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Apple wins patent fight with HTC at U.S. agency

Nov. 22, 2011 - 10:55 By

HTC Corp.’s loss in a patent infringement case against Apple Inc. casts doubt on its decision to spend $300 million to buy S3 Graphics Co. to boost its chances of a licensing deal to end the dispute.

The U.S. International Trade Commission said yesterday that S3 Graphics’s patent rights weren’t violated by Apple, rejecting a request for an order that could have limited imports of some Mac computers, the iPhone and iPad. The commission gave no reason for its decision. HTC said it may challenge the ruling to a U.S. appeals court that specializes in patent law.

HTC, which sold the most smartphones in the U.S. in the third quarter, said it would buy Fremont, California-based S3 Graphics less than a week after a trade agency’s judge issued his findings in the case in July. S3 Graphics was part-owned by HTC Chairwoman Cher Wang, and Citigroup Inc. analyst Kevin Chang said at the time HTC could have just licensed the patents.

A decision against HTC “calls into question the rationale of the S3 acquisition,” said Chen Fu-li, an analyst at E Sun Securities Co. in Taipei who has a “buy” rating on HTC shares. “It’s the final decision so it’s quite important. A negative decision could put pressure on HTC’s shares.”

HTC Chief Executive Peter Chou has built the former contract manufacturer into a global brand by customizing its phones for carriers including Verizon Wireless and Sprint Nextel Corp. (S) The company almost doubled its revenue last year and has posted five consecutive quarters of record profit.

S3 Graphics Purchase

S3 Graphics makes image-compression technology, and its Texture Compression feature is used in Nintendo Co.’s Wii and Sony Corp. (6758)’s PlayStation portable gaming systems. The purchase by HTC included about 235 patents, mostly related to graphics technology.

"S3 can be innovative and they came up with some nice products, but whether they are relevant to Apple is debatable,” Shaw Wu, an analyst at Sterne Agee & Leach Inc. in San Francisco, said in an interview. “Apple has a lot of patents, so it’s going to be tough to beat Apple.”

The decision marks the first time the six-member commission has ruled on one of the dozen cases at the agency stemming from the battle for the smartphone market. S3 Graphics has another trade case pending against Apple over four other patents, and HTC has two of its own cases, including one in which it asserts patents obtained from Google Inc. (GOOG), the developer of the Android operating system.

“We are disappointed, but respect the ITC’s decision,” HTC General Counsel Grace Lei said in an e-mailed statement yesterday. “While the outcome is not what we hoped for, we will review the ruling once the commission provides it and will then consider all options, including appeal.”

Trade Judge’s Finding

U.S. trade Judge James Gildea on July 1 found that some Apple Macs infringed two S3 Graphics patents related to graphics chips, while the mobile platform for the iPhone didn’t infringe. The six-member commission reviewed the entire decision, including the effects of Apple’s agreements with Intel Corp. (INTC) and Nvidia Corp. (NVDA) for graphics chips.

HTC was counting on a victory to bolster its patent battles with Apple. The commission is also reviewing an agency judge’s determination that HTC infringed two Apple patents, with a decision expected Dec. 6, and may take a look at a judge’s findings that cleared Apple of infringing HTC patents.

“Apple’s win strikes the first blow in its wide-ranging patent fight with HTC,” Mike Abramsky, an analyst at RBC Capital Markets in Toronto, said in a note to clients.

Kristin Huguet, a spokeswoman for Apple, said the Cupertino, California-based company had no comment.

Smartphone Patent Fights

HTC and Apple are among smartphone makers, including Samsung Electronics Co. and Motorola Mobility Holdings Inc., using patents to challenge competition in a market projected by researcher IHS Inc. to reach $206.6 billion this year.

Apple is targeting phones and tablet computers that run on Google’s Android operating system. Apple, which has two cases at the trade commission against HTC, is seeking to block imports of HTC phones that run on Android.

Smartphone sales by volume increased 42 percent in the third quarter, according to research firm Gartner Inc. HTC became the top seller of smartphones in the U.S. in the third quarter, with 24 percent of the market, above Samsung Electronics’s 21 percent and Apple’s 20 percent, according to Palo Alto, California-based researcher Canalys.

Gildea’s initial ruling didn’t apply to Apple mobile devices or Mac computers with Nvidia graphics processing units that have an implied license to the patents, the judge determined. The judge also found that two other S3 patents were invalid, as were aspects of the two patents found to be infringed.

Ownership Ruling Sought

The decision was limited to a “small software module in Mac OS,” Apple said in a Sept. 23 filing with the agency.

Apple argued that the patents were invalid and not infringed. It also contended that Advanced Micro Devices Inc. (AMD), not S3, is the proper owner of the patents. AMD has filed a suit in federal court seeking an ownership ruling. The commission denied AMD’s request to intervene in trade case.

Even if a violation is found, Apple argued in the filing, the commission shouldn’t ban any imports until a further hearing on AMD’s claims and on the effect on the public interest of halting any products.

S3 responded in its own filings with the agency that AMD didn’t own the patents, and other electronics compete with Apple’s products, so there’s no harm to consumers or the overall market demand for smartphones by blocking the Apple products from the U.S.

The iPhone brought in $47 billion in sales last fiscal year, or 43 percent of Apple’s revenue, while Macs generated $21.8 billion in sales, 20 percent of Apple’s revenue. HTC said in its August trade complaint that it had about $5 billion in U.S. sales last year.

The case is In the Matter of Certain Electronic Devices with Image Processing Systems, 337-724, U.S. International Trade Commission (Washington).

 

<한글기사>

애플, HTC와의 특허분쟁서 승소



애플과 대만의 휴대전화 제조회사인 HTC 간의 특허 분쟁에서 미국 국제무역위원회(ITC)가 애플의 손을 들어줬다.

ITC는 21일(현지시간) 애플의 맥 제품이 HTC의 자회사인 S3그래픽스의 특허(S3 Texture Compression·이미지 압축 기술의 일종)를 침해하지 않았다고 판결했다.

ITC는 그러나 이 같은 판결을 내린 구체적인 이유는 공개하지 않았다.

이날 판결은 휴대전화 및 태블릿PC와 관련해 현재 ITC가 진행중인 10여 건의 소송 가운데 첫 번째 판결이어서 업계의 주목을 받았다.

토론토 소재 RBC 캐피털 마켓의 애널리스트인 마이크 아브람스키는 "애플의 이번 승소는 HTC와의 광범위한 특허분쟁에서 애플이 선수를 쳤음을 의미한다"고  분석했다.

HTC는 보도자료를 통해 "판결에 실망했지만 ITC의 결정을 존중한다"고 밝혔다.

또 "ITC의 판정 결과를 검토한 뒤 항소를 비롯한 모든 사후대책을 고려할 것"이 라고 전했다.

이날 애플의 승소는 지난 7월 ITC의 예비 판결을 뒤집은 것이었다.

당시 ITC는 운영체제로 iOS를 사용하는 애플의 아이폰, 아이패드에 대해서 S3그래픽스의 특허 침해 사실을 인정하지 않았다.

그러나 맥 제품은 S3그래픽스가 보유한 이미지 압축 관련 특허 2건을 침해했다고 판정했었다.

이 같은 판정이 내려진 뒤 HTC는 S3그래픽스를 인수해 이 회사의 각종 특허와 그래픽 시각화 기술을 보유하게 됐다.

이에 업계는 HTC의 S3그래픽스 인수가 애플과의 특허분쟁에도 도움이 될 것으로 예상해왔다.