Why Samsung Stock Hit Record Highs This Week

Samsung StockWhat’s Going on with Samsung Stock?

Earlier this week, the U.S. Supreme Court sided with Samsung Electronics Co Ltd (KRX:005935, NASDAQ:SSNLF) in what analysts are calling the “design case of the century,” sending Samsung stock up to record highs.

Apple Inc. (NASDAQ:AAPL) was on the opposite side of the lawsuit, so naturally there was a heightened degree of interest in the outcome. A lower court had ruled against Samsung, saying the firm had infringed on three “iPhone” patents. The ruling included $399.0 million of restitution to be paid to Apple.

Not so fast, said the Supreme Court.

The high court overturned the decision with unanimity and, in doing so, saved Samsung a lot of money. They did not contest that Samsung had copied some design features from the iPhone, but they took exception to how the lower court arrived at the $399.0 million fee.

Here’s what happened: the lower court (which had a jury make the final decision) was supposed to look at the “article of manufacture”—in this case, the “Samsung Galaxy” series—and calculate the total profit made on the “article of manufacture.” (Source: “Supreme Court Sides With Samsung in $399 Million Patent Fight With Apple,” Fortune, December 6, 2016.)

The jury decided that the entire smartphone fit the bill, so they based their fine on all of the profit that Samsung made from the Galaxy series. It is difficult to get the conservative and liberal wings of the Supreme Court on the same side, but this logic did it in a flash.

Supreme Court Justice Sonia Sotomayor basically ridiculed the idea in her 11-page ruling.

“The term ‘article of manufacture’ is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not,” wrote Sotomayor. “Thus, reading ‘article of manufacture’ in §289 to cover only an end product sold to a consumer gives too narrow a meaning to the phrase.”

Allow me to translate this quote from lawyer-speak to English: Sorry guys, but you made a really weird assumption and we’re not buying what you’re selling.

Despite the strong opinion, Justice Sotomayor did not elaborate on how to correctly define an “article of manufacture.” She and the other seven sitting Justices just kicked the case back down to the lower court, asking for a more appropriate (and probably lower) fine for Samsung.

Unsurprisingly, this sent Samsung stock through the roof. Investors and analysts alike had been waiting for a decision, so there was a pop in trading volume. Samsung stock reached $709.95 at the time of writing.