Apple's Schiller: iPhone was a 'bet the company' product

During the multimillion-dollar damages retrial versus Samsung, the marketing exec says nowadays "almost everyone" at Apple works on the device.

Apple's Phil Schiller talking about the iPhone 5S' M7 coprocessor during an event in September. Josh Lowensohn/CNET
SAN JOSE, Calif. -- Apple's head of marketing, Phil Schiller, on Thursday told a court here that the iPhone was a "bet the company product," and that now the entire company works on it in some way.

Schiller took the stand in a damages retrial against Samsung with only 11 minutes left in the session. That gave him just enough time to introduce himself and talk briefly about his role at Apple, the development of the iPhone, and the event introducing the product.

"There were huge risks [with the first iPhone]," he said. "We had a saying inside the company that it was a 'bet the company' product...We were starting to do well again in iPod...Then here we're going to invest all these resources, financial as well as people, in creating this product."

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He noted that Apple started working on the iPhone after it had already started iPad development. In the beginning, about 100 people worked on the smartphone. Now, "almost everyone" at Apple works on the device.

The comments came on the third day of a retrial for damages that Samsung owes Apple for infringing on five of its patents through 13 of its devices.

Court kicked off Tuesday with jury selection in the United States District Court for the Northern District of California. The trial is slated to last about six days before the case is turned over to the jury -- composed of six women and two men -- for deliberation.

Wednesday involved opening arguments where Apple asked for an additional $380 million in damages, and Samsung said it only needs to pay $52 million . Apple witnesses who have taken the stand in the case include a couple of experts on touch-screen technology, an Apple executive in charge of components and materials procurement, and a few Samsung executives via deposition videos.

The bulk of the session Thursday included questioning of Julie Davis, an expert accountant hired by Apple to determine just how much Samsung owes the company for infringing on its patents. She testified that Apple lost sales due to Samsung's infringing devices. But even if the jury decides Apple didn't lose a single sale because of Samsung infringement, damages should be $287 million, Davis said.

John Hauser, an MIT professor of marketing, performed analysis on Apple's behalf to determine what value its patents add to a smartphone. He said during testimony that in a $199 smartphone, consumers would pay $100 more for features covered by three Apple patents. That includes the bounce-back effect for scrolling to the bottom of a browser page, as well as other touch-screen features.

Much of the difference between Samsung and Apple's damages calculations comes from how much Apple should receive for royalties and what profit Samsung generated from the infringing devices. Both companies agree on the number of devices sold as well as the revenue Samsung generated. However, Samsung said it made a lower profit than Apple believes because of costs such as marketing.

Apple arrived at the $380 million amount based on lost profits of about $114 million, Samsung's profits of about $231 million, and reasonable royalties of approximately $35 million. Apple estimates it would have sold 360,000 devices if Samsung hadn't released infringing rivals.

Samsung, meanwhile, said Apple shouldn't receive any money for lost profits, $52.7 million for Samsung's profits, and royalties of only $28,452 because the patents have limitations.

Judge Lucy Koh on Tuesday asked Apple and Samsung to again hold settlement talks before another trial slated for March. The parties agreed to submit a proposal by January 8.

An Apple expert determined the company's patents would add about $100 in value to a smartphone. Apple
Apple originally filed suit against Samsung in April of 2011, accusing the Korean company of copying the look and feel of its products. Samsung countersued two months later over patent infringement and said it was at work on touch-screen phones with giant rectangular screens and rounded corners well before Apple showed up. The initial trial, which stretched more than three weeks in August of 2012, wrapped both of those cases in one, somehow squeezing together the patent infringement issues, alongside antitrust claims, and even trade dress issues.

In August of last year, a nine-person jury sided with Apple on a majority of its patent infringement claims against Samsung. At that time, the jury awarded Apple $1.05 billion in damages , much less than the $2.75 billion sought by the Cupertino, Calif., electronics giant. Samsung, which asked for $421 million in its countersuit, didn't get anything.

However, Koh in March ordered a new trial to recalculate some of the damages in the case, striking $450.5 million off the original judgment against Samsung. What that means is Samsung is still on the hook for about $600 million in damages, but a new jury has to decide how much else it owes.

The products in question include the Galaxy Prevail, Gem, Indulge, Infuse 4G, Galaxy SII AT&T, Captivate, Continuum, Droid Charge, Epic 4G, Exhibit 4G, Galaxy Tab, Nexus S 4G, Replenish, and Transform. The Prevail in particular racked up $57.9 million of the damages tally, which Koh said was a failure on the jury's part, since the device was found to infringe only on utility patents, and not on design patents.

 

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