Kellogg School of Management at Northwestern University

Apple iPhone 4 and Samsung Nexus S

Apple and Samsung are currently facing off in 50 lawsuits in ten countries, a patent war on a scale that’s unprecedented. But none of those suits have gone to trial yet, so on May 21, lawyers from the two companies will meet in San Francisco in an attempt to negotiate a settlement and avoid the courtroom.

These are certain to be high-stakes negotiations, and their mediator, magistrate judge Paul Grewal, has a difficult task ahead of him. To succeed, Grewal “has to focus on both facets of the relationship, the dispute and the underlying supplier/buyer relationship,” said Jeanne Brett, a professor of management and organizations and an expert on negotiations. “If the mediator focuses simply on the patent dispute, that narrows the scope of the possible options for resolution.”

The potential benefits to settlement are huge for both companies. Pursuing litigation in 50 separate suits in ten different counties would be extraordinarily expensive, Brett said, and both firms would run the risk of being distracted from what they do best—selling smartphones.

Those facts will give Grewal some options when negotiations begin. “He ought to try to see if they can reach a resolution that recognizes the ongoing relationship on the supply side without determining who is right and who is wrong on the patent side,” Brett said. In preparation, Brett suggests reviewing the IBM-Fujitsu case from the late 1980s would be helpful. (Brett and her colleagues have written about those contentious negotiations.) The two companies clashed when IBM claimed Fujitsu illegally copied some of its server software. In the end, they settled out of court after a lengthy negotiation.

Grewal’s experience with intellectual property—he worked in a private practice specializing in patent litigation before being appointed to his current judgeship—may or may not beneficial. “It is increasingly the tendency when searching for a mediator to search for one who is an expert in the subject matter of the dispute,” Brett said.

“There are pros and cons to this,” she pointed out. On the positive side, an expert mediator does not have to learn much about a subject to get up to speed. They may also bring more creative ideas to the table, which can hasten a settlement, Brett said. But on the other hand, expert mediators may focus too much on legal aspects, potentially ignoring “the whole picture of the relationship,” Brett adds. Furthermore, experts may unwittingly bring their own views to the table, further complicating negotiations.

While Grewal’s job as a mediator won’t be easy, ultimately, the parties with the most at stake are Apple and Samsung. “The challenge they face is to see if they can arrive at a solution that does not destroy the underlying, mutually profitable relationship they have on the supply side at the same time that they find a solution that both can live with on the patent side,” Brett said.

Photo by Kai Hendry.

This is the part one in a series on Apple and Samsung's patent negotiations. Read parts two, three, and four.

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