Loss of manufacturer would be a huge blow to Android
Apple, Inc. (AAPL) has struggled to compete with Android. Its newest phone is over a year old, and looks badly dated compared to the latest slick Android hardware. And it's being outsold over two-to-one by Android globally, according to market researchers. But Apple has a secret weapon -- litigation.
I. What in the World Happened?
On Friday HTC Corp. (TPE:2498), one of the three largest Android phonemakers in the world was dealt a stunning preliminary loss in a lawsuit brought against it by Apple.
The loss clears the way for virtually all shipments of HTC Android smart phones into the U.S. to be blocked for an indefinite amount of time. Android devices constitute the vast majority of HTC's sales and a large portion of those sales are in the U.S. Given that HTC does not enjoy the fat profit margins Apple does, thanks to a lower markup, the loss of this major chunk of revenue could be enough to kill HTC or at least cripple it.
The initial determination was made by Administrative Law Judge Carl Charneski, a member of a six-judge U.S. International Trade Commission panel in Washington, D.C. The judge ruled that HTC violated two of the ten patents Apple accused it of violating.
Namely HTC was found guilty of infringing on:
U.S. Patent No. 5,946,647: "A system and method causes a computer to detect and perform actions on structures identified in computer data."
U.S. Patent No. 6,343,263: "A data transmission system having a real-time data engine for processing isochronous streams of data includes an interface device that provides a physical and logical connection of a computer to any one or more of a variety of different types of data networks."
The ruling is especially surprising as in April ITC staffers gave a recommendation against Apple's infringement allegations.
II. What's Next?
A crestfallen HTC vowed to keep fighting till the bitter end Grace Lei, general counsel for the Taoyuan, Taiwan-based company emailed Bloomberg, commenting, "[We will] vigorously fight these two remaining patents through an appeal before the ITC commissioners who make the final decision."
A decision on whether to ban imports in the meantime is forthcoming and could be delivered within weeks. If the ITC grants Apple's request for a preliminary injunction, virtually all HTC Android handset imports into the U.S. would cease. Carriers would only have access to whatever they currently have in the supply chain.
Now HTC could in theory try to modifying device hardware and software to remove the infringing technology, but that could seriously harm the devices' operation, according to the legal experts at FOSS Patents.
Even if HTC loses, it still has a ray of hope as fellow Android handset maker Motorola Solutions Inc. (MSI) is fighting Apple in court claiming twelve of its patents are illegal. If Motorola, also being sued by Apple, invalidates those patents, it would essentially nullify the verdict against HTC.
However, Apple has a second suit against HTC with 16 more patents, so even if Apple loses to Motorola, it could still win (again) versus HTC in theory.
While rival Microsoft Corp. (MSFT) typically looks to sign lucrative licensing agreements, but let its foe survive, Apple is expected to refuse licensing and essentially ban HTC Android handsets from America, if it wins.
III. What Would the Impact of a Loss Be?
That would be a huge blow to Android OS maker Google Inc. (GOOG). It could also bode ominously for Motorola and fellow Android handset maker Samsung Electronics Comp., Ltd. (SEO:005930), who are currently being sued by Apple [1][2] on similar patents. While each of these cases is slightly different, a victory over HTC could lend credibility to Apple's case against the remaining two top Android manufacturers.
Motorola and Samsung are least more diversified than HTC, so a loss for them might not be deadly. But if what some believe to be Apple's wildest dreams come true -- guilty verdicts against HTC, Motorola, and Samsung -- it could amount to the death of the Android operating system, or the very least its minimalization as a bit player.
HTC has accused Apple of hampering the free market with abusive litigation, saying it's refusing to compete legitimately.
Apple CEO Steven P. Jobs, by contrast says Android handset makers are guilty of "stealing" his intellectual property, including the look of the iPhone. He accuses, "We can sit by and watch competitors steal our patented inventions, or we can do something about it. We’ve decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours."
Of course there's lots of court drama yet to unfold, and HTC and the other Android handset makers have the possibility of appealing, even if they're found guilty.
And they have their own running countersuits [1][2] against Apple, which could force Apple to back off, if they should be lucky enough to win.
In short, Apple may have won a battle in its bid to kill Android with litigation, but the war has just begun.
