(Source: BGR)
Already bleeding money from Microsoft and Apple fees, added burden could prove deadly

HTC Corp. (TPE:2498) just can't seem to catch a break.

I. UK Court Hands HTC Another Loss

After being hammered by investors following a bleak quarter in which it posted its first loss, the Taiwanese Android phonemaker received some bad news from a UK Judge.  The Hon. Mr. Justice Richard David Arnold, of the Chancery division of the UK High Court [of Justice] in London ruled this week that imports of HTC's 8X Windows Phone and HTC One mini Android phone would be banned.

At the same time he gave HTC a minor victory to go with its major helping of defeat, allowing it to continue to sell its existing UK stock of the devices over the holiday season.

Banned: The HTC One mini

The injunction follows a ruling handed down by Judge Arnold late last month in which he found the phonemaker to have violated veteran phonemaker Nokia Oyj.'s (HEX:NOK1VEuropean Patent (EP) No. 0998024 which covers "a modular structure for a transmitter and a mobile station". 

Qualcomm Snapdragon
HTC uses a mixture of Qualcomm and Broadcom transceivers alongside its mostly Snapdragon modem/processor SoC.  Nokia claims virtually all of these transceivers infringe on its patented technology.

In a statement published at the end of October Nokia clarifies that the chips it's target are chips that HTC and other Android OEMs bought from Qualcomm, Inc. (QCOM) and Broadcom Corp. (BRCM), two top vendors of smartphone signal processing chipsets.  It writes:

The judgment relates to devices using certain chips including (but not limited to) the Qualcomm WTR1605, Qualcomm WTR1605L, Broadcom BCM4329 and BCM4334. In addition, Nokia believes that the Broadcom BCM4330 infringes the patent in a similar way to the BCM4329. Nokia therefore believes that any HTC device that uses any of these chips would also be covered by the judgment.

The chips mentioned are found in the HTC One mini, One V, HTC One X+, Desire X, 8X and 8S.

HTC Windows Phone 8X
Also banned: The HTC Windows Phone 8X

The ban covers the two top-selling models -- the HTC One mini and 8X, but it appears to not cover the aformentioned older or lower end devices such as the 8S and One X+, perhaps given their lower volume.

The flagship HTC One model -- HTC's most valuable product in terms of revenue --was also banned, according to The Telegraph UK, but like the pending bans on the 8S/One X+, the Judge isn't enforcing even an import ban on the flagship phone yet.  The status of its bulky phablet partner, the One Max, remains unclear, but it's presumably subject to a pending ban as well.

To summarize, the One mini and 8X are banned from import (but not sale), while the rest of HTC's lineup is currently unencumbered, but if HTC loses its pending appeal, the HTC One, One mini, One V, One X+, Desire X, (possibly the One Max,) the 8S, and 8X (basically, the phonemaker's entire lineup) will be banned from both import and sale.

Appointed in 2008, Judge Arnold had previously been known to tech readers primarily for his rulings regarding copyright infringement.  Critics accused him of being a shill on the bench for big media.  They point to the anti-piracy legal book he wrote, titled Performers' Rights, and his rulings in several key trials that have forced UK internet service providers to block certain foreign pro-piracy sites.  

Lord Justice Richard Arnold
Lord Justice Richard David Arnold of the UK High Court [Image Source: UCL News/Flickr]

In one such case in 2011, he ordered that ISPs must block Newzbin (a British usenet indexing service).  The following February he delivered an even more controversial ruling, finding The Pirate Bay guilty of some manner of speechcrime or thoughtcrime (depending on your perspective).

In that ruling he acknowledged that the top torrent site did not physically host pirated files or even host the torrents in most cases (following its transition to magnet links).  However, he argued that by supporting piracy, the site was guilty of violating the UK legal code which (incredibly) is in many ways even more arbitrary and ambiguous than the U.S. legal code.

II. A Tiny Chip, a Big Headache for HTC

The chip that Nokia's UK lawsuit against HTC focuses on is called the "transceiver".  The transceiver is an integral part of the signal processing pipeline of every modern smartphone.  Specifically, Nokia accuses HTC of illegally using its patented "modulator" circuitry, a key part of the transceiver's power electronics.

Data is carried to smartphones by radio signals, with the the signal being conveyed by modulation of a parameter -- either amplitude or frequency.  This data reaches the smartphone's antenna triggering a current.  Modern smartphones have multiple antennas and rely on switches to accept current from the proper antenna or antennas.  After switching the the signal (still A/C) passes through filters, which attempt to clear out any noise, yielding a cleaner signal.
Smartphone Tranceiver
A modern smartphone radio processing chain Image Source: AnandTech]

The transceiver receives the output of the filters, processing it.  It "modulates" the analog signal, spitting out so-called I/Q data -- relating to the phase angle (in-phase) and quadrature (tied to the signal amplitude).

This is a crucial step to the translation of the cleaned signal which is then passed to the phone's modem chip (which in Qualcomm's case is on die with the processor) for digital to analog conversion and further post-processing in digital form.  Data transmission works similarly -- the transceiver takes I/Q data, mixes and synthesizes it into a unified waveform and sends it to amplifiers to boost the signal strength before it shoots off the antenna.
Nokia modulator patent
Nokia's modulator patent covers both the intermediate frequency (top) and direct conversion (bottom) modulators, which most modern mobile phones now use in their signal processing. [Image Source: Espacenet]

What makes Nokia's win so dangerous is that its technology appears to be used in nearly every major transceiver released in the 2011-2012 window.  And it likely also describes elements of more recent transceivers, as well, although that remains to be definitively proven in court.

Until recently the WTR1605 -- one of the chips ruled in infringement by Judge Arnold-- was Qualcomm's flagship transceiver.  The chip is relatively new, having just launched in January.  (It actually was reviewed by AnandTech's Brian Klug in a great article that can be found here.)  By contrast, the Broadcom chips are somewhat older, e.g. the BCM4334 is over a year old (launched in Feb. 2012).

The Qualcomm WTR1605 was the company's flagship transceiver when it launched in Jan. 2013.
[Image Source: AnandTech]

OEMs do still have potential escape routes.    Since Broadcom has moved on to the BCM21892 chip, a 28 nm LTE-centric transceiver.  Qualcomm released the WTR1625L a month after the WTR1605.

So far the WTR1625L has not been targeted by Nokia (to our knowledge) although it is probable it contains direct conversion modulation circuitry to the WTR1605 and may be equally vulnerable.  Qualcomm also has an even fresher transceiver, the just-announced WTR3925.  Qualcomm is pushing this upcoming Gobi modem as its single-chip carrier-aggregation-geared transceiver of choice (Qualcomm's early carrier aggregation chipsets required two chips).  With availability expected early next year, it would not be surprising to see this chip as well in some of its lineup.

Qualcomm Gobi

Picking up a new transceiver will force Nokia to reasses its claims and return to court if it thinks Qualcomm's new chips still infringe.  In the long run, though, there's reason to fear that simply switch chips won't be enough to ward off Nokia.

Nokia already delayed the launch of the HTC One in Europe earlier this year with a separate claim.  This was actually the second delay to the device's launch.  The first delay had nothing to do with infringement, instead HTC was reportedly snubbed by a camera module supplier who no longer considered the fallen OEM a top tier client.

HTC had contracted Geneva, Switzerland-based STMicroelectrics N.V. (EPA:STM) to provide a higher quality microphone to it.  The result was a "dual membrane HDR", which promised to capture subtle details of audio and speech, similar to bulkier studio mics of the past.

HTC One HDR mic
HTC was forced to drop one of its flagship device's most exciting features after it was revealed to be illicitly lifted from Nokia's Lumia line.

After Nokia caught wind of HTC hyping the feature it grew suspicious, as it had just contracted STMicroelectronics for similar mic technology, which it held the patents to.  Nokia dubbed the patented technology "high amplitude audio capture".  After conducting teardowns of the device, its suspicions were confirmed.  Nokia discovered STMicroelectronics had apparently stolen the mic technology, tossing it in as an unauthorized free perk to HTC.  

HTC One mic v. Nokia Lumia
The "borrowing" of the Lumia's HDR mic, which HTC blames on STMicroelectronics, didn't exactly take a master sleuth to spot during teardowns.  The chips even had some of the same numbering. [Image Source: Engadget via Nokia]
In a somewhat unusual move, HTC seemingly conceded it made a mistake in terms of intellectual property and has dropped a key feature of its HTC One smartphone.  By contrast Nokia has no such easy out in the latest case, as it can't really drop cellular signal processing from its devices.

Further, even if a new chip from HTC's partners does manage to circumvent the modulator patent asserted in the UK case, Nokia has 30+ other patents that it believes various components in HTC's smartphones infringe upon.  Many of these hardware patents covering various parts of the signal processing chain, mostly on the power electronics side -- amplification, modulation, and antenna reception.

III. Nokia's Pioneering Research Legacy

In some ways as unfair as this may seem, Nokia arguably has a right to this approach given its leadership in mobile development.  Long the top seller of both smartphones and feature phones, Nokia pioneered the smartphone craze well before Apple.  Many American are unaware of Nokia's history as only a handful of its flagship products ever reached the American market during its 2004-2007 era.  But this graph of mobile patents issue pretty much says it all.

Nokia Patent King
Few OEMs can even stand in the same league with Nokia's mobile patent portfolio.
[Image Source: Chetan Sharma]

Given its rich patent-protected legacy, the world's top smartphone maker -- South Korean Android OEM Samsung Electronics Comp., Ltd. (KSC:005930) brokered a licensing settlement with Nokia earlier this year.  Apple, likewise, in 2011 settled a series of Nokia suits filed in 2009.  The deal saw Apple paying and undisclosed lump sum, in addition to regular royalty payments -- a clear win for Nokia.

At last check Nokia has forced licensing from 50 OEMs, a total that rivals even Microsoft Corp.'s (MSFT) aggressive Android licensing push.  In total 20 Android OEMs license from Nokia, according to Reuters.

Mobile patent rankings
Nokia ranks #1 in analysts' rankings in terms of mobile portfolio strength.
[Image Source: Chetan Sharma]

A company like Samsung or Apple may have more of a moral right -- if not a legal right -- to feel indignation at Nokia's license-or-be-sued campaign.  Samsung, for example helped pioneer a number of mobile standards, yet found its patents undervalued as they came with mandatory licensing, where as Nokia's patents (which focused heavily on non-standard signal processing electronics) carried no licensing obligations despite in many cases being virtually ubiquitous and excrutiatingly difficult to design around.
Nokia 770
Nokia was a pioneer in the smartphone space with devices like the Nokia N770 (2005).

Likewise Apple might feel a bit indignant as it purchased a great deal of touch-driven intellectual property, and was a key player in GUI development since the days of Mac OS.  But ultimately the fact that it's paying Nokia is a testament to just how strong Nokia's patents are, in the sense that in many cases physical limitations more or less prevent known workarounds.  As Android OEMs have shown in their legal war with Apple, it's relatively easy, if perhaps undesirable, to design around animations.  But to design around the laws of physics -- well we all know what Scotty would say about that.

But in either case, such indignation was ultimately secondary as the settlement Nokia offered was reportedly small in comparison to their large smartphone profits.  Hence both companies seemed relatively relieved to avoid potentially devastating product bans that Nokia could have brought had it played hardball.

Apple money
Apple and Samsung can afford to pay Nokia given their strong positions. [Image Source: SomanyMP3s]

By contrast the HTC case feels much more lopsided.  Where as Samsung and Apple are industry juggernauts, HTC is fading fast, not even ranking in the top ten in global smartphone shippers for Q1 2013.  As HTC's sales have plummeted from a 2011 peak in which it briefly was the top selling smartphone brand in America (the world's most lucrative market), as too have its profits.  So Nokia versus HTC has a much more desperate undertone.

If Nokia is suckling profit from Apple and Samsung bit by bit, it looks more like a blood donation from a strong healthy individual.  By contrast Nokia asking HTC for blood appears to the outside observer a bit like asking the victim of a grevious wound for blood -- a desperate affair, given that HTC is struggling to survive in its current financial situation.

Android fans have a soft spot for HTC, so this is likely almost painful for some to watch.  The HTC One and One Max (the flagship and oversized companions to the diminuitive One mini), may have failed to halt HTC's sales freefall, but have earned praises as high qualityrather unique smartphones.  While these devices aren't threatened in the ban, they may be in the long term, unless HTC agrees to swallow a seeming poison pill and agreee to per-device payments to Nokia.

HTC CEO Peter Chou has watched in dismay as his company has financially fallen.
[Image Source: Reuters]
But if HTC versus Nokia seems a David and Goliath struggle, at the end of the day it's hard to begrudge Nokia too much given its vital role in pioneering the industry HTC somewhat serendipitously rose up in a half decade ago.  If Nokia can push and prod industry veterans like Apple and Nokia, it can certainly push around HTC, who until 2007 was and ODM whose sole area of expertise was in designing packaging for other companies' devices.

G1 view 1 HTC G1
Thanks to being the first major adopter of Android in 2007, HTC went from a virtually unknown ODM to the top U.S. OEM -- but that meteoric rise was shorted lived as rivals exploited its lack of patents.

Nokia has poured literally tens of billions of dollars over the last two decades into mobile research and it has a fearsome international patent portfolio to show for it.  By contast, newcome HTC only briefly at its 2011-2012 peak began to toy with serious custom circuit design and patentable software features.

IV. Prior Art/Novelty Attack on Nokia Patent Flops With a Thud

It was reasonably clear that HTC's attempts to shield itself with its anemic patent portfolio were a stretch at best.  So in the UK court it focused primarily on a scheme to undo Nokia's case by a two-pronged approach.  The first route of attack was on the patent itself.  HTC hired Professor Bram Nauta, a local EU authority who serves as the head of the Integrated Circuit (IC) Design group at the University of Twente in the Netherlands.

Professor Nauta
HTC hoped to get a key boost from Dutch semiconductor research Bram Nauta, Ph.D.  However, the professors struggled to build a case in HTC's defense and his arguments were ultimately rejected. [Image Source: Mark Horn]

In the below filing Professor Nauta made an extensive argument that the patent lacked novelty as it was a ubiquitous, obvious approach.

He also argued that the Nokia patent overlapped with U.S. Patent No. 5,469,092, a patent filed by Kabushiki Kaisha Toshiba (Toshiba Corp. (TYO:6502)) engineer Tetsuro Itakura in 1994 which covers "Electronic circuit including means for reflecting signal current and feed forward means for compensating operational speed thereof" -- more or less multiple reception chain schemes, which included an overview of transceiver circuitry, which Professor Nauta argued overlaps the circuitry patented by Nokia.
Nokia modulator
The images show more direct conversion modulator circuitry detailed in the patent (figure 5A/B), plus an overview drawing of the invention claim (Figure 4).

The Nokia patent was filed in 1999; both patents had a priority roughly a year befor their filing (1993 v. 1998).  If Professor Nauta was right, Nokia got beat to the punch five years prior.

He also argued a 1997 patent by Nianxiong Tan, an engineer at Nokia's Swedish archrival Ericsson AB (STO:ERIC.AERIC.B) -- International Patent Application No. WO 97/42554.

The specific kind of transceiver components covered by the Nokia patent is a type of modulator called a "Gilbert cell" -- a flexible circuit conceived of in 1968.  

Modern Gilbert cells are based on MOSFET transistors and can act as an analog multiplier, frequency mixer, or phase detector, depending on the voltages applied to the MOSFETs and magnitude of the input voltage range of the signal the cell is operating on.

13-10-30 HTC v Nokia Public UK Judgment EP0998024 by Florian Mueller

Judge Arnold consider Professor Nauta's argument, but ultimately sided with Nokia's experts, ruling the Nokia patent was novel and valid (as was the Toshiba patent).  He argued that as the circuits covered were subtantially different -- Toshiba's was tailored to act as an analog multiplier, where as Nokia's acted as a modulator -- both patents could coexist.  In his ruling he said that HTC's expert actually weakened his own argument by pointing out the fact that he believed the Ericsson and the Toshiba pattern overlapped.

He writes in the ruling:

In his written closing submissions, counsel for HTC [Professor Nauta] expressly advanced precisely the same argument of obviousness over both Itakura and Tan. Furthermore, when I asked about this during his oral submissions, he said that, if forced to choose between them, he would choose Tan. In my view, this approach betrays the weakness of HTC's case, because Itakura and Tan are different pieces of prior art directed to different problems and teaching the skilled person different things. Furthermore, of the two, Tan is on its face less close prior art than Itakura.

In other words, Professor Nauta's argument had a fatal flaw -- at least in how he presented it.  He claimed that the Nokia patent fully overlapped both the Toshiba and Ericsson patents -- which in turn would imply that the Ericsson and Toshiba patents overlapped as well.  He acknowledges this conclusion, and in the end asserted that the newer patent (the Ericsson one) was more novel/valid in his mind.  
But at that point, as Judge Arnold ruled, the HTC expert had effectively destroyed his own case by suggesting there were differences between the Ericsson and Toshiba patent.  Judge Arnold ruled that this was indeed the case (Ericsson's patent covered an analog anti-aliasing filter in preparation for sending the signal to the Gilbert cell, Toshiba's covered the aforementioned multiplier).  And he extended that argument to its conclusion, saying the same was true of the Nokia patent.

Downey Jr.
HTC's defense resembled its commercials -- confused. [Image Source: YouTube]

Some feel it was problematic of Judge Arnold to attack Prof. Nauta's claims using his own argument.  However, even critics acknowledge that the Judge Arnold strengthened his assertion that Prof. Nauta's claims of invalidity were without merit by noting that he was forced to retract portions of his technical claims during the case.  Judge Arnold writes:

He was forced to retract certain points he had made in earlier reports in his seventh report, and to make further significant qualifications to his reports in cross-examination. Even where he did not retract or qualify his evidence, he was less able convincingly to support what he had written. Furthermore, it became apparent that he had been instructed in a manner which was calculated to induce hindsight.

In other words, HTC might want a refund after its expert failed to shine court.  The ruling portrays the hired gun fumbling multiple times in trying to prepare a defense and implies that his argument was less a valid technical attack and more of a struggling effort to arrive at the desired conclusion predetermined by HTC's lawyers -- invalidity.  Judge Arnold's ruling clearly calls out both Prof. Nauta and HTC's lawyers on this approach and the technical errors they made in trying to form their argument.

V. HTC Misses Getting Secondary Licensing on a Technicality

A second tier of HTC's argument had already inexplicably collapsed earlier in the trial.  In that incident HTC had claimed it wasn't using a Gilbert cell, only to have HTC's lawyers embarassed when Nokia showed them a college textbook proving that the design in the Qualcomm chips indeed was consider a "Gilbert cell".

Even with these missteps, HTC still had one other major route to try to avoid a ban -- its "second prong", so to speak.  To that end HTC argued that it was invalid for Nokia to sue it as it as it had previously entered into a confidential agreement with Qualcomm not to sue the chipmaker over the patent.

Qualcomm Snapdragon on Nokia
Nokia licenses the patent to Qualcomm, but in Taiwan, where HTC buys Qualcomm's chips, that license doesn't transfer. [Image Source: Jason Mick/DailyTech LLC]

In the U.S. typically there's a so-called "doctrine of first sale" or "exhaustion of rights", which asserts that if a company grants a license to a parts firm, it can't then turn around sue the companies that use that part.  In that regard, in the U.S. a license to a chipmaker in effect extends to its customers.  But Nokia lawyers effectively countered that argument showing that HTC had in fact licensed the patent from Qualcomm's Taiwan office, making the deal subject to Taiwanese law.  Taiwanese law does not include such a transfer of protections, hence HTC essentially lost its protections on a technicality [source].

That technicality derives from a 130-year-old precedent.  The precedent in the UK derives from the important 1883 Tilghman case (Société Anonyme des Manufactures de Glaces v Tilghman's Patent Sand Blast Company 25 Ch D 1).  So even if it seems unfair, HTC likely knew this would happen, given how long that policy has held up in the UK.

The precedent regarding secondary licensing that was applied in the HTC case dates back to an 1883 patent scuffle between the business of Benjamin Chew Tilghman, a Civil War veteran who would later go on to live a life as a free-spirited inventor/industrialist in England, most notably inventing sandblasting.

But again, it might ultimately have ben a moot point given the 30+ other major patents Nokia had waiting in the wings, had the court found that Nokia's use of the modulator was protected by the deal with Qualcomm.

A final fruitless argument employed by HTC was its argument that a single small component of a complex device like a smartphone couldn't be used to ban an entire device.  That argument was quickly rejected based on past cases in which individual infringing components were deemed worthy of banning an entire end product.

VI. Already Paying Apple and Microsoft "Taxes", a Nokia Fee Could be Fatal for HTC

Both the U.S. International Trade Commission (ITC) and Germany's Mannheim Regional Court came to similar decisions as Judge Arnold, finding enough evidence of infringement to grant Nokia a preliminary injunction -- which blocks the devices from being imported from their manufacturing location (almost always China).  In German court, the amount of evidence needed for an injunction is lower.

HTC and S3
HTC acquired S3 Graphics in hopes of strengthening its paper-thin portfolio, but those patents have failed to protect it, first against Apple, and now against Nokia. [Image Source:]

However, the U.S. standard for preliminary injunctions on shipments is substantially higher; throughout the so-called "smartphone patent wars" the ITC has granted only three major smartphone injunction-based bans -- which include one against Apple, Inc. (AAPL) (which was overridden by the Obama administration), one against Samsung Electronics Comp., Ltd. (KSC:005930) (which the administration upheld).  Both of these injunctions dealt with older devices that were nearing discontinuation anyhow.

While the recent Samsung and Apple injunctions were minor, the third and final injunction was quite different.  And coincidentally HTC was on its receiving end,  This injunction was ordered at the height of HTC's legal battle with Apple in the spring of last year.  

The HTC One X remains the only flagship smartphone to be banned in the U.S., thus far.

At the time HTC was preparing to launch a new flagship handset, the One X, which some thought could take the market by storm.  But after the ITC made the weighty decision to ban the flagship device HTC was unable to import its newly manufactured handsets to the U.S.  The ban lasted an entire month and the sales of the HTC One X never truly recovered.  HTC would go on to craft a workaround, and settle with Apple, whose suit brought that damaging ban.  But the ban had already shaken the OEM financially.

Now lightning could strike twice.

The recent ruling in Nokia's U.S. trade court complaint against HTC came to the same conclusion as the UK court did -- HTC appeared to clearly infringing on Nokia's patents.  However, this was just an initial determination by a single administrative law judge (ALJ).  

That ruling will be examined and may be tweaked or even overturned if something unusual happens when a three ALJ panel delivers its final ruling in January.  But HTC is on the verge of becoming not only the first major OEM to have its flagship smartphone banned in the U.S., but only OEM to receive two such bans.
Nokia v. HTC
Just how big is the patent gap?  That big.
[Image Source: Chetan (graph)/Jason Mick (modifications)]

Again, this is pretty unusual stuff, as the U.S. ITC is typically wary of catastrophically harming firms involved in patent spats.  For it to come to such a conclusion in the Nokia and Apple cases, in particular, is indicative of just how heavily HTC has struggled to defend itself against patent accusations.

VII. Blood in the Water

HTC finds itself between a rock and a hard place as it doesn't have the strong portfolio of an Apple or Samsung, both of which agreed to settlements with Nokia (which could have been far worse, if their portfolio was as weak as HTC's).  HTC tried to defend itself with the purchase of S3 Graphics, but this approach did not appear to signficantly strengthen its intellectual property.

What makes the scenario particularly unfortunate is that Nokia and Apple before it have largely bullied HTC over features it didn't even design.  

In Apple's case rather than go after Google Inc. (GOOG) for features in Android it sued HTC, who at the time was still relatively profitable -- an easy, attractive prey.  It's no coincidence that HTC was the first Android OEM that Apple sued.  After learning the hard way about patent litigation from Nokia, Apple was all to happy to flip the script and sue HTC in 2010.

Microsoft join in soon after, threatening to pound HTC with a second suit if it didn't license.  HTC caved and agreed to pay Microsoft a licensing fee on every Android smartphone it made if it didn't sue.  The terms of this deal -- and the eventual Apple settlement are confidential.  But it's safe to say that HTC likely would not have posted a loss last quarter if it weren't for the licensing fees.

The OEM's two large licensing obligations, coupled with marketing struggles have already pushed it to the brink.  Now Nokia looking to pile on a third per-device licensing fee -- again over a feature that HTC didn't even make first-hand.

Qualcomm and Broadcom patent issues have become a potentially deadly legal liability to HTC.  And what makes it tough is that there are relatively few viable alternatives.  Supporting complicated technology like LTE and carrier aggregation on the plethora of global cellular network frequencies is a daunting task, which only a handful fo chipmakers like Qualcomm and Broadcom have been able to succesfully tackle.

Qualcomm Snapdragon
HTC has been sued for Qualcomm's infringements, but against Nokia's fearsome portfolio it might not have mattered what transceiver vendor it chose.

Practically speaking there's no alternative to allow HTC to move away from Qualcomm and Broadcom transceivers, so the best it can do is to try to adopt these suppliers' latest designs and hope that Nokia doesn't have IP that overlaps the technology onboard.

But from what we've seen so far, that may be a futile hope.  So far it has appeared that Nokia's portfolio is so vast and covers so many fundamental aspects of mobile phone circuitry that no matter what hardware tweaks HTC makes, it would end up infringing.

Nokia patents

HTC isn't even profitable anymore, and it's already stuck in large licensing payouts to Apple and Microsoft.  While it may not get as much as the licensing fee it gets from Samsung, even, Nokia is content to circle HTC like a shark and slowly build up leverage with product bans, in an attempt to bleed as much cash from the flailing OEM as possible.

After all, Nokia between 1995 and 2012 was granted over 10,000 mobile patents -- more than any OEM, according to [PDF] Chetan Sharma, a mobile analyst.  HTC?  It filed roughly 500 patents in that period (including the patents it acquired via S3 Graphics).  In other words, Nokia's patent library is twenty times HTC's.  In terms of patents, it's not a level playing field -- it's a blowout in Nokia's favor.

VIII. Shipping Ban Limits Holiday Cheer for HTC, But it Could Have Been Worse

At this point the only saving grace for HTC is that Judge Arnold graciously offered HTC a delay in the enforcement of a corresponding injunction on sales so that HTC could file an appeal of the decision before the UK High Court of Appeal -- the next step up the local legal latter.  As long as HTC files the Appeal by Dec. 6 (Friday), the final ban won't be enforced until the Appeal is heard.  Until then HTC can not ship in more HTC One Mini devices into the country, but it can continue to sell existing stock.

HTC One Mini
UK shoppers will be able to get holiday One mini smartphones, thanks to a delay in the sales ban.

Judge Arnold agreed to this after HTC claimed enforcement would trigger "substantial damage" to its critical holiday sales and earnings.  Shortly after the ruling the initial ruling (last month) a relatively dejected HTC told ZDNet UK:

Naturally HTC is disappointed by the decision that the UK court has reached in this case and we will be seeking to appeal the finding immediately.

But by after this week's injunction hearing HTC appeared to be slightly more relieved that at least its product wasn't banned immediately, as it stated to the UK's Telegraph:

Whilst the Court also granted an injunction that affects other third party chipsets, we have filed urgent application to appeal. In the meantime, we are working with our chip suppliers to explore alternative solutions.

And by the time they talked to CNET, HTC sounded oddly optimistic, cheering:

HTC is pleased by the decision of the High Court of England and Wales to stay an injunction against certain chipsets, including those in our flagship HTC One," says HTC, "pending the outcome of our appeal against the validity and infringement of Nokia's EP 0 998 024 patent. Whilst the Court also granted an injunction that affects other third party chipsets, we have filed urgent application to appeal. In the meantime, we are working with our chip suppliers to explore alternative solutions . As always, HTC's primary focus is on supporting our customers and ensuring minimal disruption to them and our business. Rest assured that our award winning HTC One handset will be available as usual.

One is reminded of Sterling Archer's "thank G-d for small miracles", perhaps.

Archer small miracles
HTC is grateful that its products are banned for the holidays, at least. [Image Source: FX]

Speaking of small miracles, Nokia also is giving HTC a bit of room to digest the loss.  It agreed to Judge Arnold's plan to only ban imports, saying it would not push for an immediate sales ban.  A spokesperson comments to the Telegraph:

Pending the appeal, HTC has undertaken not to ship any more of the infringing products into the UK, except the HTC One which it may continue to sell until the conclusion of any appeal," said Nokia. "If HTC does not succeed on appeal, the injunction will take effect on all infringing products. Nokia is also claiming financial compensation for the infringement of this patent.

Nokia has already emphasized its growing international leverage on HTC commenting to ZDNet UK last month:

This is the third court this year to find that HTC infringes Nokia patents, bringing the number of patents found infringed to four. In September, the US International Trade Commission gave an initial determination of infringement of two Nokia patents and, in March, the Mannheim court ordered HTC to cease infringing a Nokia power saving patent.

IX. Nokia Hired Better Lawyers, HTC Has no Answer Yet

So far Nokia has file suit against HTC in six countries on three continents (U.S., UK, Germany, Netherlands, Italy, Japan) -- in the three of those jurisdictions that have ruled thus far (U.S., UK, and Germany), it's scored crushing wins over the struggling Android OEM.

Peter Chou
With his company's flagship products at risk of being banned in the U.S., UK, and Germany, with mounting fiscal losses, and with pending suits in three other nations, HTC CEO Peter Chou surely must wonder what happened. [Image Source: Getty Images]

At this point it's in hail Mary mode, having to hope for not just a small miracle but some kind of big one.  It's unclear what argument its lawyers will attempt to make the Appeals court level.  Past criticism aside, Lord Justice Arnold's ruling was surprising technically detailed and appeared quite convincing.  It seems rather unlikely, to say the least, given the resounding nature of that ruling that the Appeals court will sudden buy the arguments of HTC's legal team, which appeared so utterly lost in the initial trial, stumbling over their own arguments.

Ultimately this may come down partially to money.  Nokia has hired Bird & Bird LLP -- a firm ranked as London's top intellectual property firm, according to the rating service Legal 500, which analyzes firms' case records.

Bird & BirdBird & Bird 
So far Nokia's top tier legal counsel Bird & Bird has put a legal beatdown on HTC's counsel, the second tier firm Hogan Lovells Int'l LLP. 

By contrast HTC is employing Hogan Lovells International LLP, a team that's ranked in the second tier.  In the initial trial the gap in success appeared even more vast than that ranking suggests.  But that's perhaps as much a testament to HTC's weak position in the case as Nokia's heavy legal firepower.

HTC is thought to have moved 5.6 million smartphones in Q1 (before the launch of the HTC One), 7.2 million in Q2 (which saw the somewhat delayed launch of the One), and just 6 million units in Q3 (despite the launch of the One mini and Max models).  Of the nearly 20 million phones that HTC is believed to have sold in Q1-Q3, about 716,000 of them were sold in the UK (Europe's largest market) -- roughly 3.6 percent of the company's total sales.  These accounted for roughly  £221M (roughly $360M USD) in revenue, according to the Telegraph.

HTC One board
HTC One board
The nondescript transceiver chip in the black box (right-hand side), the Broadcom BCM4335 may allow Nokia to ban the flagship HTC One (pictured) as well. [Image Source: iFixit]

As bad as things are for HTC now, it could get worse if the ITC finalizes its initial infringement ruling in the U.S. and echoes Britain in issuing an import ban.  Again a ruling by a trade court banning the import of a company's product is generally fairly rare, much less a ruling against a company's flagship product.  However, did lose the initial determination.  Combined with the fact that it has already been the only victim of such a ban on a flagship phone in the last few years, it would not be surprising to see the U.S. follow in the UK's line.

HTC continues to lean heavily on the U.S. market it once dominated prior to the Apple ban and Apple/Microsoft licensing "taxes".  A UK ban might be bad, but a U.S. ban would be a catastrophic outcome.

HTC melting
HTC has watched its profits melt away. [Image Source: NoRebbo]

The final ruling should be delivered by a three-judge panel in January.  If they uphold the initial determination and issue a preliminary injunction, the HTC One will likely be taken off the market by April of next year.

Mobile sector analyst Ben Wood of CCS Insight comments that if HTC is forced to settle it could be the straw that breaks the camel's back.  Agreeing to a Nokia license would mean adding a third major licensing fee to each of its products (on top of existing Microsoft and Apple "taxes").

He remarks to CNET, "Potentially this is a further blow to HTC given the challenging year it has already had.  But right now this will have little impact as any injunction is delayed pending appeal. Both sides will doubtless continue the legal fight, as these sorts of battles characterise the mobile device landscape more and more."

Sources: UK High Court, Mark Bell, Dehns Patent and Trademark Attorneys, CNET, Telegraph

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home

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