Haunted Empire: Apple After Steve Jobs

by Yukari Iwatani Kane

  That was the end of quality control issues at Gumi. After the incident—or as it became known, “the voluntary incineration”—the factory manager tested new models of the phones by hurling them against walls, dropping them from second-story windows, and once, running over one with his car. Usually, he reported, the phone still worked.

  In the years since then, Lee had successfully turned Samsung into one of the world’s most dominant electronics companies. He had also suffered his share of setbacks, fighting cancer and charges that Samsung had routinely bribed government officials with a slush fund of seven trillion won, or roughly $7.5 billion U.S. Most of the charges were eventually dropped, but after pleading guilty to tax evasion, Lee resigned, publicly apologized for his company’s moral and ethical lapses, and went home to his mansion, where he was placed under house arrest until the following year, when the government granted him a full pardon and he returned to Samsung as chairman. Amid the global financial crisis, Lee had been deemed too invaluable to be kept on the sidelines.

  The crisis of those days was over. Now Lee’s attention was turned toward defeating Apple. He was as strong as ever, still arriving at his desk at dawn, still inspiring terror in those who failed in the quest to help Samsung conquer the world.

  When the chairman spoke, a Sony executive once joked, it was like hearing the voice of God.

  Between HTC, Motorola, and now Samsung, the battle against Android was heating up. Apple needed to rid itself of any distractions, so it settled its dispute with Nokia. Apple came out as the net loser, agreeing to make an estimated one-time payment of between $600 million and $720 million to Nokia for the use of its technologies in past phones in addition to paying royalties on an ongoing basis for future devices. But that was a drop in the bucket for Apple. The freedom it would gain to pour its energies into fighting Android was far more important. It doubly made sense because Nokia was shifting its phone strategy to focus on Windows Phone, which was protected by Microsoft and left little room for Apple to collect royalties. Apple would now be able to forge ahead into its fight against Android.

  The civility between Apple and Samsung dissolved almost immediately. When Samsung sought a court order that would force Apple to disclose the iPhone and iPad models that were under development, Apple accused it of making “an improper attempt to harass Apple.” When Apple requested a preliminary injunction in the United States against four Samsung products, the two sides squabbled over the hearing schedule. Samsung, which had more to lose with a faster decision, wanted the hearing pushed back. Apple, which wanted an expedited process, argued for an earlier date. Samsung also sought to disqualify some of Apple’s outside lawyers because they had previously done work for Samsung.

  Nothing was off the table, even when it risked inviting public ridicule. At one point, Samsung filed an amusing brief in opposition of Apple’s motion for a preliminary injunction. In it, Samsung argued that the general design of the iPad was not original to Apple, citing a scene in 2001, in which two astronauts are watching an interview with HAL on their tablet computers while enjoying a futuristic meal of puréed food.

  By the end of April 2012, the two companies had filed more than fifty lawsuits against each other in sixteen courts in ten countries. Some of the most important battles would take place in San Jose, California; Mannheim, Germany; and the U.S. International Trade Commission, which had the power to ban imports into the country.

  As the global war expanded, Samsung assumed a tougher stance. Initially, many of the company’s executives had called for a quick reconciliation, but over time they were energized by the increased attention they were receiving by the public. In a strange way, Samsung was legitimized by Apple’s attacks. The iPhone maker deemed the competition from the Galaxy to be serious enough to challenge.

  In an interview with the Associated Press in September, Lee Young-hee, Samsung’s head of global marketing for mobile communications, accused Apple of “free riding” on its patents. “We’ll be pursuing our rights for this in a more aggressive way from now on,” Lee said. “We’ve been quite respectful and also passive in a way. . . . However, we shouldn’t be anymore.”

  Still, when Samsung’s president, Lee Jae Yong received an invitation to attend Steve Jobs’s memorial service at Stanford the following month, Lee accepted. He was the only Asian executive on the guest list. “Steve Jobs . . . was a demanding customer and competitor, but I grew fond of him,” Lee told reporters at Gimpo airport before he departed. “Samsung and Apple should be partners and we should compete fairly and fiercely in the market.”

  Apple was pushing for preliminary injunctions in most countries with mixed success. It won a ban against the Galaxy Tab tablet device in Germany and certain Samsung phones in the Netherlands. An injunction was also issued in Australia against the Galaxy Tab. All of those would pale in importance next to a favorable outcome in the United States.

  On a brisk Thursday in mid-October, attorneys from Apple and Samsung arrived at the federal courthouse in San Jose for a hearing. Presiding over the case was Lucy Koh, a Korean-American judge, whose diminutive frame and feminine voice belied her no-nonsense toughness. In a stark courtroom that would soon become familiar to both sides, Apple’s lead attorney asked the judge for a preliminary injunction to stop Samsung from selling its devices in the country. If the court waited until the following year after the trial reached its conclusion, he argued, Samsung would have already done its damage and moved on to selling newer models that would be outside the scope of the lawsuit.

  When it was Samsung’s turn, counsel Kathleen Sullivan handed out thick binders with 249 pages of slides. “What’s happening here is that Apple is going to claim a monopoly right to the design over a rectangular smart phone with a flat surface,” she said, going through the slides to show how other phones and handheld devices in the past had included some of the same design features that Apple claimed to be theirs.

  “Let me ask you a question,” interrupted the judge, holding up a Galaxy Tab and an iPad. “Tell me which one is Samsung and which one is Apple. Tell me which one. I’m not going to show you the back. Can you tell me?”

  “Not at this distance, your honor,” admitted Sullivan, who was standing about ten feet away.

  Koh offered to come down from the bench and bring the two devices closer. “Which one is which? Can any of the Samsung lawyers tell me?”

  Sullivan tried to argue that it only needed to raise strong enough questions about the validity of Apple’s patents to defeat an injunction. But Koh appeared to disagree as she explored the idea of Samsung’s tablets being sold at the expense of the iPads.

  “These are just black screens,” Koh said. “I’m . . . I’m as close to you as I can get.”

  Sullivan argued that the judge’s test was unfair.

  “I don’t mean to quibble over the small experiment, but the ’889 patent is for the whole device and you didn’t show us the back.” The counsel kept going. “And the ordinary observer is not limited to the sense of sight, especially not at fifteen feet.”

  “I don’t think this is fifteen feet,” the judge shot back, though she obligingly turned the phone over. “Of course you can see the logo. But the back, the shape is very similar. I’m showing all sides now, showing the side, the back. . . . I’m holding them right next to each other. The thinness is very similar; the sloping on the edges is very similar.

  The judge appeared to be leaning in favor of Apple, but after deliberating for a month and a half, Judge Koh denied Apple’s request for a preliminary injunction. Apple had “established a likelihood of success on the merits at trial,” Koh said, but Samsung had raised strong questions regarding the validity of one patent. She said Apple had also yet to prove that it was being irreparably harmed by Samsung’s devices.

  With the removal of a major threat, Samsung strengthened its resolve to keep fighting.

  “We are in for the long-haul,” a Samsung executive told the Korea Times, adding that its CEO was fully behin
d the effort. “Samsung doesn’t want to be involved with legal issues, but in this case, Apple started it. It’s natural for Samsung to defend our bottom line.”

  Apple’s determination to win the battle also remained unshakable in the wake of Jobs’s death. The publication of Isaacson’s biography had an immense impact as the public read about Jobs’s vow to wage war. Though insiders had long been aware of the impending conflict, the best-selling book revealed to the public the intensity of Jobs’s animosity toward Google and Android. It was unthinkable not to honor what was essentially the visionary’s dying wish to protect his legacy.

  The company was also buoyed by a special exhibit that the U.S. Patent and Trademark Office opened, honoring Jobs in the atrium of its museum in Virginia. The presentation included thirty giant iPhone-like displays showing the front pages from more than three hundred filings that bore Jobs’s name as inventor or co-inventor.

  “This exhibit commemorates the far-reaching impact of Steve Jobs’s entrepreneurship and innovation on our daily lives,” said David Kappos, undersecretary of commerce for intellectual property. “His patents and trademarks provide a striking example of the importance intellectual property plays in the global marketplace.”

  In addition to its battle against Samsung, Apple kept attorneys busy as other disputes with HTC and Motorola progressed. In each, Apple nitpicked on the most trivial matters. In a court filing that took aim at one of HTC’s complaints, the company complained about a comma.

  “Apple denies that its correct name is Apple, Inc. The correct name of Respondent is Apple Inc.”

  The litigation with Motorola bounced from court to court as lawsuits moved between Delaware, Wisconsin, and Illinois before ultimately being consolidated in Illinois. The impact of this outcome wouldn’t be understood until months later.

  Over the next few months, Apple and the Android camps fought viciously but with no decisive victory on either side. Apple’s injunction against Samsung in Australia was overturned. A German injunction Motorola had won against some of Apple’s products was temporarily suspended. HTC also lost one round when the International Trade Commission threw out a complaint.

  Apple’s disputes centered around two ideas. The first was to protect its innovations. The second was as a defense against more established mobile phone makers like Motorola and Samsung, who accused Apple of violating a category of patents that they were obligated to license to anyone who wanted it. These patents were known as “standard essential” because they had been included in telecommunications standards. In return, companies who owned them were required to offer them under reasonable and nondiscriminatory terms, but Apple was asserting that Motorola and Samsung were unfairly demanding a higher price for them as a way to keep the competition at a disadvantage.

  The implications of a win on either side were vast. Like Judge Koh, many observers agreed that Android devices had a similar look and feel to Apple’s iPhone and iPad. Yet some of the individual design elements by themselves were not that original. By necessity, a smartphone had to be flat and rectangular in shape to make it easy to hold. Putting rounded corners on it was not particularly inspirational.

  It was unrealistic to expect that even a hundred lawsuits could make Android disappear. As Android’s market share eclipsed Apple’s, it was growing increasingly clear that consumers wanted that choice. The best that Apple could reasonably expect was to slow the competition and force Android device makers to change their products enough to draw an even clearer distinction from Apple’s.

  Every day that the various lawsuits dragged on was another day that Android was able to blaze ahead. A few months before trial, Apple and Samsung submitted a joint filing to the court, in which both sides sought to eliminate any evidence that could prejudice the jury. Apple’s list ran the gamut from an objection to the Samsung logo on the court’s video display to an exclusion of Jobs’s “thermonuclear” comments.

  Samsung was most worried about the influence that Apple’s iconic status would have on jurors. It asked the court to exclude product reviews in Apple-specific blogs and fan sites and pro-Apple expert testimony about the company’s cultural significance.

  In a separate motion, Samsung noted, “Apple’s damages expert, Terry L. Musika, writes in his report that ‘Apple has built a considerable and at times a cult-like following to all things Apple.’ That cult-like following apparently includes several experts who are appearing on Apple’s behalf in this case, and may explain why they have cast aside established scientific methods and governing legal principles in favor of slavish adoration of their client and platitudes about its alleged magical and revolutionary products, issues that are of no relevance to the claims and defenses at issue.”

  Samsung also questioned the objectivity of Henry Urbach, another witness Apple proposed to summon before the jury.

  “Mr. Urbach wrote an essay on the design of Apple’s retail stores, entitled Gardens of Earthly Delights, describing them as “[q]uasi-religious in almost every respect, . . . chapels for the Information Age,” Samsung said, pointing out that he also referred to the late Apple founder Steve Jobs as “St. Eve.”

  In the spring of 2012, the court ordered a final meeting between the heads of the two companies to try to reach a settlement. Cook and Choi Gee-sung, Samsung’s vice chairman and electronics chief, met for nine hours on May 21, along with their lead counsels, and for seven hours on May 22 in a federal courtroom in San Francisco. Mediating the session was Joseph Spero, a bow-tie-wearing magistrate judge with a reputation for handling complex cases. Very little is known about what went on in the meetings, but when the talks yielded no settlement, no one was surprised.

  A few weeks later, when Cook was asked about the patent disputes at an onstage interview at a technology conference, he told the audience that the legal battles were “a pain in the ass.”

  “From our point of view it’s important that Apple not be the developer for the world,” he said. “We can’t take all of our energy and all of our care and finish the painting and have someone else put their name on it. We can’t have that. And so the worst thing in the world that can happen to you if you’re an engineer and you’ve given your life to something is for someone to rip it off and put their name on it. And so what we want to accomplish is we just want people to invent their own stuff and we don’t want to be the developer for the world.”

  In Korea, independent newspaper Hankyoreh wrote about a growing view in the industry that the lawsuits were a way for Apple and Samsung to jointly prevent other competitors from entering the market. Pointing out that neither company had been hurt or helped by any of the cases, it opined that there was no reason to continue the legal proceedings.

  The two companies disagreed. Attorneys on both sides prepared for the showdown.

  As the July 30 trial date neared, Apple’s legal team booked more than fifty rooms at the Fairmont hotel nearby and rented a temporary office across the street. A pantry was filled with refreshments to keep the team alert—coffee, soda, beef jerky, kale chips, Cliff Bars, instant noodles, and everything else in between.

  Samsung’s team reserved rooms at the Marriott, moving furniture out of some of them to set up a makeshift command center.

  War rooms.

  11

  The Innovator’s Dilemma

  Three thousand miles away, in an office in Cambridge, Massachusetts, the professor was watching every twist and turn of Apple’s fortunes. Sitting in front of his iMac and scanning the latest news, Clayton Christensen was attempting to divine the future of Apple now that its visionary king was dead. A renowned expert on the rise and fall of corporate empires, Christensen noted how Tim Cook lacked Steve Jobs’s exceptional instincts for product development. He observed how rivals were eroding the iPhone and iPad’s market share. And though he had long admired Apple’s dazzling success, he worried that the company may have finally reached its zenith. Was this the start of an inevitable plunge back to earth?

  A professor at Har
vard Business School, Christensen had devoted much of his life to developing a theory that explained why so many powerful companies, especially those that reigned through technological prowess, were eventually overrun by competitors making low-end products. Christensen’s theory of disruption, laid out in his book The Innovator’s Dilemma, dissected the forces that made it almost inevitable for these emerging rivals to eventually triumph over corporate giants. In a world where technology was constantly evolving, creating radically different products that opened new revenue streams, the ability to disrupt an existing market—mobile phones, for instance—was crucial to survival. The Innovator’s Dilemma had influenced everyone from Andy Grove and Michael Bloomberg to Steve Jobs when it was published in 1997. In the years since, as major corporations sought him out for advice, Christensen had increasingly focused his research on how to avoid the trap and stay competitive.

  For years, Apple had been considered the exception to his theories as it grew bigger and seemingly more invincible with every product launch. Apple had distinguished itself by putting profits secondary to its primary objective of creating new possibilities in the market and new appetites for consumers. More recently, however, the company seemed to be too focused on beating its rivals. Its products were thinner, more powerful, and more perfect than previous iterations, but these improvements were decreasingly important to many consumers. That created an opening for rivals to enter the market at the bottom end. Apple seemed to be unraveling.

  Shortly before Apple began selling its first iPhone in 2007, Christensen famously predicted its failure. “Apple won’t succeed with the iPhone,” he told BusinessWeek. “They’ve launched an innovation that the existing players in the industry are heavily motivated to beat: It’s not [truly] disruptive. History speaks pretty loudly on that, that the probability of success is going to be limited.”