One way to tell for sure if it's a hardware issue is to take a screenshot of the device (not sure of the button combo on Samsungs, but on most other devices, it's Power + Volume Down). If they appear on the screenshot, it's software. It does look like a dodgy screen though, sorry.
My other half is in a similar situation, the screen on her Nexus 7 is knackered and it's going to cost more than the cost of a new device to replace the screen.
Are you covered under warranty?