Put an end to patent battle

An early settlement of the dispute between Samsung and Apple would benefit consumers and the global mobile device industry as a whole. 

An Apple Inc. iPad 2 and iPhone 4S smartphone, left, and a Samsung Electronics Co. Galaxy Tab 10.1 tablet computer and Galaxy S III smartphone are arranged for a photograph in Seoul, South Korea, On Tuesday. (Bloomberg)

SEOUL: Samsung Electronics has suffered a crushing defeat in a landmark patent battle against Apple Inc. A US jury last Friday found that the Korean smartphone maker infringed upon a number of patents held by Apple, while the American tech giant did not violate any of its Korean rival’s intellectual properties.

The jury’s judgement is widely criticised here as unfair. But it is highly likely to be upheld by the California court, dealing a serious blow to Samsung, the world’s largest mobile device producer. Samsung accounted for 32.6% of the global market in the second quarter against Apple’s 16.9%.

The nine-member jury ordered Samsung to pay US$1.05bil (RM3.28bil) in damages to Apple. The damages – much larger than expected – could be doubled or even tripled by the judge overseeing the trial, given the jury’s scathing verdict that Samsung “willfully” infringed on Apple’s coveted patents.

Samsung also faces a US sales ban on its mobile devices. Following the trial win, Apple presented to the judge a list of Samsung products it wants barred. Apple identified eight Samsung smartphone and tablet models but did not include Samsung’s new flagships, the Galaxy S3 and the Galaxy Note. Consequently, the sales ban, even if accepted by the court, is unlikely to have a serious impact on Samsung.

The US court’s ruling could also negatively affect patent battles between the two under way in nine countries over four continents. Unfavourable rulings in these countries would pour cold water on Samsung’s ambition to cement its global market leadership.

Furthermore, the jury seriously wounded Samsung’s pride by slamming it as a copycat. This is an insult hard to swallow, as Samsung has worked hard to secure leadership in mobile technology.

Given the high stakes involved, it is only natural that Samsung has decided to file post-verdict motions to overturn what it saw as the jury’s one-sided judgement. It plans to take the case to the court of appeals if its motions are rejected.

This suggests that the patent war will not end any time soon. Samsung is determined to continue the legal battle to make its case that Apple did encroach upon its hard-won patents for mobile technologies.

At the same time, Samsung is seeking to turn the tables in the next round of the battle by utilising its patents for fourth-generation technologies called “long-term evolution.”

Samsung is betting that it would be able to use some of its LTE patents as weapons against its rival because they have not been made open as industry standards. It is wondering how Apple can produce its next-generation model, the iPhone 5, without using its patented LTE technologies.

In light of Samsung’s technological prowess and deep pockets, the company will be able to overcome the grave challenge it is facing now.

For instance, it won’t have much difficulty paying the US$1.05bil (RM3.28bil) damages set by the jury, given that its net profit amounted to US$4.5bil (RM in April-June alone.

Yet Samsung should learn a lesson from the costly patent war. It is imperative for the company to transform itself from a fast follower to a first mover. It needs to go back to the drawing board to make its products truly innovative both in design and functions. It might want to risk a radical design that can differentiate its products from others.

Apple, emboldened by last Friday’s triumph, may be tempted to expand the patent war to collect royalties from other smartphone makers that rely on Google’s Android operating system. Yet it should realise that no company has ever succeeded in establishing market leadership through patent litigations. A company can only become a market leader through competition in the marketplace.

Apple also needs to know that any attempt to drive Android-based smartphone producers into a corner could backfire in the long term, as it will spur their efforts to become more innovative. With their survival at stake, they will be compelled to change the game as they cannot beat Apple at its own game.

In this regard, we urge Apple and Samsung to reach a deal that can benefit both. Apple could set royalties for Samsung at a level that would not undermine the Korean company’s earnings too much. An early settlement of the dispute would also benefit consumers and the global mobile device industry as a whole.

 
By EDITORIAL DESK

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Fake USM degrees on sale online for RM4,888 each

 Tuesday July 3, 2012

NIBONG TEBAL: Twenty people paid RM4,888 each to a syndicate that sold fake Universiti Sains Malaysia (USM) degrees, police investigations revealed.

Penang acting chief SAC II Datuk Abdul Rahim Jaffar said they banked in the money into eight different accounts under the name of a 26-year-old man, one of the three suspects arrested.

He said the syndicate promised to upload the names of the buyers onto a USM database using a special software but then did not even respond to any phone calls after the money had been banked in.

“Initial investigations determined there was no inside job,” he told reporters at the south Seberang Prai district police headquarters in Jawi, near here, yesterday.

Spot the difference: Prof Omar Osman showing the logo on a genuine USM certificate against an old one on his coat.

 

SAC II Abdul Rahim said the syndicate might have started its operations about four months ago, adding that the price of a “certificate” signified good luck.

The brains behind the syndicate is a 24-year-old woman, a former USM student.

A police source said that she had a Facebook account offering the fake scrolls which had garnered 516 “likes”.

Besides the former student, a 25-year-old woman and the male suspect were nabbed at a house in Kampar, Perak, on Saturday.
Police seized several computers and a soft copy of a USM scroll in one of the computers.

In GEORGE TOWN, USM vice-chancellor Prof Datuk Omar Osman said employers could verify with the university if they had doubts over the authenticity of certificates produced by their interviewees.

He advised employers to ask them to show their academic transcripts during the interviews. “Each bears a unique serial number of that undergraduate. This cannot be falsified.

“We also have the Gazetted Graduate Convocation Book, which is a physical database with the particulars of all the graduates.

“We have produced 120,000 graduates since our establishment,” he added.

He said other unique characteristics of a USM certificate included the university's watermark and seal.

Those who wish to verify the authenticity of USM certificates can contact 04-653 2193 or e-mail pro@usm.my.

By S. ARULLDAS and TAN SIN CHOW newsdesk@thestar.com.my

  

Ex-student behind fake degrees

Monday July 2, 2012

EORGE TOWN: The brains behind two online degree mills that allegedly churned out fake Universiti Sains Malaysia (USM) scrolls is a former student of the university.

ntv7 - "USM DEGREE FOR SALE" : THREE NABBED IN ONLINE DEGREE SCAM »

Three people have been arrested for selling fake degree certificates online.

A police source said the 24-year-old woman had a Facebook account offering such scrolls and this had garnered 516 ‘likes’.

She and two others – another woman, aged 25, and a man, 26 - were nabbed at a house in Kampar, Perak, on Saturday.

Several computers were seized in the raid. A soft copy of a USM scroll was found in one of the computers.

The source said a younger sibling of one of the suspects could be a USM student.

The university had lodged a police report on the matter, which is being investigated as cheating under Section 420 of the Penal Code.

Vice-chancellor Prof Datuk Omar Osman said the university conducted an internal investigation before lodging the reports with the police and the Malaysian Communications and Multimedia Commission on Friday.

The university has since improved the security measures of the university scrolls.

A check by The Star had revealed that a “full degree package” was priced at RM5,888 and was non-negotiable, with the document delivered within a week.

A downpayment of RM400 has to be deposited into a bank account online and a photocopy of the applicant’s MyKad e-mailed before “work” on the degree could begin.

Penang commercial crime investigations chief Asst Comm Roslee Chik said the police were investigating if there are other syndicates selling such university degrees.

Meanwhile, Higher Education Minister Datuk Seri Mohamed Khaled Nordin said those looking to get a university degree should earn the qualification.

“As far as I know, USM is the first university in Malaysia that has become the target of such a syndicate,” he said yesterday.

He told reporters at a function in Pasir Gudang that his ministry would study security methods used in other countries to stop syndicates from producing fake degree certificates and selling them to students.

Mohamed Khaled said it was currently difficult to determine if a degree certificate was genuine or not as there was no standard design for it.

By ZALINAH NOORDIN and DESIREE TRESA GASPER newsdesk@thestar.com.my 

Facebook market makers' losses total at least $100m; Share price should trade for $13.80!

NEW YORK (Reuters): Claims by four of Wall Street's main market makers against Nasdaq over Facebook's botched IPO are likely to exceed $100 million, as they and other traders continue to deal with thousands of problems with customer orders.

A technical glitch delayed the social networking company's market debut by 30 minutes on Friday and many client orders were delayed, giving some investors and traders significant losses as the stock price dropped. The exchange operator is facing lawsuits from investors and threats of legal action from brokers.

Four of the top market makers in the Facebook IPO -- Knight Capital, Citadel Securities, UBS AG and Citi's Automated Trading Desk -- collectively have probably lost more than $100 million from problems arising from the deal, said a senior executive at one of the firms.

Knight and Citadel are each claiming losses of $30 million to $35 million, potentially overwhelming a $13 million fund the exchange set up to deal with potential claims.

Nasdaq also has to contend with the outside prospect that it could lose the Facebook listing entirely after having just obtained it.

Facebook shares ended regular trading on Thursday up 3.2 percent at $33.03, about $5 short of their offering price. Action on the stock, however, has essentially become secondary to the fallout from the IPO -- its price, its size, its execution and questions about selective disclosure of its financial prospects.

Regulators including the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority and Massachusetts Secretary of the Commonwealth William Galvin are now looking into how the IPO was handled. The U.S. Senate Banking Committee is also reviewing the matter.

BROKERS UP IN ARMS

Advisers familiar with the situation said many investors are now finding out, nearly a week after the fact, that their orders were not executed at the prices they thought.

Fidelity, in a statement, said it was working with regulators and market makers on its clients' issues "and we will continue to do so until we are confident that Nasdaq has done everything it can to mitigate the impact to our customers."

Morgan Stanley is also still tending to trade orders placed by brokerage customers on Friday, two people familiar with the situation said. Nasdaq has said all orders were returned by 1:50 p.m. EDT last Friday, but a Morgan Stanley Smith Barney source said it did not get trade information in a "systemic, orderly way.

Late Thursday, the company held a call with its brokers and told them adjustments would be made to thousands of trades so that no limit orders would be filled at more than $43 a share for stock from the IPO day, a person familiar with the call said.

While brokerages may have received confirmation of trades made on Friday, many were still handling customer disputes over what price they received on the trades, officials said.

The question is "who is going to eat the cost" of compensating those investors, said Alan Haft, a financial adviser with California-based Kings Point Capital LLC, which has $200 million in assets.

One prominent plaintiffs lawyer said what happened with Facebook was reminiscent of the dot-com bubble.

"This is just another spin on the same game of unfair treatment of individual investors," said Stanley Bernstein of Bernstein Liebhard. He chaired the plaintiffs' committee in an IPO class-action suit challenging the role of investment banks in more than 300 IPOs between 1998 and 2000. The litigation ended in a $586 million settlement in favor of the plaintiffs.

MARKET MAKERS LOOM

The claims by market makers Knight and Citadel could end up dwarfing some of the brokerage issues, though.

"They are certainly facing the specter of some significant lawsuits if this pool is not enough," a source familiar with Knight's situation said of the Nasdaq claims pool.

Citadel has sent its losses to Nasdaq for potential compensation, a source familiar with the matter said. Citadel's hedge fund was not affected.

The head of trading at Instinet said it still had no idea when Nasdaq would respond to requests for accommodation -- essentially, compensation for the order problems -- or if those requests would be honored.

"Were gonna be looking at a loss on our books" if Nasdaq does not honor the requests, Mark Turner said. "We basically made most of our clients whole because Nasdaq told us to go through the process and file for accommodation. If Nasdaq does not accommodate us we're going to end up taking a loss."

"I don't know that I want to put a dollar amount on that but it's not nearly as significant as Knight's ($30-$35 million)," he said.

Citadel and Knight, as market makers to the Nasdaq, honor their clients' buy, sell and cancellation orders. The orders are supposed to be processed by the exchange within milliseconds, but there was a nearly two-hour delay in processing Facebook orders at the Nasdaq.

During that time, market makers had no idea where their orders stood. And in reality, the price clients bought or sold at was sometimes different than the price they actually got.

For example, Facebook shares began trading with an opening cross price - the first price at which those not in on the IPO could buy or sell - of $42 per share. If an order to sell 10,000 shares at $42 went in at that time, but wasn't filled until later in the day when shares were trading at around $39, a market maker like Citadel or Knight would make up the difference - in this case, at a cost of $30,000.

FEWER PROBLEMS ELSEWHERE

Several analysts who cover exchanges said Nasdaq's legal liability should be limited, though. According to the analysts, securities rules give Nasdaq wide discretion in determining what, if any, compensation it should pay to customers who claim that they suffered losses due to trading execution.

Under exchange rules, Nasdaq's liability regarding client losses from certain trading issues is limited to $3 million a month. Market makers will be arguing that Nasdaq was so grossly negligent that its actions during the IPO opening override the limits, said a source with knowledge of Knight's situation.

Other firms said they did not have similar problems to those of Knight, raising questions about the scope of the losses.

"The problems were where people were trying to cancel orders; we didn't have that," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "Because we didn't have a problem doesn't mean there weren't problems."

E*Trade Financial Corp said its market making operations realized losses of "well under a million dollars."

Charles Schwab Corp had a "small number" of the "tens of thousands of clients" who traded Facebook whose issues still have not been resolved, a spokesman said. "Each one requires some analysis to resolve, which can be time consuming."

Shares of Nasdaq fell 1 cent to $21.80 on Thursday. As of Thursday's close the stock was down 5.2 percent from its last close before the Facebook debacle. Over the same period NYSE Euronext is down just 0.1 percent.

The slide in the shares is adding to the pressure on Nasdaq Chief Executive Robert Greifeld, who defended the exchange's performance at its annual meeting last Tuesday.

Facebook Inc (NASDAQ) 

  vs. Technology Services  News

Chart

 

By Mark Hulbert, MarketWatch

May 25, 2012, 12:02 a.m.

Facebook’s stock should trade for $13.80 
Commentary: Here’s a fair-price calculation for Facebook

CHAPEL HILL, N.C. (MarketWatch) — Well, then, what should be the price of Facebook’s stock? 

Rather than endlessly rehashing the events that have taken place over the last week, it is this question that investors should be asking. Surprisingly, however, few are doing so. 

And yet, courtesy of a just-released study, calculating a fair price for Facebook’s stock isn’t as difficult as it might otherwise seem. 

The study is entitled “Post-IPO Employment and Revenue Growth for U.S. IPOs, June 1996–2010.” Its authors are Jay Ritter, a finance professor at the University of Florida, and two researchers at the University of California, Davis: Martin Kenney, a professor in the Department of Human and Community Development, and Donald Patton, a research associate in that same department. ( Click here to read a copy of their study. )

The researchers found that the revenue of the average company going public between 1996 and 2010 grew by 212% over the five years after its IPO. Assuming Facebook’s revenue grows just as fast, and given that the company’s latest-year revenue was $3.71 billion, its annual revenue in five years’ time will be $11.58 billion. 

Click to Play

NYSE, Nasdaq face off for Facebook

After the fumbled IPO for Facebook, the NYSE is renewing efforts to lure more stock listings away from its rival, Nasdaq, Photo: AFP/Getty Images.

Since Facebook FB +3.22%   is most often compared to Google GOOG -0.95%  , let’s assume that its price-to-sales ratio in five years will be just as high as Google’s is currently: 5.51-to-1. You could argue that this is an overly generous assumption, of course. But it nevertheless means Facebook’s market cap in five years will be just $63.8 billion — 30% less than where it stands today. 

Assuming that the total number of its shares stays constant, that works out to a price per share of just $23.26 — in contrast to its recent closing price of $33.03. 

Ouch. 

Actually, however, the news is even worse: No one is going to invest in Facebook shares today if its price will be 30% lower in five years. So, in order to entice someone to invest in it today, Facebook needs to offer a handsome return. Assuming that its five-year return is equal to the stock market’s long-term average return of 11% annualized, Facebook shares currently would need to be trading at just $13.80. 

Double ouch. 

Don’t like that answer? Try focusing on earnings rather than sales, and you get only a marginally different result. Assuming its profit margin stays constant (instead of falling as it could very well do as it grows), assuming its P/E ratio in five years will be just as high as Google’s is today, and assuming that its stock will produce a five-year return of 11% annualized, Facebook’s stock today should be just $16.66. 

How can Facebook investors wriggle out from underneath the awful picture these calculations paint? By assuming that its revenue and profitability will grow faster than the average IPO between 1996 and 2010 — and not just by a little bit, either, but a whole lot faster. 

Of course, it’s always possible that Facebook will be able to pull that off. 

But, as Professor Ritter pointed out to me earlier this week, “the bigger a company gets, the harder it is to maintain percentage growth.” And Facebook is already huge — larger, in fact, than all but 47 other publicly traded companies in the U.S. 

So my back-of-the-envelope calculations for this column could very well be too optimistic rather than too pessimistic. 

Given all this, Ritter said that a market cap “of $63 billion ... five years from now seems like a very reasonable scenario.” 

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

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