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  (Source: LucasFilm Ltd.)
U.S. Customs is blocking shipments of HTC One X and Evo 4G LTE "indefinitely"

Reeling HTC Corp. (TPE:2498) didn't need any more bad news.  

After a meteoric rise which placed it briefly atop the U.S. smartphone sales charts, it closed out 2011 with a deep decline in units sold.  Determined to avoid the fate looming over other troubled rivals like Research in Motion, Ltd. (TSE:RIM), HTC saw a big revitalization push, championed by a slew of impressive flagship phones, such as the HTC One X and the refreshed Evo 4G LTE.  The bid might have succeeded.

It might have suceeded had HTC not run afoul of punitive legal juggernaut Apple, Inc. (AAPL), that is.  HTC didn't need more bad news, but that is precisely what it received.

I. Data Tapping Ban Comes to Fruition

While HTC One X carrier AT&T, Inc. (T) and Evo 4G LTE Sprint Nextel Corp. (S) have some stock of the new Android smartphones, hopes of strong sustained sales may have been crushed this week.  U.S. Customs officials announced that they were freezing imports of the Taiwanese designed devices, on the grounds of Apple's successful infringement case against HTC where it scored a preliminary injunction via the U.S. International Trade Commission (ITC).

The U.S. is the second largest smartphone market in the world, and by far the largest market for HTC, whose market share in China -- the world's largest market -- is minimal.  That makes the import ban in the U.S. all the more painful.  

The ban, which was confirmed by HTC this week, took effect on April 19, following a successful ITC claim by Apple last fall, which is running parallel to Apple's multiple infringement lawsuits against HTC in U.S. Federal Court.


Specifically, Apple's import ban focuses on U.S. Patent No. 5,946,647.  The patent claims the invention of a process that converts phone numbers or addresses found inside apps into queryable objects.  Called "data tapping" for short, the feature allows you to tap a number on a webpage within the web browser or from an email inside the email client app and be redirected to the phone app to make a call to that number.

Ironically a similar feature, which recognized web and file system urls and converted them to actionable links existed in versions of Microsoft Corp.'s (MSFT) Office Suite dating back to the 1990s.  Further, other companies implemented custom software to parse office documents and create specialized actionable marked up versions in the early 2000s [example].  In short, Apple's "invention" hardly is new or novel.

However, the fact that it was granted a (re)patent on the idea of actionable text on a smartphone has enabled its legal team to successfully attack Android phonemakers.  Apple has not sued Microsoft -- another rival phonemaker -- both because Microsoft likely owns patents on similar technology that predate its patents, and because Microsoft and Apple have a broad cross-licensing agreement in place that basically prevents the companies from suing each other.  Apple and Google, Inc. (GOOG) -- maker of Android OS -- have no such agreement.

II. HTC Already Removed the Feature, ITC Bans Imports Anyways 

Ironically, HTC claims that the data tapping feature which is responsible for the ban has already been removed from its handsets.

Data tapping in action [Image Source: imgur]

HTC has shipped modified versions of Android, which have specialized browser app and email client app bills that prevent phone-numbers from being converted to actionable links.

Despite complying with the ruling, U.S. Customs (enforcing the ITC order) appears to be blocking imports "indefinitely" anyways, while it "inspects" the handsets to determine if the feature has been fully removed.  In short, HTC has tried to play by the rules, but it may lose weeks to months of sales -- millions of dollars in revenue -- due to Apple's successful litigation and the Custom department's sluggish pace and determining whether the ban should be lifted.

HTC's tone was grim in a statement it released this week, commenting:

The US availability of the HTC One X and HTC EVO 4G LTE has been delayed due to a standard U.S. Customs review of shipments that is required after an ITC exclusion order. We believe we are in compliance with the ruling and HTC is working closely with Customs to secure approval. The HTC One X and HTC Evo 4G LTE have been received enthusiastically by customers and we appreciate their patience as we work to get these products into their hands as soon as possible.

Bonnie Chang, an analyst of Yuanta Securities says there's no telling how long it might be before the ITC/Customs might lift the ban, given that they thus far have appeared to refuse to spend what would seem to be an afternoon's worth of work to verify that the feature is gone.

States Ms. Chang to Reuters, "It's really hard to tell how much longer the phones will be held up at the customs because the review has already taken a month."

HTC, like Apple, manufactures its handsets in China.  Thus an import ban is tantamout to a sales ban, once existing stock is exhausted.

III. Surprise Ban Could Spell Doom for the Troubled Android Phonemaker

Shares in the smartphone maker have plunged 10 percent this week on the bad news.

The ban on brand new handsets came as somewhat of a shock to HTC, as it had made it clear that it had removed data tapping from all new models.  Despite that, the ITC/Customs seems to have implemented a draconian import ban on the new handsets "just to check".  Previously it was thought that only older handsets, which were targeted in the case would be banned from import, pending inspection.

A Goldman Sachs Group, Inc. (GS) investors note comments, "Previously, it was expected that general exclusion order from the patent infringement referred to only old models from HTC.  However, the latest news suggest otherwise with all models (new and old) potentially at risk."

The lost revenue could be a potentially game ending development for HTC, who was already struggling.  In that regard HTC may become a martyr of sorts for Apple's critics and patent reform advocates in the United States.

Game over
A long import ban could be fatal to financially troubled HTC. [Image Source: Smart Dots]

After all, larger Android phonemakers Motorola Mobility Inc. (MMI) and Samsung Electronics Comp., Ltd. (KSC:005930) have escaped similar import bans, thanks to their large patent portfolios.  By contrast, while HTC's phones have the exact same features as Motorola and Samsung (such as data tapping), it alone has suffered a U.S. ban, thanks in part to its smaller patent portfolio and much smaller legal team.  

In that regard Apple has been accused of "picking on the little guy".  But if Apple is indeed legally "bullying" HTC, it may turn out to be quite the lucrative move.  While technophiles will likely bitterly oppose the move, most of Apple's critics were already Android buyers, and they overall represent a minority of smartphone users.

If Apple can succeed in putting HTC under such a crushing financial hardship that it collapses, the average non-technophile user stands a strong chance of converting to an iPhone, which is now on most of America's networks.  For all the frustration from the technophile and pro-Android community, there's little they can do to prevent that, as Apple's brilliant marketing machine and polished legal team roll along.

Sources: HTC [via The Verge], Reuters

Comments     Threshold

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By testerguy on 5/16/2012 12:50:08 PM , Rating: -1
Riiight OK.

So when Apple brought out the fastest ever CPU/GPU phone in the iPhone 4S, they were copying it. From.. the aliens?

Similarly, their highest resolution and fastest performing iPad is a duplicate of.... the aliens notepad?

However, when Samsung 7 months later released a phone which finally caught up, as well as a rip-off cheap version of Siri, that was startling innovation and worthy of praise?

Still waiting for them to catch up on the tablet front, but when they do, that will be revolutionary too?

Seriously, you're pathetic. Not one Android manufacturer has innovated anything. Oh, perhaps the Galaxy Note with the STYLUS!!?

By wiz220 on 5/16/2012 1:00:49 PM , Rating: 5
The CPU/GPU that you refer to is based on the design of a CPU/GPU created by ARM. The modifications done to said ARM processor were done by a company that Apple acquired. They also bought the touch screen technology that they use, they did not develop it in-house. Yes, Apple, quite innovative.

By jimbojimbo on 5/16/2012 6:02:59 PM , Rating: 5
Oh my god that is one of the dumbest commends I've read on this forum!! They were the first to use touch screen technology??? Oh man. How can you muster the intelligence to use a computer??

Next thing you'll say they were the first to have a smartphone.

By marsovac on 5/18/2012 7:56:01 AM , Rating: 3
None of that is innovation, since nothing has been innovated.

That is called improving.

Innovation is creating something new, not yet existing before. Not improving old products.

in-nova(...) where nova comes from Latin nova/novus which means NEW, not IMPROVED OLD.

By steven975 on 5/16/2012 1:12:25 PM , Rating: 5
The SGX543MP2 is not designed by Apple...Imagination Technologies (PowerVR) designed that.

Apple lightly massaged the ARM Cortex A9 and packaged it with an off-the-shelf GPU.

And if you think a dual core 800Mhz A9 is the fastest mobile's not.

Apple innovates some things. Other people innovate some things. I have a better-working but less folksy version of Siri on my OG droid that's in the closet.

I can name one innovation from other phone manufacturers...LED screens...which Apple does not have. They have LED lit LCD screens, but Samsung uses organic LED lit (AMOLED) screens. They have the highest resolution tablet screen (and I have the iPad3), but Samsung and LG designed that.

Swipe to unlock? neonode.

Apps? Palm/Handspring...i had apps on my visorphone in 2001.

3G...about 3 years late

4G...umm, yea.

They make some great stuff and I even own some of their stuff (iPad3, MBA), but they are not the be-all-end-all...they actually play it very safe on the innovation front. After all, the iPhone and iPad sync via cable...yea, I know you can do wifi now...but they sync and back up 10 years ago.

By coferj on 5/16/2012 1:36:26 PM , Rating: 5
There really needs to be an upvote or something for this. Well said.

By coferj on 5/16/2012 2:45:38 PM , Rating: 3
Apple invented capacitive multitouch.


The Capacitive Multi-Touch that Apple claims to have invented was actually invented about 6 years before they applied for the patent.

This technology was created by a company that Apple purchased in 2005, Fingerworks, the same year they applied for the patent. They were just the first to implement this technology on a mobile device. So, innovative, but not the inventor.

To be completely accurate, there were early versions of capacitive multi-touch created by CERN in the late 70's.

By sprockkets on 5/16/2012 11:51:42 PM , Rating: 4
screw that, capacitive touch was available way before fingerworks. The FIC openmoko phone demoed multitouch gestures in the google maps app.

Oh sure, apple put it all together. But they pretend they invented it all by marketing the hell out of it so the real history gets distorted.

By Cheesew1z69 on 5/16/2012 4:55:18 PM , Rating: 5
Apple invented the smartphone overnight when it launched the iPhone.
Except, they didn't.

By EasyC on 5/16/2012 1:22:23 PM , Rating: 5
LOL, your post is laughable. Let me explain why.

1) Apple isn't banning anyone over copying their CPU/GPU design now are they? No, they are trying to block an HTC phone because of a patent they had no rights to in the first place.

2) The highest resolution, yes. Is it usable? No. I had an iPad 3rd Gen.... using it for media produced an identical viewing area to that of my old Galaxy tab... 8.9. Resolution means nothing if half the pixels are black during usage... If you want a photo, I have one :) you'll also find the GT8.9 had noticeably better color depth even with an anti glare screen protector.

3) Waiting for who to catch up to what on the tablet front? I dunno about you, but I want a tablet that's useful for something other than media consumption and can charge in less than 8 hours. All they did with the iPad 3rd gen is take an iPad 2, double the GPU and quadruple the resolution. Oh, and stuff a huge battery in it because who needs to innovate battery savings? Like I said, I owned one.

You're getting all bent because someone said something against your beloved Apple, and yet I'm the pathetic one? Go back to being a sheep.

By Cerin218 on 5/16/2012 1:41:05 PM , Rating: 4
So Apple invented the tablet PC? Microsoft didn't have one late 90's?

So Apple invented the SmartPhone? Again, Preexisting technology. There was even a dual core processor in my Sprint Mogul.

Even the MP3 player was preexisting.

The IOS on the iPhone is the innovation I would give them credit for.

When Apple comes up with new technology that I haven't seen before THEN I will be impressed. Something like Wireless HDMI. THAT'S innovation. Thunderbolt. THAT'S innovation.

By mellomonk on 5/16/2012 3:18:55 PM , Rating: 1
When Apple comes up with new technology that I haven't seen before THEN I will be impressed. Something like Wireless HDMI. THAT'S innovation. Thunderbolt. THAT'S innovation.

Innovation is more then being the first to think up or create something. Lots of people & companies have ideas and even prototypes. Innovation is about applying those ideas and inventions in new and/or practical terms. Sure MS played with tablet PCs, but they went nowhere. The true 'Tablet' didn't click until the iPad. The innovation of the iPod was the iPod/iTunes combination and the ecosystem that developed around it. Smartphones where horrible (WinMo survivor here) until Apple pulled together ideas learned from the iPod and the touch screen tech to create the iPhone.

In all these cases Apple crafted combinations of tech into products that clicked with people and changed the landscape. Henry Ford didn't invent the automobile or the production line. But his Model T turned the market upside down and created the path that many others would follow. Twisting ideas, sometimes decades old, and applying them in novel ways producing product that change people's lives. Innovation.

By nikon133 on 5/16/2012 6:10:33 PM , Rating: 5
It seems - for Apple and their mob of fanatical followers - innovation is being first to patent something. Innovative patenting?

By Targon on 5/16/2012 9:01:07 PM , Rating: 1
Since when has a slight improvement in an existing idea been really innovative? Faster processor or multi-core processor is something the PC industry has been doing, so that is NOT being innovative. Saying "using this idea from a PC on a phone" is NOT being innovative.

The screen in Apple devices is very very good, but is THAT being innovative, when we have seen screen resolutions going from 320x200 back in the days of CGA and we have seen improved screen resolutions and improved pixel densities since that time. Again, while they have a good product, the basic idea of a higher quality display by itself is not innovative.

If you think about it, almost everything in the iPhone could be seen conceptually as copying from the old Palm Pilot, with improvements. Palm made a lot of mistakes, but Apple really took a lot of concepts already out there and just put them into a slick package. Siri is one of the few things that stands out as being unusual, but even voice recognition to command a computer(which smart phones can be considered at this point) has been around for a long time.

If you want real innovation, look at what Palm was doing with the Pre. Yes, the build quality wasn't great, but gesture area instead of buttons for home and back and such, card view, plus the very nice integration between applications(and yes, it had in 2009 the ability where users could tap on a phone number in a message and have it pull up the phone app to call it). If the Pre 3 were actually sold instead of discontinued, it really would have gotten the attention of a LOT of people. Damn Leo Apotheker!

"And boy have we patented it!" -- Steve Jobs, Macworld 2007

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