The lopsided loss is not playing well in the South Korean press

 writes in CNN Money:

FORTUNE — “While Samsung officials in Seoul weren’t expecting a convincing win in a trial held at the heart of Silicon Valley, they hadn’t been expecting such a lopsided loss either.”

So writes Kim Yoo-chul in a piece published Sunday afternoon in theKorea Times, the oldest English-language daily in South Korea.

Under the headline “Samsung scrambles to recover after uppercut” Kim goes on to report:

Samsung executives were still reeling in shock Sunday, but provided no clear hint on the company’s next move in the showdown with its industry archrival. It’s widely expected that Samsung will appeal, but the outlook for success in the appeal now looks rather murky.

“It’s absolutely the worst scenario for us,” a senior Samsung executive said as he rushed into the company’s compound in southern Seoul.

Inside the building, Choi Gee-sung, former Samsung Electronics CEO and now the head of Samsung Group’s corporate strategy division, was holding an emergency meeting attended by Shin Jong-kyun, the company’s mobile devices chief, and Lee Dong-joo, lead marketing official.

Even if Samsung challenges the pro-Apple (AAPL) verdict, the odds are long. “As far as I know,” an unnamed Samsung official told Kim, “it’s very rare for the presiding judge to make a decision going against the verdict by jurors.”

You can read the rest of Kim’s piece here.

Snap! Commentary

Koreans Think Different

Korean verdict on the case before a three-judge panel in the Seoul Central District Court ruled that the Korean firm didn’t infringe on Apple’s designs, while the American firm copied two of Samsung’s wireless patents.

In fact, the court ordered Apple to pay Samsung 40 million won in damages, while Samsung was ordered to pay Apple just 25 million won, with the court recognizing Apple’s claim that its rival infringed on its “bounce-back’’ touch-screen feature.  The ruling calls for Apple to stop selling iPhone 3GS, iPhone 4, iPad 1 and iPad 2 in Korea, while Samsung must stop selling the Galaxy S, Galaxy S II and Galaxy Tabs. The court didn’t accept the claim by Apple that Samsung copied the iPhone design and failed to meet its commitment for FRAND principles. “Samsung Electronics didn’t copy the iPhone,’’ said the court. Samsung is seeking a 2.4% portion royalty payment for each Apple device, while latter is insisting the former’s request is “too much’’ considering its earlier pledge to abide by FRAND (fair, reasonable and non-discriminatory) standards.
Legal experts say both Apple and Samsung will likely appeal the ruling.

Is it Time Yet to Respect Intellectual Copy Rights?

Years of Lopsided Trade: The Republic of Korea has led a charmed existence since the Korean War, benefiting from a free defense compliments of the U.S. taxpayer and exempted from standards of reciprocal trade, as it increased its economic profile through massive exports to the U.S. even as they imposed strict barriers to U.S. exports.

U.S. Subsidization of the Korean Economy: Foreign economic assistance was essential to the country’s recovery from the Korean War in the 1950s and to economic growth in the 1960s and saved Seoul from having to devote scarce foreign exchange to the import of food and other necessary goods to rebuild. It also freed South Korea from the burden of heavy international debts during the initial phase of growth and enabled the government to allocate credit in accordance with planning goals (see The Post War Economy , chapter. 1). From 1953 to 1974, the nation received some US$4 billion of grant aid. About US$3 billion was received before 1968, forming an average of 60% of all investment in South Korea. As President Park Cheong Hee’s policies took effect, the dependence on foreign grant assistance lessened, and during the 1966-74 period, foreign assistance constituted about 4.5% of GNP and 20% of all investment.

Apart from grant assistance, other forms of aid were offered; after 1963 South Korea received foreign capital mainly in the form of loans at concessionary rates of interest. According to government sources, between 1964 and 1974 such loans averaged about 6.5% of all foreign borrowing, although other data suggested a much higher figure. International Monetary Fund data showed that imports financed through such means as foreign export-import loans with reduced rates of interest totaled 11.6% of all imports from 1975 to 1979.

Korea depended completely upon military aid and equipment from the United States until the mid-1960’s. In 1971, the Ministry of Defense set up the DPA as an integrated procurement agency, and it began to contribute to the modernization of military equipment used by the country’s armed forces and strengthened the nation’s war potential by streamlining the process of acquiring war materiel. In recent years, the U.S. troops for some reason remain in Korea, and Korea has shared more of the cost of their maintenance, although less than other host nations like Germany.

During the mid-1960s, South Korea’s economy grew so rapidly that the United States decided to phase out its aid program to Seoul, and from the late 1960s to the mid- 1980s, development was financed with a series of foreign loans, two-thirds of which came from private banks and suppliers’ credits. United States economic assistance ended in the early 1970s, from which time South Korea had to meet its need for capital investment on the competitive international market and, increasingly, from domestic accounts. The government and private industry received funds through commercial banks, the World Bank.  In April 1989, the United States Department of the Treasury accused South Korea of continued “manipulation” of the South Korean currency to retain an artificial trade advantage. In May 1989, South Korea avoided being called an unfair trader by the United States and forestalled possible United States trade sanctions, but had to promise to open up its agricultural market, ease investment by foreigners, and remove many import restrictions.

The Free Trade Agreement – Another Nail in the Coffin: The recent FTA agreement with the US, pushed through Congress without a rigorous public debate, has been a lopsided victory for Seoul, resulting in an explosive windfall for Korean business, according to  Martin Crutsinger of The Associated Press.

The trade figures for April, the first full month under the trade deal showed that the U.S. trade deficit with Korea tripled in one month as imports from South Korea jumped 15% to $5.5 billion in April, while U.S. exports to South Korea fell 12% to $3.7 billion, causing the U.S. trade deficit with Seoul to surge to an annual rate of $22 billion.

The deficit rose again in May to $2 billion.

With the release of trade data for the month of June, four months’ results still don’t look good.  In the four months that this trade deal has been in effect, the U.S. racked up a trade deficit with South Korea of $5.45 billion, an 18% increase over the trade deficit during the same four months last year for an annualized trade deficit of $16.35 billion.  Only once historically, in 2004, was the trade deficit with South Korea worse.

The charts below, presented by the Economic Policy Institute in advance of the FTA  compare the U.S. International Trade Commission (USITC) estimates of the impact of the forthcoming free trade agreement with Korea to EPI’s own calculation. Unlike USITC’s forecast of a small positive impact, EPI’s research shows it would increase the U.S. trade deficit with Korea by about $16.7 billion, and displace about 159,000 American jobs within the first seven years after it takes effect.

The USITC has a history of vastly underestimating the negative impacts that free trade agreements have on the U.S. economy. In 1999, it estimated that China’s entry into the World Trade Organization would increase the U.S. trade deficit with China by only $1.0 billion, and have no significant impact on U.S. employment.  In fact, the U.S. trade deficit with China increased by $185 billion between 2001 (when China entered the WTO) and 2008, and 2.4 million U.S. jobs have been displaced or lost. The U.S. trade deficit with Mexico also rose rapidly after the North American Free Trade Agreement (NAFTA) took effect in 1994.

Auto “Theft”: Reuters columnist David Cay Johnston went to South Korea to see for himself whether or not the trade deal is working.  Check out his report and watch the embedded video.

In 2011, the U.S. imported 430,000 vehicles from South Korea, and exported only 22,000 to them.  Through June of t2012, the U.S. auto exports to South Korea were only about 12,950 vehicles.

Columnist David Cay Johnston explains why the Free Trade Agreement with Korea was just another corporate giveaway that hurt U.S. autoworkers:

…based on previous major trade deals, the details of this one and a host of Korean business and cultural barriers — I think a much more likely scenario is the destruction of more than 150,000 American jobs over the next few years… Last year, American-made cars sold in the thousands, a fraction of one percent of car sales in South Korea. In June the best-selling American model was the Ford Explorer, with just 109 sold, less than a tenth of one percent of vehicles sold that month. In the United States, sales of Hyundai Motor Co and Kia Motors Corp, which are owned by the same company, grew 26 percent last year and accounted for every 11th new car sold…

The opening of Hyundai and Kia assembly plants in the United States may seem like a benefit to the U.S. economy. But taxpayers covered much of the cost. And the value-added work in cars comes less from assembly than from making precision high-strength steel parts, especially in the drive train. To the extent that parts are made in South Korea and shipped to the United States for assembly, the added economic value tends to remain overseas.

Americans appear to like the discounted prices on Hyundais and Kias, but don’t seem to realize that they come at a very dear price in American jobs.

A Legacy of Piracy and Dumping: Today, Korean Kia and Hyundai automobiles are dumped on the U.S. market, subsidized by exorbitant prices charged to Korean Kia and Hyundai consumers, while imports of U.S. goods continue to be negligible.

The Samsung Group, Korea’s largest conglomerate, with 62 affiliates, dominates life in Korea like no other company in history. It represents 15% of the nation?s total economic activity, 25% of the capitalization of the KOSPI stock market and the taxes it pays represent almost 10% of total government income. It has built its business over the years largely through intellectual piracy of U.S. product inventions. And only now that an American company has finally stood up to the inequity, are we told that Samsung is “in shock” over a lopsided ruling.

No More Free Ride for Samsung: Korea, now entering a mature economic phase, has at long last been told to play fair. Too little too late, perhaps, but it’s time Korea awoke from  its fantasy world and begin to innovate to earn their keep, rather than continue to rely on intellectual theft. It’s a tough lesson in accountability, but given the long acculturated habit of dishonesty, and the Korean court verdict, I have no confidence that they will comprehend the message. And the battle isn’t over. Look for new developments, including these.

  • Samsung will appeal both rulings.
  • In the U.S. case, since Samsung was found to have knowing and willingly infringed Apple’s various patents,  Judge Koh may impose special damages, whichcould go as high as $3 billion.
  • Expect Judge Koh to issue permanent restraining orders on sales of the various Samsung products at issue to replace the temporary restraining orders currently in effect.