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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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This article is over a month old, voting and posting comments is disabled

By testerguy on 5/17/2012 8:47:51 AM , Rating: -1
The SGX543MP2 is not designed by Apple...Imagination Technologies (PowerVR) designed that.

Such a simplistic way to view things. Rolls Royce builds jet engines too it doesn't mean fighter jets aren't innovative. The very, very basic step you somehow miss is that Apple was the only one who managed to incorporate said GPU into their phone. If that requires no innovation, why did no Android manufacturer manage it? Why did they take 7 months to even release a phone which was equal to it? Is your answer because no innovation was required? LOL. I wonder how much innovation it took Samsung to use the same GPU as that in the SG2, but just overclocked. Far more impressive, right?

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

Yes, your completely uninformed 'lightly massaged and packaged' statement will completely negate the fact that no Android manufacturer managed to do anything remotely equivalent. If it's so easy, all Android manufacturers must be complete fails?

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

I wonder if my perfectly accurate and precise original statement of 'CPU/GPU' combination escapes you? Perhaps you are like those failing Android manufacturers?

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.

Yes, the 'other' versions of Siri which all work 'better' according to the complete jokes of Android fans who, lets face it, have never even tried Siri, and flies in the face of just about every single independent review of Siri confirming it is the most advanced and best voice control software. And your statement that Apple innovates some things and not others, wow, ground breaking stuff. I wonder how many peoples arguments you believe you are contradicting with such pointless statements.

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

Just browsing through my original post to see if this rant has any relevance to what I said whatsoever. Nope.

Swipe to unlock? neonode.

As the court of law found, legally the neonode was not prior art, due to fundamental differences in what the swipe was used for, the graphical feedback, usage of the swipe (not back/forward like in the case of Neonode) and the Neonode was also for a specific direction whereas the Apple patent wont. Of course, the far more knowledgeable and relevant legal authorities have sufficient brain power to know what constitutes prior art, but you know better... I wonder if you think that even if I agreed with you about swipe to unlock that it would have any relevance to Apples track record of hardware which was the subject of my post.

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

Oh, you had over 500,000 apps on your Palm / Handspring? The highest quality, largest app library ever? See, again you're confused. You seem to think that having an idea is the same thing as being innovative enough to successfully implement said idea. It's a recurring failure of yours.

3G and 4G - I wonder how much the customers voted with their wallets to indicate that 3G was important to them. I wonder how much the majority of the world who don't yet have access to 4G is buying for that too? Or hang on, is the best selling phone ever one which doesn't have 4G? Is the market trying to tell you something there, Steven? Earth to Steven?

They make some great stuff and I even own some of their stuff (iPad3, MBA), but they are not the be-all-end-all.

Because what I specifically said in my original comment was 'they are the be-all-end-all'? Try no.

As for syncing you can do it all wirelessly so not really sure what point you're trying to make there.

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