Shares in South Korean smartphone maker Samsung were off sharply today, the first full day of trading after the company was fined $1 billion for violating various patents belonging to rival firm Apple.
Samsung shares were off by almost eight per cent on the main Korean stock index, wiping out more than $12 billion US from the value of the company.
The sell-off was sparked by a ruling late Friday that ordered the Seoul-based electronics conglomerate to pay more than $1 billion in fines for copying key components of Apple's popular iPhones and using the technology without permission in their Galaxy line of tablets and smartphones.
Among the patents are technology that allows touchscreen users to zoom in by "pinching" and the device's ability to auto-centre when new screens open.
Apple filed suit in April 2011, accusing Samsung of essentially selling illegal knockoffs of its popular iPhones and iPads. Apple demanded $2.5 billion in damages and an order barring U.S. sales of the Samsung products in question. Samsung countered by claiming Apple was using some of their wireless technology unlawfully.
"The verdict came in worse than expected for Samsung," investment firm Nomura Holdings said in a research note following the decision. But considering how profitable Samsung has been selling its devices recently, "the amount does not seem lethal to Samsung, nor is it out of our estimate range."
Such legal tribulations are becoming commonplace in the technology sector and simply a cost of doing business in telecommunications.
"We believe Apple is likely to begin another round of litigation with other handset makers that make Android-run devices, including Motorola Mobility, which Google has acquired," Nomura said. "At the least, Apple may very well to ask to be paid royalty fees on the patents."
Consultancy PriceWaterhouseCoopers recently calculated 182 U.S. lawsuits were filed between 2006 and 2010 involving patents in "computer hardware/electronics, software and telecommunications." That was an increase from 77 filed during the previous five years.
After three days of deliberations, a U.S. jury trial rejected Samsung's defence but refused to award Apple the maximum amount demanded, on the grounds that fewer Samsung products violated Apple's patent than was alleged in the suit.
It's not yet clear what the fallout of the suit will be, but it is doubtful that the wildly popular Galaxy smartphones — Samsung sold 45 million of them last quarter — will be recalled. More likely is that a fine will be paid and future versions will not use the same offending technology.
Samsung is likely to appeal the case all the way to the U.S. Supreme Court, but regardless, the company's wireless rivals are already benefiting. Apple shares gained $15 or about two per cent to trade at $676.65 near midday on Monday.
Finnish smartphone maker Nokia shares were also higher, gaining nine per cent to trade at $3.36 in New York. Nokia has partnered with Microsoft to make a suite of Windows-based phones, and Samsung's woes are likely to buoy the hard-hit company as Windows phones are relatively immune from Apple's patent issues, Nomura said.
And Waterloo, Ont.-based Research in Motion, the maker of the BlackBerry line of smartphones, gained 2.45 per cent to trade at $7.11 on the Nasdaq on Monday.
That shares in almost all smartphone makers except Samsung are higher is a sign investors see a market opportunity for the company's rivals to make inroads while the company defends itself in court.