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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

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Patents, Legal System, Experience,
By ptmmac on 5/16/2012 2:16:56 PM , Rating: -1
Patents are not the simple idea that people seem to think on this blog. Whether you like software patents or not, they do exist. Data recognition in a database like excel is not the same thing as recognizing open ended data from a text or the internet. The patent was granted in 1999, but the original use dates back 4 or 5 years before that. The courts recognized it. You can complain about the legal system that is slow to grant correction on this. Perhaps you are ignoring Apple having a legal patent for 13 years and companies ignoring this to copy Apple's usage of this patent and it taking Apple 4 years to get an injunction to stop that copying.

Perhaps you could consider what is happening with Samsung. Just because you "feel" that your favorite memory is prior art does not mean anything in a legal system. Just because you "feel" that Samsung has not copied the iPhone does not really mean anything either. When Samsung has emails in its system directing employees to copy the iPhone, it doesn't matter what you think. They did it. Then they destroyed evidence in an on going court case to make matters worse. They didn't do this one time to clean up past behavior. They continued doing it every 2 weeks so they could continue in illegal behavior without changing. Just like the unethical business operators that they are.

The really sad part about this is that Americans have gotten so used to stealing ideas: software, movies, music ectera, that they are outraged when someone gets caught. You want your inexpensive high tech phone and you don't really spend any time objectively thinking about whether the IP is stolen or not. You remember something that seems the same to you, but doesn't pass muster before a court of law, and then you scream foul about not being able to get the stolen item you are buying.

I have to say that at least Jason Mick seems to get this. The case has been argued before the court and the court has spoken.

Apple has a lot of experience being on the losing end of these kinds of fights. Steve Job's best decision in his second run at Apple was to settle the battle with Microsoft over IP. You can even see that Microsoft and Apple have managed to create their own distinctive capacitive touch screen phone operating systems. They no longer fight over IP and cross license their IP to each other.

Is Apple perfect? No. Are they trying to make more money, by defending their IP, of course they are. Saying that you are sorry you copied something and then expecting no consequences is just silly. These are hugh multinational corporations with billions of dollars at stake. To claim that we just didn't know we were copying you is silly on the face of it. You do the crime then you do the time. Samsung is next and they are much worse.

By WalksTheWalk on 5/16/2012 4:28:50 PM , Rating: 2
The thing about most of these software patents is that they are overly broad and prior art is being completely ignored. The people working in the courts are just as technologically challenged and they are not aware of computing history.

The concept of launching a telephony application by clicking on a phone number has been around in computing since way before 1999. It goes back to modems and Windows 3.11 at least. Apple slaps the language "...for mobile devices." on the end of these patent descriptions and files a shit ton of them. Then they get granted and upheld in court even.

It's just ridiculous.

RE: Patents, Legal System, Experience,
By Noonecares on 5/16/2012 6:02:22 PM , Rating: 2
Just an fyi. Samsung is going nowhere. Apple needs Samsung. Samsung makes the parts that are necessary for the iphone. Apple knows they don't have the facilities to make those parts to keep up with the demand of its devices. Back on subject. If you really think Apple is protecting itself, you must live on a different planet. There isn't a company in tech that is making that much money without shady business practices. They don't fabricate anything. I think the reason people hate apple is because they are an american based company that doesn't make a damn thing in the u.s. At least with Samsung and etc. you know where its made. Just wait until China bans Apple from making things in its country just because it can. China doesn't need Apple's money btw. I would say I want to see Apple do down but I don't. I just want them to be humble about it. Apple probably can't die due to its reserves of money that is used in lobbying like all good mega corps do. Eventually something is going to break. But not likely in this lifetime.

To claim that we just didn't know we were copying you is silly on the face of it. You do the crime then you do the time.

That happens every day and no one goes to jail. Pay a fee and keep on trucking. Eventually one of those companies will come up with a patented idea that will kill apple. Then apple will claim unfair business practices.. Like Microsoft is doing with Motorola. Even though MS gets a huge chunk out of every android phone sold.

"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain

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