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NO.1 Northern gripes

The Finns are being hard-nosed because they face their own hardship

IN THE historic heart of Helsinki, leviathan cruise ships can be glimpsed across the harbour ready for their next trip. Just two hours across the Gulf of Finland is Tallinn in Estonia. Continue due south and a weary traveller will eventually reach Athens. If Greece is the awkward customer among southern Europe‘s debtor nations, Finland is the stroppy partner among northern creditor nations. It has insisted on special terms on its contributions to euro-zone bail-outs since mid-2011 by getting collateral on its lending. Government ministers eschew high-flown rhetoric about European unity: the foreign minister recently caused a kerfuffle by saying that Finland has contingency plans for a break-up of the euro.

From one perspective, it is hard to see why Finland is being so obstreperous. The country thrived for the best part of a decade after it joined the single currency in 1999. And although it suffered in the recession of 2008-09 it has since made a robust recovery. Unemployment has come down from a peak of 8.7% in early 2010, to 7.5%. Helsinki‘s markets are thronged with shoppers and retail sales acr oss the country have been perky. The recovery has been sustained by strong consumer spending, supported by a sturdy housing market. The financial system is in decent shape.

Finland‘s public finances are healthy, too, certainly compared with those elsewhere in the euro area. Of the six remaining AAA–rated countries in the 17-strong zone, it is the only one not facing the risk of a downgrade, according to Moody‘s, a ratings agency. Public debt is only about 50% of GDP, much lower than Germany‘s 80%, and the government is running a deficit of about 1% of GDP this year, a paltry amount compared with those being racked up in Europe‘s debtor countries.

But from another perspective, Finland‘s performance looks disappointing. An alternative destination from Helsinki on one of those monster cruise ships is due west to Stockholm. Unlike Finland, Sweden chose not to join the euro. Until the crisis, that made little difference. Both countries did well; if anything Finland‘s performance was stronger. But over the past five years their fortunes have diverged to the detriment of Finland (see chart).

The Finns suffered a much sharper recession than the Swedes, and Finland‘s recovery has been less ebullient. Moreover, the Finnish economy has stumbled of late: GDP fell by 1% in the second quarter in Finland, whereas it rose by 1.4% in Sweden. There were special reasons why the Finnish economy contracted—in effect, growth had been brought forward to the first quarter as consumers bought cars early to avoid a tax rise. But GDP is now likely to expand by about 0.5% in 2012, says Markku Kotilainen of the Research Institute of the Finnish Economy. In contrast, Swedish output will expand by 1.3%, according to Robert Bergqvist of SEB, a bank.

In another telling comparison, Sweden continues to run a hefty current-account surplus (worth 7% of GDP in 2011) whereas Finland swung into deficit last year for the first time since 1993, a phenomenon noted with concern by Erkki Liikanen, the governor of the central bank. And whereas Finlan d‘s public debt was lower than Sweden‘s before the crisis, now it is higher.

Some of this reflects setbacks to Nokia, Finland‘s falling mobile-phone star (see article), whose share of Finnish GDP has shrivelled to an eighth of what it was at its peak a decade ago. But there are other worries. Mainstay industries, such as wood and paper production, have also been doing badly. The Bank of Finland argues that a crucial reason why exports have been doing badly is a loss of competitiveness: unit labour costs have shot up by 20% in the past five years.

The economy‘s longer-term prospects add to the gloom. In a survey of the Finnish economy published early this year, the OECD estimated that GDP would grow by just 1.7% a year between 2016 and 2030. The bills for a rapidly ageing population are coming due, as the bumper crop of babies born after the second world war retires.

The coalition government formed in mid-2011 and led by the conservative prime minister, Jyrki Katainen, has adopted measures to improve the structural budget balance by 2% of GDP in 2015. The fiscal tightening will be especially marked next year, with value-added tax on consumption rising by one percentage point. That is one reason why growth is expected to be a soggy sub-1% in 2013, according to Mr Kotilainen. But even with this dose of austerity, the ministry of finance reckons there is a ―sustainability gap‖ of 3.5% of GDP a year that will have to be closed to put Finland‘s public fi nances on a secure footing.

Along with further austerity, painful reforms are required. Finland needs to raise its retirement age. And as the OECD urged in its report, it needs to improve

public-service productivity. The government is starting to move in the right direction with its plan to reduce the number of local authorities, which are responsible for crucial public services like health, but plenty more needs to be done.

As times turn hard at home, many Finns bristle at having to bail out what they regard as profligate euro-zone countries that have not played by the rules. Mr Katainen‘s demands for collateral stem from a coalition agreement forged after the election in April 2011, which saw the eruption of the anti-bail-out True Finns, now the biggest opposition party. Even so, he is keen to present himself as a constructive negotiator rather than a troublemaker.

And despite the dislike for bail-outs, Finnish public opinion continues to favour the euro, which is also backed by both business and the unions. One reason lies in another destination that the big cruise-ships visit—nearby St Petersburg. As Teija Tiilikainen, the head of the Finnish Institute of International Affairs, points out, joining the euro had a security dimension, through binding Finland more closely into Europe and so providing a bulwark against Russia (still its largest trading partner).

Finns may not be dreaming of a future outside the single currency, but their reluctance to help makes them a prime example of the ―rescue fatigue‖ now afflicting much of northern Europe (including the Netherlands, which has an election of its own next month). That constraint is one reason why markets‘ sunny mood about the euro crisis may not last far into the autumn.

No.2 Growing disbelief

Atheists are getting both more numerous and louder

AMERICA is not an easy place for atheists. Religion pervades the public sphere, and studies show that non-believers are more distrusted than other minorities.

Several states still ban atheists from holding public office. These rules, which are unconstitutional, are never enforced, but that hardly matters. Over 40% of Americans say they would never vote for an atheist presidential candidate.

Yet the past seven years have seen a fivefold increase in people who call themselves atheists, to 5% of the population, according to WIN-Gallup International, a network of pollsters. Meanwhile the proportion of Americans who say they are religious has fallen from 73% in 2005 to 60% in 2011.

Such a large drop in religiosity is startling, but the data on atheists are in line with other polling. A Pew survey in 2009 also found that 5% of Americans did not believe in God. But only a quarter of those called themselves atheists. The newest polling, therefore, may simply show an increase in those willing to say the word.

This change may have come about because of an informal movement of

non-believers known as ―New Atheism‖. Over the past eight years, authors such as Richard Dawkins and the late Christopher Hitchens have attacked religion in bestselling books, appealing to logic and science. Mr Dawkins, a British biologist, has especially encouraged people to declare their disbelief.

Earlier this year he spoke at the ―Reason Rally‖, a gathering of thousands of secularists on the Mall in Washington, DC. ―We are approaching a tipping point,‖ he predicted, ―where the number of people who have come out becomes so great that suddenly everyone will realise, ?I can come out too‘.‖

Some are doing so loudly. When Democratic convention-goers arrive in Charlotte, North Carolina, they will be greeted by a billboard sponsored by a group called American Atheists that claims Christianity ―promotes hate‖ and exalts a ―useless saviour‖. A similar billboard mocking Mormonism was planned for the Republican convention, but no one would sell the group space.

American Atheists is also trying to block the display of a cross-shaped steel beam at the September 11th museum in New York. The beam, found in the wreckage of the World Trade Centre, was a totem for rescuers. The atheists see its inclusion as an unconstitutional mingling of church and state. The museum says the cross is an historical artefact, and that anyway it is not a government agency. Fights like this are unlikely to enhance atheism‘s growing appeal in America.

NO.3 Working partners

Unexpected co-operation, and investment, beside the Maumee river

TOLEDO, Ohio, could be any struggling city in America‘s rust belt. The view from the offices of the mayor, Michael Bell, takes in a clutch of grey skyscrapers, a minor-league baseball field (home of the Toledo Mud Hens), grain silos, strangely empty streets and, in the distance, a petrol refinery. Yet the mayor has something new to show visitors. The skyscraper to his right, housing a business hotel, now belongs to Chinese investors. In 2011 another Chinese group spent $2.15m on a restaurant complex beside the Maumee river, then a further $3.8m on waterfront land euphemistically dubbed the ―Marina District‖, once home to a power station. Just out of view is the site of what regional development officials say will be, by year‘s end, a new Chinese-owned metalworking plant worth tens of millions of

dollars.

It is early days yet. But Mr Bell—a brawny former city fire chief who won office in 2009 as an independent—has a plan to revive his city of 290,000 people. Just as Japanese manufacturers saw advantage in moving chunks of production to America from the 1970s on, Mr Bell believes that Chinese businesses are ready to seek sites in America, as rising global transport costs outweigh the benefits of cheap labour. He sees no reason why Toledo should not be on their list. He has made three official trips to China. In September some 200 mostly Chinese businessmen are due in Toledo for a conference on operating in America. Selling his city abroad was chastening, the mayor says: most Chinese had never heard of it. But as he talked, they would ―whip out their smartphones‖ and check what he was telling them: that it lies on the Great Lakes, where major interstate highways cross; is cheaper than Chicago; is home to skilled car- and glassmakers, solar-panel firms and an under-used airport; and they would go ―Aha‖.

Mr Bell is a charmer—a city poster shows him astride his Harley-Davidson, urging local youngsters to get a library card—but his quest is taken seriously by sobersided local businessmen and the state‘s governor, John Kasich, a robustly free-market Republican.

Some locals have been harder to convince. There was wild talk that Chinese submarines would lurk offshore or that Chinese firms would foul Lake Erie. ―Stupid, ignorant‖ stuff, says the mayor: the legacy of a city unused to selling itself globally. Mr Bell has wrestled with mighty local unions, especially when he sided with Mr Kasich in a 2011 dispute about collective bargaining. Workers, says the mayor, need to be ―reasonable‖. Pride in a skilled trade is no use if they are at home, unemployed.

Anxiety about China has spread well beyond blue-collar sectors, reports Tony Damon, the boss of a Toledo-based architecture and engineering firm, SSOE, which designs high-tech research centres or test tracks for clients worldwide, including—increasingly—in China. Some of his graduate engineers voice alarm about the rivals pouring out of Asian universities and worry that SSOE does so much business in China. He replies that global growth is a question of survival, not choice, and that profitable work in China keeps jobs in Ohio.

Alas, such pragmatism in Toledo is not matched by national politicians, who have resorted to some of their fieriest China-bashing when in Ohio, a must-win swing state for both parties. In July, Barack Obama boasted to a crowd near Toledo that he was filing a complaint with the WTO against Chinese duties on imported cars, such as the Ohio-built Jeep Wrangler, and accused his rival Mitt Romney of building a business career on outsourcing jobs abroad. Visiting the state on August 16th, Mr Romney‘s Republican running-mate, Paul Ryan, accused China of stealing American intellectual property, blocking market access and currency manipulation, and

accu sed Mr Obama of being a ―doormat‖ in the face of Chinese ―cheating‖.

In truth, both camps are mostly using China as a proxy—using the idea of a Chinese threat to define the other party as unwilling to defend American workers‘ interests. In their more thoughtful moments, Mr Obama and Mr Romney admit that global competition is a reality that cannot be wished away. Yet such election-year double-talk has consequences. When Mr Obama and Mr Romney ―talk that trash‖ about free trade, it makes it harder to win the trust of Chinese investors, frets Mr Bell. Both presidential candidates are ―shooting for emotion‖. His task is practical: saving his home city.

NO.4 The ECB's end of the bargain

THE RE is a lot of new euro area economic data to consider today, the most important of which is a first estimate of the euro zone's second quarter output. According to eurostat, output in the single-currency area fell 0.2% from the first quarter to the second and was down 0.4% from a year earlier. GDP dropped sharply in Italy, Portugal, and Spain, as well as in Belgium. The French economy posted zero growth for a third consecutive quarter. And Austria, Germany, and the Netherlands all managed growth in the second quarter, albeit at a generally slower pace than in the first.

New June industrial production numbers reveal that the quarter ended on a sour note across the entire euro area, including in Germany, where production was down for a second month in three. Meanwhile, a measure of German economic sentiment unexpectedly sank for a fourth consecutive month in August.

On Friday I joked that the euro-zon e periphery ought to begin tying all its reforms and austerity programmes to the level of euro-zone nominal output, the idea being that if the ECB can't maintain adequate growth across the euro zone as a whole, it is unreasonable to expect a struggling periphery to address its fiscal troubles and eliminate its imbalances with the core. Germany's economy needs to grow at more than capacity, so as to increase absorbtion of exports from the periphery. If it doesn't, the periphery can only address its imbalances through import compression, which is to say, through depression.

It might be useful to look at a recent history of nominal output in the euro zone. Growth in nominal GDP for the euro area as a whole has been on average below the trend during the pre-crisis decade. It has also declined steadily since early 2011;

nominal output across the single currency area grew just 1.2% in the year to the first quarter of 2012. Nominal output in Germany has also been below the immediate pre-crisis level, despite all the hype about the German growth machine. And German NGDP growth has also been slowing; demand rose at just a 2.2% pace in the second quarter of 2012, down from a 5.4% pace in the first quarter of 2011.

That, of course, has put the squeeze on the periphery. Spanish NGDP growth was 2.2%, year-on-year, in the first quarter of 2011 but has since dropped to just 0.1%. Italian nominal output shrank 0.6% in the first quarter, while Portuguese NGDP shrank 1.8% and Greek NGDP fell 5.6%.

The ECB has permitted this dangerous slowdown because it focuses obsessively on inflation, and consumer price inflation has been above 2% since late 2010. That's a potentially fatal error. Plummeting demand will eventually bring inflation down, at the cost, perhaps, of unsustainably painful contractions around the periphery. Meanwhile, the ECB's choice to preside over a steady slowdown in demand growth, and a consequent squeeze on the periphery, is exacerbating the financial crisis and putting great pressure on ECB officials to take all sorts of extraordinary action. The inflation obsession is leaving the central bank more involved in the economy and more politically overextended than it would be if it focused on maintaining stable growth in demand.

NO.5 Pressure from all sides

Germany is beginning to feel the effects of falling global demand. Manufacturing sector data for its economy in a flash estimate by Markit for August 2012 was slightly better than that recorded in the previous two months, at 45.1 against 43 in July, but the overall output level remains low. The number sits below the important 50-point mark, indicating the economy is likely to be contracting. PMI indices tend to be decent leading indicators of GDP, so the flash estimate is worrying.

Other data add to expectations that German productivity might show signs of greater strain during the third quarter. Official German government statistics confirmed actual GDP contracted by 0.2% between the first quarter of 2012 and the second from 0.5% to 0.3%.

Despite being relatively robust against the effects of the financial crisis, Germany may be shedding some of its former resilience. A survey of German businesses in April and May 2012 by a national trade body reported a squeeze on demand from elsewhere in Europe, showing impact of the euro-zone debt crisis. According to

DeStatis, 71% of Germany‘s overall exports depended on European markets in 2011, 59% of which were euro members. With several of those economies undergoing aggressive austerity programmes, it seems unlikely demand there will recover anytime soon. In the event of a prolonged slowdown, Germany‘s dependency on its fellow members within the currency union for trade means its domestic economy could be badly affected.

There are still some chinks of light. The Association of German Chambers of Industry and Commerce (DIHK) reckon that German businesses have sought to shift their production towards demand outside the euro area. Exports had therefore held up relatively well, the trade body said. Asia is one such alternative market, having made up 19% of Germany‘s exports in 2011. But dark clouds are looming, as China‘s growth has weakened. In the second quarter of 2012, China recorded its slowest GDP growth since 2009 at a rate of 7.6% and below IMF expectations for that year. China‘s prospects look set to decline further in the third quarter, with HSBC analysis revealing poor Chinese manufacturing PMI data at a nine-month low of 47.8. As a consequence, Germany faces the loss of a sizeable market in which to potentially expand its exports. Given the economic performance of Asia as a whole tends to be reliant on Chinese growth, there could be knock-on effects to loss of demand elsewhere.

Hope that American demand for German goods can sustain its exports are fading too. German businesses were previously being sustained by America, DIHK argued in early summer 2012. But America has also seen a growth slowdown, from 2% in the first quarter of 2012 to 1.5% in the second quarter. It now looks like Germany, the advanced economy that has fared best during the recent crisis, is starting to sink too.

NO.6 Arrested development

America and Europe are relying on private firms in the global R&D race

IT IS a font of economic growth. Research and development (R&D), the hunt for new ideas, products and processes, enhances productivity and generates well-paid jobs. It plays an important role in keeping economies growing after they have industrialised. It has positive spillover effects on the number of employees firms hire, and on the wages of low-skilled workers in high-tech sectors. These public benefits help explain why R&D activity has historically been supported by large amounts of government cash. But public spending on research is in secular decline, leaving private firms to pick up the slack. This funding switch has already left Britain lagging in the global R&D race, and may yet put America at risk, too.

Private firms have plenty of incentive to shell out, of course. The companies that spend most on R&D tend to be in computing, cars and drugs. Top of their respective industries in 2010, according to Booz, a consultancy, were Microsoft, a software firm; Toyota, a car manufacturer; and Roche, a pharmaceuticals firm. Last year Microsoft spent $9 billion on R&D. Its 850 PhD scientists and 40,000 developers are mainly preoccupied by cloud computing. Toyota spent ￥730 billion ($9.2 billion); its hybrid cars trace their origins to 15 research centres which investigate new materials and fuels. Roche, which has over 330,000 patients enrolled in clinical trials, spent SFr8 billion ($9 billion).

Nonetheless, ensuring that private firms do enough R&D is a problem because its public benefits are likely to be higher than the private benefits (ie, profits) that go to firms. Even with patent systems to protect innovators, genuinely new inventions diffuse so that copycats and competitors benefit. These knowledge spillovers are good for the economy as a whole, but may be bad for the firm that made the original discovery. In a 2010 paper* that looked at data from American firms, Nicholas Bloom of Stanford University and Mark Schankerman and John Van Reenen of the London School of Economics found that the public benefits of R&D were roughly double the private benefits. The data also suggested that the optimal rate of R&D would be twice as high as the actual rate, and possibly higher.

Patent leathering

The simplest response to this problem is direct government funding. This was the favoured post-war model, especially in America during the space race. In the

mid-1960s space exploration received around $25 billion a year from the taxpayer, measured in today‘s dollars. Public funding for military research was also buoyant. At its 1964 peak federal R&D hit close to 2% of American GDP. But the share of publicly funded research has since fallen sharply in some countries. In America the ratio of public R&D to GDP has fallen by half since the 1960s. In Britain the ratio fell by the same amount over a shorter period, dropping from 0.31% in 1986 to just 0.17% in 2009, the lowest level in the G7 group of advanced economies. This contrasts with sharp growth in public R&D spending in Japan, Germany and South Korea.

A fall in government spendi ng places the onus squarely back on firms‘ private R&D efforts. In America this public-to-private switch has been relatively successful. Firms have increased their R&D spending faster than GDP, so that they have offset the reduction in government support (see left-hand chart). Even so America‘s overall R&D-to-GDP ratio has fallen behind South Korea‘s; China is catching up fast (see right-hand chart). Europe as a whole has a weak R&D-to-GDP ratio, despite German efforts. It currently stands at around 1.9%, far below a European Union target of 3%. Britain‘s position is particularly poor. Unlike in America, business R&D has fallen in tandem with public spending, dropping from 1.5% of GDP in 1986 to 1.1% in 2009. Of rich countries, only Italy looks worse.

Three things in particular help influence firms‘ R&D spending. The first is tax treatment. America was quick to offer tax breaks, introducing ―research and experimentation‖ tax credits in 1981. This reduced firms‘ tax liability by 20% of their R&D costs, so $100m spent on research in effect cost only $80m. In a 2002 paper Mr Bloom, Mr Van Reenen and Rachel Griffith of Manchester University looked at R&D tax credits in nine advanced economies between 1979 and 1997, finding that a 10% fall in R&D costs produces a long-run 10% increase in R&D spending.

Merger policy is the second thing that can influence R&D. Competing firms race to be the first to invent new products; one of the rationales for merging with a rival can be to dull this competition. The pharmaceuticals industry has seen massive consolidation, for example: of 42 American drugs firms that existed in 1988, only 11 remained in 2012. Case studies suggest this may reduce R&D growth rates. In the six years before their 1999 merger, Astra and Zeneca increased R&D by an average of 19% a year. In the six years after AstraZeneca‘s R&D growth was just 1% a year.

Third, firms may face pressure from shareholders to rein in R&D budgets. Research is a current cost that delivers benefits in the distant future (although the drugs industry shows that pay-offs can disappoint). There is survey evidence that bosses choose to scrimp on R&D in order to hit earnings targets or to pay larger dividends to investors.

Britain‘s listless performance in private R&D spending is ex plained by all three of these factors. Britain was a tax laggard, introducing credits only in 2000. Much of its private R&D spending is down to drugs and services industries, where mergers are rife. And a recent government-sponsored report on equity markets found a lack of long-term decision-making by investors. But America should not relax. It looks increasingly stingy in its tax treatment of R&D as other countries catch up; mergers and short-termism are a concern in America, too. Relying on private firms to power R&D should mean giving them every incentive to do so.

NO.7 Copy that

AFTER a jury in a federal court in California ruled on August 24th that Samsung had violated some of Apple‘s patents, one wag online began referring to the South Korean company as ―Samesung‖. But for Samsung, the verdict is no laughing matter. As well as vindicating Apple, the jury awarded it $1 billion in damages—an amount that could be tripled because Samsung is deemed to have ―willfully‖ copied some aspects of Apple‘s wildly popular iPhone and its iPad tablet computer.

The outcome of the case will have significant repercussions in the tech world. For a start, it will encourage Apple to lob even more lawsuits at firms it believes are ripping off its intellectual property. It will also encourage other companies that make smartphones and tablets either to license patents from Apple or to modify the design of products to minimise the risk they will be hit with lawsuits too. And the whopping size of the damages will intensify the debate over whether or not America‘s system for protecting innovations needs revamping.

Samsung has already made clear that it intends to appeal against the ruling, a process that could take months or, more likely, years. But legal experts think the chances of getting it overturned are slim. The jury concluded that the company had violated a number of Apple‘s patents covering things such as a ―rubber-banding‖ feature in its firm's operating system, which makes lists jump back when pulled beyond their l imit, and a ―pinch-and-zoom‖ feature which is now found in a wide range of mobile devices. It also upheld Apple‘s claim that Samsung had infringed on its design patents by copying aspects of the iPhone's design, such as the system used to display icons.

At the same time, the jurors tossed out Samsung‘s charge that Apple owed it money for violating several of its patents, including one that allows a user to listen to music in the background while carrying out another task on a device. On the same day that the American ruling came out, a court in South Korea that had been hearing a similar case between the two firms concluded that both were guilty of violating patents and banned some of their devices from being sold in the country. But because America is the world‘s largest market for consumer electronics, the Californian ruling will have a far bigger impact.

The fight between the two companies had been brewing for some time and was a litmus test for Apple‘s determination to thwart the progress of Android, a rival mobile operating system championed by Google and embraced by Samsung and a host of other mobile-device makers. (Gartner, a research firm, says that more than two-thirds of the smartphones shipped in the second quarter of 2012 were powered by Android.) Before his death last year, Apple‘s co-founder, Steve Jobs, told his biographer Walter Isaacson that he believed Android had stolen important features from Ap ple‘s iOS operating system and said he would wage ―thermonuclear war‖ on it.

His successor, Tim Cook, who celebrated his first year at the helm of Apple on the same day that the court ruling came out, is n‘t about to declare a truce. During the trial, the notoriously secretive American firm revealed details about its design process and put on the stand a couple of its most senior executives. It also crowed about the verdict. In a statement the firm thanked the jury for sending ―a loud and clear message that stealing isn‘t right‖ and said that the evidence presented in court ―showed that Samsung‘s copying went far deeper‖ than even Apple had suspected.

Samsung, unsurprisingly, had a different view of the outcome, describing the ruling as ―a win for Apple, and a loss for the American consumer‖. ―It is unfortunate,‖ it added, ―that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies.‖ The South Korean firm did, however, have a couple of consolation prizes: the jury found that its Galaxy Tab tablet computer had not copied the iPad‘s design, as Apple claimed, and it refused to grant Apple th e full $2.5 billion in damages it had asked for.

Robert Scoble, a tech pundit, has even argued that the outcome of the case could be seen as a victory for Samsung on the ground that the penalty is a small price to pay for copying stuff that has helped the firm become a powerhouse in mobile devices. But other experts have pointed out that Apple has a huge stash of patents that it is now likely to defend more aggressively. And it is bound to step up its efforts to have offending Android devices banned from sale. The firm has already asked for a preliminary injunction against Samsung to stop it selling the products that infringe on Apple‘s patents in America. A hearin g is set for September 20th.

As a result of all this, makers of Android devices will either have to fork out money to license Apple‘s technology, which will push up the price of their gadgets, or alter the design of their products sufficiently to shield them from legal challenges. That could slow the roll-out of new devices in the short term. But it could also spark a new round of innovation in the long run, as firms in the Android ecosystem seek to differentiate their offerings to protect them from more legal strikes by Apple.

The case will also stir up further debate about the way America‘s patent system operates. Its fans are already hailing the California ruling as proof that the patent system protects inventors and that its benefits outweigh the costs. But critics will seize on the ruling as evidence that the litigation frenzy and a proliferation of software patents are having a chilling effect on innovation, leaving society worse off. If Samsung pursues its appeal all the way through the America's legal system, the Supreme Court may end up having to decide which camp is right.