Thus far almost everything has gone according to
plan for gadget maker Apple, Inc. (AAPL),
in the company's quest to kill U.S. sales of top Android phone maker HTC Corp. (SEO:066570) with
litigation. Apple has won
a single-judge preliminary ruling from the U.S. International Trade Commission.
If that ruling upheld by the greater six judge panel, HTC's sales to the
U.S. will almost certainly be blocked, pending some sort of action.Many were very disappointed to hear this news. After all, HTC's smart phones like the Thunderbolt and EVO 4G, are some of the most popular and iconic Android models on the market. Many expressed outrage that Apple could remove HTC from the U.S. market, if successful. Clearly this was an emotional issue, as HTC, a cheeky underdog, has endeared itself to many.
But it's far from game over for HTC. The
company still has a variety of viable options -- though some are less appealing
I. First Line of Defense: The Final Ruling
HTC's most desirable spot to make its stand is
when the full ITC panel convenes to make its final determination. The
ITC's staff gave a recommendation
against Apple's infringement allegations in an early April evaluation
of the case, so HTC has to think that at least some at the ITC may be on its
One thing HTC can argue is that the patents are
overly broad and generic.
Patent No. 6,343, 263, one of the two patents that the ITC judge found HTC
to violate, was filed in 2002, but covers virtually every video and music
capable mobile cell phone/tablet in existence, as well as internet television
In 2002, Apple's only devices to use this kind of
real-time processing were its personal computers. Further, three years
earlier in Japan, Kyocera Corp. (TYO: 6971) had deployed the Kyocera
VP-210 "Visual Phone" which used signal processing similar to what
Apple's patent describes to deliver video chats. This may provide
evidence of "prior art" -- even in the mobile sector -- weakening
Apple's claim on this patent.
The patent also makes no mention of
"cellular" or "mobile" applications, meaning that it likely
also covers real-time video and audio coprocessors in personal computers of all
kinds -- something there's a rich history of development of, dating decades
back. It's hard to believe Apple could claim ownership to real time video
processing on PCs, which its patent appears to (attempt to) cover.
The other patent -- U.S.
Patent No. 5,946,647 -- is a software patent covering interpreting
text. Specifically, it covers mechanisms to spot "special"
text, like phone numbers or shipment tracking numbers inside a text
communication, such as an email, text message, or instant message.
Again, this idea is very generic and does not
apply specifically to smartphones. In fact, it was granted in 1999, well
before the first "smart" cell phone hit U.S. shores. Microsoft
and a variety of other companies include features in word processing software
and other utilities to find and automatically add links to content such as
phone numbers. Similarly many web sites automatically link stocks to a
webpage with content.
If Apple had added the language "real
time" or "handheld device" to this patent, it might have been
stronger, but as it is, it merely refers to input -- this makes the patent very
vulnerable in its generic nature.
What is clear from examining these patents is that
they would be prophetic and novel if their cover
systems were explicitly stated to be directed at mobile cellular uses.
They did not make such references, so ultimately you must consider prior
art on systems such as internet-connected PCs and televisions, as well.
This, in theory greatly weakens both of the patents HTC supposedly violated.
One would think there was too much prior art to
validate such a broad claim -- but then again, at least one ITC judge seemed to
II. Second Line of Defense: The Countersuit
HTC is currently suing
Apple back, claiming it violated five of its patents. Apple's IP
library is significantly strong than HTC's, so many doubt that HTC will prevail
in proving Apple infringed on its IP.
If it did defy the odds, though, it could force
Apple into a mutual licensing agreement, similar
to what Finland's Nokia (HEL:NOK1V) did.
Apple is reportedly loath to enter into such an agreement, hoping to
simply block HTC's shipments and remove it from the market outright. But
if it's faced with the prospect of having its own shipments similarly cut off,
it might be forced into an uneasy truce under threat of mutual
destruction à la cold war era U.S. and Soviet Russia.
HTC's recent purchase
of S3 Graphics could help, in that Apple was found by the ITC to have
infringed on two of S3 Graphics' graphics chip patents. However, Apple is
reportedly looking either to purchase chips from someone who's already licensed
the IP in question from S3 Graphics, or to switch to modified chips.
Either way, whatever legal muscle S3 Graphics gives could quickly be
III. Third Line of Defense: Samsung and
Apple is using these patents to try to sue  Motorola
Solutions Inc. (MSI)
and Samsung Electronics Comp., Ltd. (SEO:005930), as
well. Both of these companies have filed countersuits ,
and moved to invalidate Apple's intellectual property involved.
Whereas HTC is young to world of patent
litigation, Samsung, in particular, is one of the world's most prolific
veterans in terms of IP. Samsung currently holds 28,700 patents in the
U.S., alone -- significantly more patents than Apple.
Even if HTC's own efforts fall flat, it may be
bailed out by these fellow veterans who join it in the trifecta of the world's
top three Android phone makers.
Again, Samsung should make a strong case that the
patents involved were overly generic and covered applications broadly tread in
IV. The Last Resort: Redesign
Ultimately, HTC has one final option for survival
-- redesigning its products. It's unclear exactly how it could escape the
broad reach of Apple's real-time video/audio processing patent, but it's
possible it could carefully craft its chips and firmware to avoid the patents
The text parsing claims would be easier to escape
-- HTC could simply eliminate this code, or put it as part of an API for use on
a per-app basis, which could be protected.
Google Inc. (GOOG),
makers of Android OS, tried to spin the loss at the ITC as merely a loss for
HTC. They stated,
"We're pleased that the ITC ruled against all of Apple’s operating system
The statement refers to the remaining eight
patents in the case, which were invalidated by the ITC. However, Google's
optimism is premature, as the OS is involved in both text parsing and media
playback. In other words, Google spin not only seems to throw HTC under
the bus -- it also is inaccurate. The ITC judge in fact upheld two of
Apple's operating system-related claims.
That means that all Android manufacturers are at
risk. Even if Apple is able to take out these manufacturers one by one,
Google may be able to spring into action, helping its partners modify their
hardware/software, so as to escape Apple's litigious grasp.
Obviously, redesign is the worst-case scenario.
If it gets this far, it likely means the ITC has blocked HTC, Samsung,
and Motorola's imports into the U.S. In that case, Android sales would be
effectively dead until the trio could scrap together new systems that ostensibly don't violate
Apple's IP in the eyes of the ITC.
HTC clearly hopes that things won't get that far.
But the overall message is clear. Apple's
preliminary victory was a serious wound to the company, but it still has ample
opportunity to escape its attacker and survive. If it and its fellow
Android makers can indeed survive, they will have put Apple in a very bad spot,
exhausting their rival’s final desperation attempt at market supremacy.
After all, the market appears to be leaning in favor of selection and
price -- globally Android is outselling the iPhone over
quote: Why would he? Microsoft owns a large chunk of Apple stocks and they have a cross licensing agreement.