ: On August 4, two South Korean soldiers were maimed after stepping on landmines placed by North Korea in areas of the DMZ that are known to be patrolled by South Korea. This raised tensions along the DMZ as South Korea responded by resuming broadcasts from loudspeakers across the DMZ and North Korea threatened to attack the loudspeakers. The crisis was ultimately resolved as the two sides reached an agreement for North Korea to apologize, South Korea to suspend the broadcasts, and the two sides to arrange for a reunion of separated families.

2.      October Family Reunions: One of the positive outcomes of the August provocation was the two sets of family reunions held in October. The first family reunion saw some 100 South Koreans meet their family members for the first time since the Korean War and another 250 were able to do so during the second reunion.

3.      Agreement on the Comfort Women: While not accepted by all of the Comfort Women, the agreement by Japan to issue an apology and provide compensation was one of the major unforeseen events of 2015.

4.      Middle East Repertory Syndrome (MERS): South Korea faced a medical emergency earlier this year as MERS spread through the country causing the death of 38 individuals and another 16,000 to be quarantined.

5.      The Passing of Kim Young-sam: A former activist for democracy who later became president of South Korea passed away at the age of 87.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Eugene Lim’s photostream on flickr Creative Commons.

By Mark Tokola, Troy Stangarone, and Nicholas Hamisevicz

Last year saw a series of significant events on the Korean peninsula. On the economic front, South Korea concluded free trade agreements with Canada, New Zealand, Australia, and Vietnam, and reached substantial conclusion on a deal with its largest trading partner, China. While inter-Korean relations avoided the pitfalls of 2013 when the Kaesong Industrial Complex was closed for nearly half a year, the hope that a surprise visit by senior North Korean officials to the Incheon Games would lead to deeper dialogue with North Korea has yet to be fulfilled. With more work to be done on the trade front and in inter-Korean relations, here are 10 economic and foreign policy issues to follow in the year ahead:

Dealing with North Korea in 2015

It has been said that the more things change, the more they stay the same and 2014 was a year where relations with North Korea often seemed like change but more of the same. From the family reunions to the visit to the Incheon games by senior North Korean officials, opportunities to build on the relationship soon fell back to familiar patterns. Will 2015 will be another year such year for the U.S.-ROK alliance and its relations with North Korea?

While North and South Korea are trying to find ways to have inter-Korean meetings, the two sides are having trouble agreeing to terms for the meetings. Once more military exercises start up, it will be even more difficult for inter-Korean relations to progress.

At the same time, reports suggest North Korea continues to improve its missile and nuclear weapons capabilities. Last year the United States indicated it would like to deploy THAAD, Terminal High Altitude Defense, systems on the Korean Peninsula to help protect U.S. troops and South Korea from missile attacks by North Korea. This prompted debates in South Korea about if the deployment of U.S. missile defenses would make South Korea safer, more vulnerable to attack, or draw it into bilateral tensions between the United States and China, as well as Russia to a lesser extent. South Koreans also discussed whether their country should build their own missile defense system. A slight compromise would be to have the systems on U.S. bases in South Korea. Whatever the determination is for the U.S.-Korea alliance, North Korea will likely continue to improve its missile and nuclear weapon technology and therefore keeping the issue of missile defense at the forefront in 2015.

Key Summits in 2015

This year will also bring a series of potentially critical summits between the leaders of Asia. Possibly the most intriguing is the potential for Kim Jong-un to make his first overseas visit as the leader of North Korea. Russia invited Kim Jong-un to attend a ceremony in Moscow on May 9^th celebrating the end of World War II. Reports suggest Kim Jong-un has likely accepted the invitation. At the same time, Russia has indicated that it has extended an invited Park Geun-hye and Xi Jinping as well, raising the question of whether either would choose to meet with Kim Jong-un bilaterally.

What are the prospects for a Park Geun-hye – Kim Jong-un summit in 2015? The Russia visit would be the best opportunity, but that might be politically difficult for Park despite more than 80 percent of Koreans indicating in a recent Asan Institute survey that an inter-Korean summit is necessary.

In May, Japan’s Prime Minister Abe Shinzo will likely visit the United States. If he visits, the U.S. is likely to quietly encourage Abe to make a positive statement on the anniversary of World War II that would help bring countries closer together rather than remain distant because of historical issues. Korea will be watching this visit closely for comparison with Park Geun-hye’s visit in 2013 and interpreting the level of support the U.S. gives to Japan.

Another summit to look for is a trilateral summit between Korea, China, and Japan. At the end of 2014, Park Geun-hye suggested the resumption of trilateral summits. This would be a welcome move, especially because both Xi and Park seem uncomfortable with a bilateral meeting with Abe. If this occurs before Abe’s statement on World War II, the hope would be the two sides actually try to talk about areas of cooperation moving forward, especially a China-Korea-Japan FTA. However, a discussion that only focused on the historical challenges in the region could encourage Abe to make a statement more to his personal belief rather than for the betterment of Japan both domestically and in foreign relations.

It will also be interesting to see if India’s Prime Minister Narendra Modi makes it back to Northeast Asia in 2015. His positive relationship with Abe is well known. Park Geun-hye has only met Modi on the sidelines of an East Asia Summit meeting in November, where she invited him to South Korea. South Korea and India have been doing a better job of having high level meetings between officials, and a summit meeting between the two leaders would demonstrate a commitment to that effort and to improving relations.

Korea-Russian Relations

Russia may find tactical advantages in its recent diplomatic outreach to North Korea.  Russian spokesmen have confirmed that an invitation has been issued to Kim Jong-un to visit Moscow on May 9 to attend the 70^th anniversary of the end of World War II.  Russian gestures towards North Korea demonstrate to foreign countries and to the Russian public that Russia is not without friends, despite its increasing isolation.  The outreach may also be intended to signal to U.S. and to the EU that their economic sanctions against Russia carry global costs.  Russia can hope for an economic lifeline from China in terms of energy contracts, and can offer North Korea a lifeline of its own to counterbalance the diplomatic and economic pressure the DPRK is experiencing from the West.

However, Russia’s long-term strategic interest is better served by a cooperative relationship with South Korea rather than the DPRK.  Russia’s trade with South Korea is vastly more important to the Russian economy than are its ties to North Korea.  Furthermore, as China has experienced, being associated with the DPRK’s eccentric, brutal and uncooperative regime bears an ongoing reputational cost in world opinion.  For its part, the ROK would like to ensure that Russia does not serve as an impediment to its project to peacefully unify the Korean peninsula.  Behind the headlines of Kim Jong-un’s possible visit to Moscow, look for increasing, practical cooperation between Russia and the ROK in 2015.

Relations Between Korea and Japan

This year marks the 50^th anniversary of diplomatic relations between South Korea and Japan. Combined with 2015 being the 70^th anniversary of the end of World War II, there is anticipation and hope that these two occasions can be an impetuses for better relations in Asia, especially between Korea and Japan. The biggest hope is for a bilateral summit meeting between South Korean President Park Geun-hye and Japanese Prime Minister Abe Shinzo. With Prime Minister Abe promising a statement on the anniversary of the end of World War II, it wouldn’t be surprising if President Park waited until after the assessment of that statement to consider meeting with Abe. There is a sense from some on both sides that each country is willing to wait for a new counterpart. However, with the LDP’s victory in the elections in December, it is almost certain that these will be the two leaders for the next three years.

Just before Christmas, the U.S. brokered a deal for a trilateral intelligence sharing arrangement with its two allies in Northeast Asia. From the U.S. perspective, the hope was this trilateral agreement would both satisfy some of the current security needs not being met because of a lack of a GSOMNIA agreement between Korea and Japan as well as being an catalyst for Korea and Japan officially signing and completing a bilateral GSOMNIA between themselves.

Constructing Legacies

In his State of the Union address, President Obama acknowledged he had only a short time left as president. These are important times for any U.S. president as they try to shore up a legacy and accomplish goals they have set for themselves and for the country. Often, these years are marked by efforts in foreign policy. In Asia, U.S. presidents in their last years in office have attempted to reach out and engage North Korea. There is some speculation that this could happen again with the Obama administration; however, recent events make that seem unlikely. Moreover, at a time in his presidency where there could be a possible outreach, North Korea once again has undertaken actions that have antagonized the United States, forced the Obama administration to respond in a tough manner, and reduced the likelihood of the Obama administration having the willingness and political capital to engage North Korea in a positive way. North Korea greeted both President Obama’s election and reelection with missile and nuclear tests, and now they began his last two years in office with the cyber attacks on Sony Pictures. While there could be some engagement, the U.S.-North Korea relationship is more likely to remain antagonistic, especially in 2015.

South Korean President Park Geun-hye will also be thinking about her legacy as she enters the third year of her constitutionally mandated one term, five year presidency. The third year is typically when South Korean presidents try to make their legacy moves as they still have time to implement their plans and the next election cycle has not yet begun. This is especially the case for Park Geun-hye. The year has started off with the focus on inter-Korean relations with the hope that something can come of the annual New Year’s statements that offer openings for dialogue between the two Koreas, but the two sides currently appear unable to find common ground. In addition to North Korea, many will be looking to see if Park Geun-hye can make the moves and reforms necessary in the domestic economy to increase growth.

Two Major Moves on Trade

At the APEC summit in Beijing last year, China and South Korea announced the substantial conclusion of the Korea-China FTA. With expectations that the final details on the agreement will be concluded early this year, the implementation of the Korea-China FTA will place South Korea in the unique position of having FTAs with the United States, the European Union, and China – the world’s three largest economic actors.

In addition to South Korea’s FTAs with the United States, the EU, and China, we should expect to see movement on South Korea’s efforts to join the Trans-Pacific Partnership agreement. South Korea announced its interest in joining the agreement being negotiated among Pacific Rim nations in late 2012, but with the increasing prospect of President Obama receiving the Trade Promotion Authority that he needs to conclude the agreement South Korea will likely push to join the talks prior to their conclusion later this year.

A New Nuclear Energy Cooperation Agreement

The U.S.-South Korea 123 Agreement of 1974, or nuclear cooperation agreement, was extended for two years in 2013. The agreement was set to expire in March of 2014 and governs civilian nuclear cooperation between the United States and South Korea. With the agreement set to expire in 2016, the two sides will be looking to conclude a new agreement in 2015.

The major issue in the talks centers around South Korea’s desire to enrich uranium at the front end of the nuclear fuel cycle and to reprocess spent nuclear fuel on the back end. For reasons of non-proliferation, the United States has opposed enrichment and reprocessing provisions in new 123 agreements. With the deadline to extend the current agreement approaching, the two sides will be searching for a way to address the United States’ non-proliferation concerns while also meeting South Korea’s nuclear power ambitions. Some potential outcomes include another short-term extension, long-term agreements that either include or do not include enrichment and reprocessing rights, or an agreement tied to a joint pyroprocessing study to develop a more proliferation resistant reprocessing technology.

The Diversification of South Korea’s Energy Suppliers

While South Korea has trace amounts of fossil fuels, it is dependent on imports of fuel from unstable regions to drive its economy. As of 2012, petroleum and other liquid fuels accounted for 41 percent of South Korea’s primary energy consumption, while natural gas accounted for another 17 percent. More than 85 percent of its petroleum imports came from inside the Strait of Hormuz and more than 50 percent of its liquefied natural gas (LNG) comes from the Middle East as well.

That should begin to change in 2015. In 2014, South Korea put in place incentives for refiners to import oil from regions other than the Middle East to diversify the sources of Korea’s petroleum imports, while the United States issued a notification that exports of condensates, a form of ultra-light crude oil, would be allowed.  The combination of these two changes, along with South Korea’s ability to import LNG from the United States under the KORUS FTA, should help South Korea begin a process of diversifying the sources of its energy imports in 2015.

Samsung’s Future and Its Frenemy Relationship with Apple

After a year in which Samsung lost its smartphone lead in key markets such as China and India, and faced a renewed challenge from Apple which introduced widescreen models to compete with the larger Samsung models, especially the Samsung Galaxy Notes, 2015 will be an important year for the South Korean conglomerate. At the same time, American business news followers likely will be confused by alternating headlines which one week will describe ongoing legal battles between Apple and Samsung regarding intellectual property rights, and which the next week will talk about business cooperation between the two companies, such as Apple’s reported use of Samsung processors in its next generation of iPhones.  So, are the two companies rivals or business partners?

As Samsung seeks to turn around declining smartphone sales that saw its corporate profits drop for the first time since 2011 and navigate a leadership transition to Lee Jae Yong, they will likely be both. We saw a similar situation in the past, in which two other companies came to dominate a market, while appearing to be simultaneously competing and cooperating.  Boeing and Airbus have filed countless trade actions against one another, arguing unfair competitive practices.  Boeing generally focuses on what it considers Airbus’ non-commercial financing arrangements with European governments; while Airbus charges that Boeing has been given an unfair advantage through U.S. government military contracting.

In reality, the relationship between extremely large companies such as Apple and Samsung, and Boeing and Airbus, is complex.  They will fundamentally seek to “out compete” each other while at the same time cooperating when it is in their interest to do so to maintain their market position.  We should expect more of this in 2015.

Feeling the Effects of Social Change in Korea

As South Korea’s population ages, increases in wealth, and becomes more socially tolerant and diverse, the effects of those changes will have noticeable effects, even during the short term of the year 2015.  The increasing percentage of the population born in the two decades following the end of the Korean War (the Korean “baby boom”) will put increasing pressure on the ROK’s health care and pension systems.  It may also lead to a reexamination of Korea’s history during the 1960’s and 70’s.  The demographic shift could even create a market for nostalgia-themed popular entertainment and culture as a counterpoint to K-pop.

The increase in wealth is likely to lead to an increased focus on quality of life, particularly among recent college graduates.  Safety and health issues, including Korea’s high suicide rate, are likely to become bigger political topics.  The trend, discernable among all of the world’s advanced economies, towards an increasing acceptance of diversity, and growing concern for the well-being of minorities, immigrant populations, and refugees, will fuel debate in South Korea about the speed of change, and will put further distance between South Korea and North Korea.  As the 2017 national elections begin to appear on the horizon, 2015 will see political debate regarding whether the right can regain broad, popular support, whether the left can unify around a common platform and leadership, and whether a third political force will emerge.  Social change will create the shifting ground upon which all of these debates will take place in 2015.

Mark Tokola is the Vice President of the Korea Economic Institute, Troy Stangarone is the Senior Director for Congressional Affairs and Trade, and Nicholas Hamisevicz is the Director of Research and Academic Affairs. The views expressed here are the authors’ alone.

Image created by Sang Kim of the Korea Economic Institute of America.

By Chad 0’Carroll

In light of a California jury ruling Friday, Samsung now looks set to have to pay Apple more than $1 billion in damages for violating hardware and software patents following the conclusion of what may well be seen as a landmark case.  With the verdict seen as a big win for Apple, Samsung shares took an immediate dive of nearly 7.5% on the news, despite their reported intention to appeal the ruling.  But with the U.S. case representing just one of over fifty lawsuits being pursued in ten countries across four continents, what are the implications of the California judgment and what will be the consequences for the two companies and smart phone industry as a whole?

What the U.S. Ruling Means

The California jury found that Samsung infringed upon Apple’s physical design and user interface patents, often willfully, and that several of its products replicated Apple’s trade dress, especially with regarding the iPhone product series.  While Samsung had argued that Apple infringed several of its own patents related to utility and design, the court instead found that its products actually infringed Apple patents in those areas. As such, the jury rejected all of Samsung’s claims against Apple while upholding all of Apple’s patents. The implications for the South Korean conglomerate are therefore substantial.

Most damning of all, of 21 Samsung smartphone and tablet designs raised in the case by Apple, 100% of them were found to breach Apple’s patent 381 (pertaining to a “bounce-back” scroll feature). And on Apple’s two other main claims, an overwhelming majority of Samsung products were shown to have breached patents, with just a handful in each category escaping the breach.

In Samsung’s marginal favor, it was established by jurors that the Galaxy Tab 10.1 tablet (recently banned in the American market by the same judge – Ms. Koh) did not infringe on any physical design patents.  This means Samsung will now be allowed to sell the Galaxy Tab 10.1 on the U.S. market.  But while Samsung may be able to recoup some lost sales profit from Apple, the amount will likely be extremely low in comparison to the $1billion it now owes.

The bottom line is that in the eyes of one patent expert, Samsung has been shown by the outcome of this case to be a “reckless copycat”.  And because some of the infringement is related to Google’s Android operating system, it seems the jury agreed with Steve Jobs’ claim that Android is a “stolen product”.

Reports now suggest that both sides will file for a preliminary trial injunction, which is set for 20 September. That will decide the fate as to which products, if any, will face a ban.  Apple has already outlined 8 Samsung products that they want banned as a result of the California ruling. But as an immediate consequence, Samsung will at the very least be required to pay out $1 billion dollars – although this could potentially be tripled due to Samsung having willfully infringed the patents.

What the ROK Ruling Means:

Before the announcement of the California jury ruling, a Seoul court ruled Friday on a case brought to it by Apple regarding Samsung cell phone and tablet designs.  In contrast to the U.S. case, the South Korean court said that Samsung’s cell phone and tablet computer designs did not copy the look and feel of Apple products, adding that Apple had in fact infringed on several of Samsung’s wireless technology patents.  However, reflecting the unanimity of one element of the California court’s decision, the Seoul court did rule partly in Apple’s favor, saying that several Samsung devices had infringed Apples “bounce-back” scroll feature.

In contrast to the vast volumes of money involved in the California case, as a result of the Seoul ruling Apple will pay 40 million won ($35,400) for infringements while Samsung will pay 25 million won for violating just the one patent.  More cumbersome for both companies is the fact that the court also ordered a ban of a handful of Apple and Samsung cellphone and tablet devices implicated in the patent infringements.  However, given that none of the two manufacturer’s latest devices were implicated, the impact of this development could prove minor.

It is nevertheless of interest that this case result occurred in South Korea, Samsung’s home territory. Patent attorney Jeong Woo-sun said,  “Out of nine countries, Samsung got the ruling that it wanted for the first time in South Korea.”  Some experts have since expressed concern that the ruling might invite a trade war in which South Korean consumers could ultimately lose out.  If Samsung and LG now move to block rivals’ entrance to the ROK market if they do not agree to licensing terms related to some of the standard patents involved in this case, then those companies would either have to bow to the demands or abandon the South Korean market entirely.

What’s Happening Around the World

While developments in the U.S. and South Korea last week reflect two important territories involved in the dispute, there are similar cases taking places across a total now of four continents.  According to Florian Mueller of FOSS Patents, there are over 50 cases open in ten countries, meaning that things could still change in dramatic ways depending on the countries involved.  As of now, the next Apple vs Samsung case set to take place will be in Mannheim in Germany, on September 14.

The evidence so far shows Samsung losing the vast majority of its offensive cases against Apple, having lost three times in Germany, and once in France and Italy.  In the Netherlands it won a tiny amount of damages, but not an injunction, while in the U.S., all claims Samsung raised have now been lost. As indicated above, the only country Samsung has prevailed in cases against Apple has been South Korea.

But Samsung has nevertheless overturned a number of legal challenges raised by Apple, with one notable case in the UK in which the judge said Samsung could continue selling its Galaxy 10.1 tablet because its design wasn’t as “cool” as Apple’s (meaning it could not be confused with the iPad series).

Whether the outcome of the U.S. or ROK decisions will influence other open cases around the world remains to be seen, but right now things do look to be moving in Apple’s favor on a global basis.

Moving Forward

The immediate effect of both cases, should appeals by either company prove unsuccessful, will be payment of the immediate fines as issued by both courts.  But even $1 billion is nevertheless small peanuts for the South Korean conglomerate.  More important is the lasting effect on Samsung’s share price as a result of the legal action in California.  Having lost 7.5% on Friday, should Samsung continue to suffer in the mid to long-term, then investors may lose confidence in the South Korean firm.  One issue that may cause longer term losses is whether or not Apple succeeds in getting Samsung devices banned from sales in the U.S.

Should Apple succeed in banning products from the U.S. or other national markets, then Samsung will have to either update software or even change design elements to ensure their products do not violate Apple patents. Samsung has a proven history in rapidly working around patents, having redesigned software to ensure its products can stay on shelves after the cases that have shown them to have infringed on Apple’s patents. However, in the case of hardware redesign obligations, it can be extremely costly to make the necessary alterations to make a product acceptable for sale, for example by changing the casing or packaging design.  As such, if Apple succeeds in banning some of Samsung’s better selling cell-phones in the U.S. market from a hardware perspective, it could take significant resources for Samsung to get those same products back on shelves.  But Samsung can still take comfort in the fact that its newest models are not on the Apple ban “hit-list” and that it has a strong history in rapidly releasing revised products (unlike Apple’s slow iPhone release pace).

From a more general perspective, moving forward one can expect Samsung to be a lot more careful in the design of its cell phone and tablet devices as a result of the Californian ruling.  Forms of Samsung phones will likely be a lot rounder than Apple devices moving ahead, and from a software perspective we can expect increasing differences between functionality. On the flipside, it is likely Samsung will become even more protective about their own technology, raising the potential for even more litigation between the two companies in future.

In terms of the broader industry, many have been viewing the Apple vs. Samsung case as a proxy war between Apple and Google.  With Android accounting for over 85% of the smart-phone market, consumers currently have few options between iPhone and Android cell-phones.  Confident from this legal win, Apple may now be at pains to prove Steve Jobs’ allegation that Android is a “stolen” operating system, something that if they succeed in proving from a legal perspective, could open up a whole can of worms with regards to the myriad hardware manufacturers that use the Google Android system in their phones.   This could be especially troubling for Samsung, as a legal battle over operating systems could be crippling. While Microsoft’s new Windows Phone has been praised for its innovation, few customers have adopted the phone’s running Microsoft’s platform.  So, was this case really Apple vs Samsung, or the successful start of Apple vs everyone that uses Android? Interestingly, Google is already trying to distance itself from Samsung to avoid just that possibility.

Chad 0’Carroll is the Director of Communications for the Korea Economic Institute. The views represented here are his own.

Photo from Siddartha Thota’s photo stream on flickr Creative Commons.

By Matthew Tranquada

On Monday morning, in a federal courtroom in San Jose, lawyers for Samsung and Apple met to pick a panel of 10 jurors to decide a case worth $2.5 billion in damages for patent infringement. At the heart of the case is Apple’s contention that Samsung’s designs of its Galaxy series of smartphones and tablets infringes on the look and feel of Apple’s devices, many elements of which are patented. This has already resulted in preliminary injunctions against the import and sale of Galaxy Tab 10.1” tablets and Galaxy Nexus smartphones.

Of course, this is far from the only legal battle being waged by the two companies in what has alternately been referred to as a “mobile device war” or “mobile patent war”. Since April 2011, Samsung and Apple have launched over 30 lawsuits on four different continents, with both sides arguing that the other has infringed their intellectual property. At stake are the lucrative profits in the rapidly expanding mobile device space, especially as consumer adoption of smartphones increases and the functionality of tablets improves to rival traditional PCs.

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While the two companies lock horns in courtrooms around the world, though, they have quickly gobbled up 54% of the global smartphone market by some estimates. At the same time, several other phone makers have seen their share of the market severely diminished as Samsung and Apple pump out popular handset after popular handset. Nokia and Research in Motion (RIM) have moved from dominant positions within the smartphone market to near paupers, forced to layoff workers and drastically alter their business plans to counter their decline. Taiwanese manufacturer HTC, once the darling of the Android OS segment of the market and partners with Google on the Nexus One phone, has seen sharp declines in sales. Motorola Mobility and Palm, Inc. were swallowed up by Google and HP, respectively, after their smartphone strategies failed to win over consumers. And Sony and LG have, for the most part, failed to find solid footing in the smartphone market space outside of their home markets.

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The lead that Samsung and Apple have in the smartphone market is so pronounced that, according to at least one analyst examining the top eight mobile companies, they account for 99% of profit made on smartphones. This works out to 73% of operating profit for Apple and 26% of operating profit for Samsung, with HTC accounting for the remaining 1%. According to results for the second quarter of 2012 released on Friday, mobile device sales have helped boost Samsung to a record profit of $5.9 billion dollars, with the mobile division accounting for nearly 70% percent of earnings. In comparison, the first three months of 2012 saw a profit of $11.6 billion for Apple, driven by $22.7 billion dollars in revenue from iPhone sales and an additional $6.6 billion in iPad revenue.

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The importance of mobile profits to both companies’ bottom lines is fairly clear from the earnings data, and the ongoing legal battles may simply be about safeguarding those profits. But the combination of huge profits and extensive patent portfolios also has more sinister implications for competitors to Apple and Samsung in the mobile market. Both companies have ample capital to reinvest into technological innovation while their competitors struggle to stay afloat, and their patents could also provide a legal impediment to new challenges in the market.

But the litigious character of the battle for mobile supremacy between Apple and Samsung is increasingly earning them the ire of judges all over the globe. In June, Judge Richard Posner, presiding over a patent lawsuit between Apple and Google’s Motorola Mobility in California, scrapped the case and prevented both sides from refilling. Since then, he has appeared in the press as a staunch critic of patent infringement lawsuits and an advocate of patent reform. In Australia, Judge Annabelle Bennett has called the ongoing suits “ridiculous” and suggested that mediation should be the proper legal remedy. And in the United Kingdom, in perhaps the most embarrassing blow for Apple, Judge Colin Birss ordered that Apple must post a notice on their U.K. website for six months declaring that Samsung did not copy the design of the iPad (albeit his ruling stated that Samsung’s tablets would not be confused with Apple’s products because they are “not as cool” as the iconic iPad).

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The $2.5 billion lawsuit set to begin in California is certainly the largest case currently ongoing in the battle between Samsung and Apple, but ultimately it may prove to be a drop in the bucket in terms of money. Samsung and Apple are jockeying for position within advanced cell phone markets in developed nations, but this is only a prelude to the expansion of smartphones into developing markets such as Brazil, India, and the world’s largest cellphone market, China. The success of Apple and Samsung in dominating the smartphone market may be fleeting if up-and-coming rivals such as Chinese electronics manufacturers Huawei and ZTE, who are beginning to introduce capable smartphones at aggressive prices, can penetrate developing markets where consumer preferences may be influenced more by value than by brand loyalty or the “cool factor”. We shouldn’t forget that it was just over five years ago that Apple introduced the iPhone and upended popular notions about what a smartphone was.

The relative advantage that Apple and Samsung enjoy in terms of mobile device profits, as well as their sizable R&D operations and legal battles, may make it prohibitively expensive for others to enter the smartphone market, but it is not yet an insurmountable obstacle for other challengers. It may delay the emergence of a legitimate competitor for the two companies, but it is unlikely to stop other companies from trying to grab a piece of the multibillion dollar market they dominate. In the meantime, the questionable lawsuits and worldwide courtroom dramas will continue to define the terms of competition in the marketplace for years to come.

By Chad O’Carroll

After last week’s news that Apple had successfully won an injunction to block the sale of Samsung’s Galaxy Tab computers in the United States comes another major legal development also in Apple’s favor.  As of close of business on Tuesday, Galaxy case judge Judy Koh effectively banned sales of the Samsung Galaxy Nexus cell phone in the U.S. market through an injunction that cited “probable” infringement of four Apple patent claims. With Apple having posted a bond of $96 million to cover any profit that Samsung would lose in the event the ruling is later overturned, the injunction has now come to life and Galaxy Nexus sales are now effectively banned in the U.S.  This is a worrisome development for Samsung in its continuing legal battle with Apple which may also hinder the evolution of the Android and even iPhone mobile operating systems.

The Galaxy Nexus was developed by Samsung in partnership with Google, forming the third generation of the two firms ever-evolving Nexus smartphone series.  During the design phase of the latest offering, Samsung and Google collaborated in creating a new search feature known as the “Quick Search Box”.  Using the “Quick Search Box”, Galaxy Nexus users receive search suggestions before typing is completed and answers to queries based on an aggregation of data from the web, installed apps, and from contact information. According to Apple, the “Quick Search Box” is too much like Apple’s own Siri search tool and Judge Koh’s decision appears to confirm their claim that it may represent a patent infringement. Even some third-party reviews of the Galaxy Nexus (cited in the actual case) appear to validate Apple’s claim that “Quick Search Box” could reduce iPhone sales, with one review saying it adds a “whole new layer of functionality” that would help Android phones “win new customers, even ones with iPhones.”

While Google has already removed the Galaxy Nexus smartphone from its “Play” store, the wording it uses to explain the move, “Coming Soon”, suggests that it has plans to get the phone back onto the market as soon as possible. Already reports are emerging that it is working on a software patch for the Nexus that will undermine Apple’s patent infringement claim and allow for a resumption of sales, although this will seemingly result in some decrease in functionality in the Samsung phone: “Once the patch is rolled out, devices that are updated will see the home screen-based quick search option simplified so as to only show results from the Web, with local search options disabled entirely on the device. The voice search option will also be restricted to retrieving results from the Web”.  So while Samsung and Google may be able to get around this ruling, the solution will be to the detriment of the design and functionality of the Android operating system.

As I have outlined before in two other Peninsula articles, it seems Apple is really trying to prevent Samsung – its biggest competitor – from selling phones in cases that seek to prove patent ownership of extremely general concepts. The idea that an aggregated search facility can only be the sole purvey of Apple iPhone is difficult to comprehend , inferring that it was Apple who invented the actual concept of information aggregation.  And a look at the three other patent infringement claims that form the basis of Apple’s Nexus Galaxy litigation underscore their general concept approach.  These claims argue that the Galaxy Nexus cannot have a slide to unlock the phone, cannot have auto-fill search, and cannot have data underlined and made actionable (i.e .the ability to click a number in a text to call it). As one programmer put it, “Apple seems to own every graphical user interface ever invented”, adding that if features like these can be patented, “it should be possible to patent the idea of [having] text or images in web pages.”

As Apple continues putting legal pressure on Samsung, it is important to remember that the iPhone itself has benefited from bringing together many technologies that were preexisting. Many researchers and companies invented technologies that predate the iPhone and one of the reasons the iPhone was originally so successful was because it drew together these extremely innovative technologies in one place. But that shouldn’t mean other manufacturers cannot also build touch screen smartphones that have user friendly interfaces.  Indeed, that Android smartphones have similar functionality to iPhone should come as no surprise because both devices have the same purpose – to facilitate mobile communication.

Take a look at software products in other areas and you will also find many similarities. Internet Explorer, Google Chrome and Mozilla Firefox all have striking similarities. But imagine if the inventor of the “bookmark” wanted to sue them all as a result of patent infringement? In short, when programmers write software, it is natural for similarities to exist. And while Android may have been inspired by some iPhone functionality, Google have often refined that functionality to the point it has even copied back by Apple and ported to newer iterations of the iPhone.

Up to now, Apple has spearheaded the main body of patent litigation in the smartphone market and this has encouraged Google and Samsung to do the same, motivating them to patent every innovation they come up with. The result is that if the legal fracas between the companies continues, we may arrive at a situation where Apple could be boxed into a position where it cannot add a lot of the newer and yet to be released Google innovations that one might have previously considered as “general” features.  Already this is happening, with Apple’s iPhone lacking Google Map 3D navigation or voice translation capabilities.  And if Apple keeps winning cases like this one, Android customers will also eventually be locked out of basic functionality that makes owning a touch screen phone practical to use.

Chad 0’Carroll is the Director of Communications for the Korea Economic Institute. The views represented here are his own.

Photo by PopCultureGeek

By Chad O’Carroll

The seemingly perpetual legal fracas between Apple and Samsung took a turn yesterday when U.S. District Judge Lucy Koh of California entered an injunction to block the sale of Samsung’s Galaxy Tab 10.1 computers in the United States.  The block of sales of the newest Galaxy tablet, touted by many industry experts to be the main rival for Apple’s iPad series, was the result of Samsung’s new tablet being “virtually indistinguishable” from Apple’s iPad and iPad 2 models.

Given on Monday Jude Koh had said she would deny the injunction based on the assumption, overturned, that the Apple’s design patent was likely invalid, the move has come somewhat as a surprise for Samsung’s legal team.  “The relief being given to Apple here is extraordinary. Preliminary injunctions are rarely asked for and rarely granted,” said Colleen Chien, a professor at Santa Clara Law in Silicon Valley.  With Samsung filing a notice of appeal within just five hours, the injunction will come into effect as soon as Apple posts a $2.6 million bond to cover a potential damages payment to Samsung if Apple loses the case.  So what is this case about, what does this mean for Samsung, and what about the broader impact on the portable communications market?

Back in April, Apple CEO, Tim Cook explained Apple’s position regarding the ongoing battle with Samsung.  “I’ve always hated litigation, and I continue to hate it. We just want people to invent their own stuff…But the key thing is that it’s very important that Apple not become the developer for the world. We need people to invent their own stuff.”  With Judge Koh’s ruling that Samsung’s latest tablet was “virtually indistinguishable” from the iPad, it seems that this case may well strengthen Apple’s increasingly wide ranging claims that, “it is no coincidence that Samsung’s latest products look a lot like the iPhone and iPad, from the shape of the hardware to the user interface and even the packaging”.

A close look at the specific Galaxy Tab in question does indeed reveal several design similarities, so it is arguable that Apple’s case has some merit.  For example, the general design of the unit was so similar that Samsung’s legal counsel couldn’t distinguish the two products when Judge Koh showed them in the courtroom at a limited distance.  Even between the power cables of the iPad and Galaxy Tablet there are clear similarities, with the two designs employing USB to wide angle charging ports.  However, take many digital product lines and you’ll find many design similarities that exist. Flatscreen TVs, digital cameras, and GPS navigation units all share many close resemblances from one model to another. But in those cases we don’t hear about the type of design patent infringement claims that Apple is referring to.

By pointing to Apple’s penchant for generic design claims, Samsung had previously stalled Apple’s claim that it had exclusive rights to the form of the iPad by showing adjudicators a device eerily similar to the iPad that featured in the 1968 film, “2001: A Space Odyssey”.  Now Samsung say that Apple’s win as a result of “generic design” patents means that “innovation and progress in the industry could be restricted.”  It is a claim that has some merit, meaning that hardware developers for standard-form products like phones, laptops and tablets might have to pay closer attention on trying to develop unique designs. But who wants a triangular phone, circular laptop or hexagonal GPS unit?  Well, there are ways around the most recent litigation that call for less dramatic means.  Because the scope of the Galaxy Tab design breach in this case is reported to be “relatively narrow”, Samsung will be able to design around the problem and continue sales if it so chooses (as it has done in other markets).  However, this adds additional hurdles to the release of hardware in markets where Apple is successful in stinging Samsung on general design issues.

But Samsung does appear to be changing gear.  While a close look at earlier Samsung Galaxy cell-phones reveals some resemblance to the iPhone, with the Samsung Galaxy III the South Korean conglomerate does now seem to be taking steps to avoid patent cases like this in its core smart-phone line, with a now radically different design to that of the iPhone.  Clearly rattled by the prospect of continued disruptions to its business and the potential for injunctions that could halt sales during important release windows, Samsung have evidently deemed it prudent to air on the side of caution for new product launches.

While Samsung may have lost this case, the U.S. sales ban follows last week’s ruling in The Hague that Apple has to compensate Samsung for damages caused by a breach of patents since August 2010.  And it is almost certain that as part of the tit-for-tat cycle of cases we’ve seen in recent months, that Samsung lawyers will almost certainly have the iPhone 5 in their targets shortly after its eventual release.  So who wins from all of this?  Despite being prevented from selling its latest tablet in the U.S., Samsung shares gained 2.5% at the close of trading in Seoul yesterday.  With Apple focusing so much on comparing their products to Samsung’s in courts across the world, perhaps they are indirectly underscoring the credibility of Samsung’s products to customers as real alternatives to Apple’s own range.   As such, it is hard to know if Apple will emerge the long-term winner from its continued and costly legal battle.

Chad 0’Carroll is the Director of Communications for the Korea Economic Institute. The views represented here are his own.

Photo from 3 Sverige’s photo stream on flickr Creative Commons.

By Chad 0Carroll

Originally known for being a company that sold bargain electronics products, in 1995 Samsung chairman Lee Kun-hee ordered his employees to set on fire a mountain of 140,000 mobile phones, fax machines and other electronics in an effort to reform and rejuvenate the company.  Fast forward to 2011, and in the cell phone market Samsung has gone from being a supplier of low-end, unattractive mobile technology, to becoming one of the key players in a highly competitive smart phone market.  It’s most recent offing, the Galaxy S2, has even outsold Apple’s iPhone in some countries – something that would have been unthinkable just a year or two ago.   But this success has not come without problems, as an increasingly intense and high profile legal fracas with Apple has recently been illustrating.

Since April, Apple and Samsung have been waging an increasingly aggressive legal battle, filing over thirty lawsuits in ten countries around the world.  Apple initiated the proceedings in the U.S., claiming that Samsung’s “Galaxy” cell phones and tablet computers “slavishly” copied its own iPhone and iPad designs and patents. While Apple enjoyed some legal success, banning some of Samsung’s sales (at least temporarily) in Australia, The Netherlands and Germany, it has fared less well in the world’s largest market – the U.S. There, Samsung stalled Apple’s claim that it had exclusive rights to the form of the iPad by showing adjudicators a device eerily similar to the iPad that featured in the 1968 film, “2001: A Space Odyssey”.  And in response to Apple’s legal attacks, Samsung accused it of infringing several of its own mobile technology and user interface patents, most recently articulating in attempts to ban the iPhone 4S and iPad2 in Italy, France Japan and Australia.

Patent disputes such as these are highly common in the tech industry, and even though some of the claims might seem petty or even farcical, they are often pursued with the aim of profiting from the sales of a competitor through settlements that oblige per-unit-payments to the winning party.  However, in this battle, Apple has made clear that it has no desire to coming to any such settlement with Samsung. Instead, it appears that Apple is seeking to prevent Galaxy sales in as many markets as possible, at seemingly any cost.

Part of this obstinacy may be down to the fact that Samsung’s smart phones use Google’s Android, an operating system that Steve Jobs labeled a “stolen” product.  Leaks from his soon-to-be-released biography claim that Jobs said, “I will spend every penny of Apple’s $40 billion in the bank to right this wrong…I’m willing to go thermonuclear war on this.”  Harsh words, but easy to understand when Jobs was the one who witnessed the look and feel of the original Macintosh operating system being so relentlessly copied by Microsoft in the 1980s, much to the damage of Apple’s then business model. And even easier to understand given the suspicious fact that the current Google Executive Chairman and former CEO Eric Schmidt was a former Apple board member and personal friend of Jobs during the time of iPhone development.

The other part of this obstinacy is possibly down to Samsung’s own very close relationship with Apple.  Although both are locked in legal battles, from the get-go Samsung supplied Apple with several key components for both the iPhone and iPad (and continues to), and has thus been in a unique position to know intimate details regarding the hardware and architecture of Apple’s designs. According to this line of thinking, Apple may have seen Samsung as abusing its “insider” position to get a head-start in its own smart-phone and tablet design process.

But is Apple’s position really tenable?  Just yesterday it won a U.S. patent for the “slide-to-lock” feature of the iPhone, opening the door for potentially hundreds of lawsuits with a plethora of manufacturers.  However, in the Netherlands the same patent case failed, because it was proved the “slide-to-lock” feature previously existed on the Neonode N1M phone.  When analyzing the current battle between Samsung and Apple, one has to ask if Apple should really have the right to patent every aspect of its technology.

To be sure, it is understandable to clamp down on companies that fake or clone one’s own technology, but had other companies taken Apple’s approach to patent litigation, where would we now be?  Could Alexander Bell now sue Apple for selling a product that allows users to transmit their voice telephonically, or could the U.S. company Bell, inventor’s of the first push button phone, also sue Apple for creating a touch-screen version of its own invention?

The reality is that the realization of Apple’s iPhone and iPad depended on the ideas and work of many other companies – the technologies these platforms are based on were not reinvented afresh for Apple’s sole purview. And while Apple did a great job in refining these ideas and adding to them, it should not blame Samsung or Android for doing the same with the current menu of cell-phone and tablet technology.  In effect, all manufacturers are moving down a usability funnel, headed to the same shared goal of achieving a perfect interaction between machine and human.

Chad 0Carroll is the Director of Communications for the Korea Economic Institute. The views represented here are his own.