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Thursday, August 16, 2012, 12:01 pm PT (03:01 pm ET)

Samsung witness says Apple's damages closer to $519 million, not $2.5 billion

An expert witness called by Samsung has testified that, according to his calculations, Samsung's US profit margins were 12 percent rather than 35.5, meaning Apple's damages should be limited to $519 million, well below the minimum of $2.5 billion it is demanding.

According to reports by CNET and Reuters
Michael Wagner, formerly a partner at PriceWaterhouse, was called by Samsung to refute the calculation of Apple's expert witness Terry Musika, who had said his team spent 7,000 hours and $1.75 million to analyze Apple's damages.

"I can assure you, it's not me sitting at a desk with a calculator, doing calculations," Musika said in his testimony on Monday, in which he said Samsung had earned 35.5 percent margins over the period from mid-2010 through March 2012, for a total of $8.16 billion in U.S. revenue. Apple is seeking over $2.5 billion in profits from Samsung.

Under U.S. law, Apple can demand all of Samsung's profits on offending devices if the company is found to have infringed upon its design patents. In contrast, infringement of technical patents can only result in a demand actual damages.

Nine versions of Samsung financials

Apple charged that Samsung produced nine different versions of its financials during the evidence gathering process, something that Samsung's vice president of finance and operations Timothy Sheppard did not deny during Apple's cross examination.

Due to other delays by Samsung, its own expert had only three weeks to perform his calculations. Wagner testified, "I didn't know what I was rebutting," and said, "I had three weeks to do all my work. This was an enormous amount of work in three weeks."

Wagner said that Musika's "total calculation of total profits did not include the total cost to figure out the profits," explaining that Apple's witness had left out administrative costs as well as sales, marketing and research and development. He also charged that Apple had failed to account for its own supply issues in having enough iPhones and iPads to sell while Samsung was selling its own products.

Wagner also noted that his version of Samsung's profits assumed a period beginning April 2011, as opposed to Musika's which started its profit analysis the middle of 2010, a period twice as long.

One version of costs created especially for Samsung's witness

Under cross examination, Wagner admitted that Samsung had provided him cost information that was prepared by Samsung specifically in response to Apple's suit.

Under Wagner's calculations, Samsung earned a profit margin of just 12 percent on its high end smartphones and tablets at the subject of the lawsuit. Apple's Musika had calculated a profit margin of 35.5 percent.

Globally, over in the last quarter Samsung earned only half as much as Apple while selling twice as many phones, but most of its sales are lower end models that bear little resemblance to Apple's devices.