Monday, October 17, 2011

ITC judge rules against HTC's first complaint against Apple -- but it's not over yet

An Administrative Law Judge (ALJ) at the ITC (United States International Trade Commission) has not found a violation by Apple in connection with four HTC patents. This relates to HTC's first ITC complaint against Apple, filed in May 2010 in response to Apple's March 2010 actions against HTC at the ITC and in federal court.

This is the text of the ITC's short announcement of the decision (will comment on it further below):


Acting Chief Administrative Law Judge Charles E. Bullock

(October 17, 2011)

Pursuant to the Notice of Investigation, this is the Initial Determination in the matter of Certain Portable Electronic Devices and Related Software, Investigation No. 337-TA-721.

For the reasons stated herein, the undersigned has determined that no violation of section 337 of the Tariff Act of 1930, as amended, has been found in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain portable electronic devices and related software by reason of infringement of one or more of claims 1 and 10 of U.S. Patent No. 5,541,988; claims 8 and 9 of U.S. Patent No. 6,320,957; claims 1, 2, 4, 6, 10, 11, 14, and 15 of U.S. Patent No. 6,999,800; and claims 1 and 2 of U.S. Patent No. 7,716,505. The undersigned has further determined that the asserted patents are valid, that a domestic industry in the United States exists that practices U.S. Patent Nos. 5,541,988 and 6,320,957, and that a domestic industry in the United States does not exist that practices U.S. Patent Nos. 6,999,800 and 7,716,505.

HTC's first ITC complaint was just a first (and weak) warning shot

I guess HTC will ask the Commission (the six-member decision-making body at the top of the ITC) to review this determination. The target date for the final decision is February 17, 2012. To be honest, I don't expect anything meaningful to come out of this ITC investigation. I didn't take it seriously from the day it was filed. The patents look weak. Even if they were successfully enforced, I doubt they would pose a serious threat to Apple. At the time HTC filed its complaint, its patent position was very weak and this was basically just a way of indicating a willingness to fight.

HTC still has the weakest patent portfolio of the three leading Android device makers, but it has since bought patents from various sources and brought additional complaints against Apple (with the ITC as well as in federal court). I created a battlemap in mid-September to visualize the dispute between these companies (including S3 Graphics, which HTC is buying). Besides buying up patents from smaller patent holders, HTC also received patents from Google and asserted nine of them against Apple (in August).

But Google's support for one of its three most important OEMs -- almost a year and a half after Apple's patent enforcement against Android started -- may prove "too little, too late". Things are going reasonably well for Apple's first ITC complaint against HTC even though the ITC staff had delivered a negative recommendation on that one. Earlier this month, Google and T-Mobile submitted statements urging the ITC not to ban the importation of HTC's Android-based products into the United States, claiming that this would run counter to the public interest.

HTC subsidiary-to-be S3 Graphics is also suing Apple

In the short term, it's also doubtful whether the acquisition of S3 Graphics will give HTC decisive leverage against Apple. The ITC had issued an initial determination in S3G's favor, but it was a win of limited commercial impact. The ongoing review of that determination appears very unlikely to pose a threat to Apple's iOS-based products (iPhone, iPad, iPod). Recently, ATI (a subsidiary of AMD) injected itself into that process and claimed that it -- not S3G -- was the rightful owner of the patents-in-suit and asked the ITC to dismiss the complaint since AMD/ATI wouldn't want to sue Apple. Apple supported this initiative and said that the ITC should at least conduct an investigation into this ownership issue (which would considerably delay the resolution of this case). S3G has rejected this, but ATI still insists and filed a federal lawsuit in Delaware last week to claim its ownership of those patents.

Most of the interesting information in those documents is redacted, but to the extent that material was in the public record, I must say that I'd be rather surprised if ATI turned out to be right. I will keep an eye on that development but for now I'm inclined to assume that S3G is more likely than not to be the rightful owner of the patents it's asserting in that ITC investigation.

No settlement in sight: Apple isn't willing to license out its most valuable patents

The dispute between Apple and HTC probably won't be resolved anytime soon. HTC won't give up until Apple has decisive leverage, and Apple isn't willing to license this just for a few dollars per device.

As far as Apple's most important patents are concerned, Apple is absolutely unwilling to license them out. An Australian court ruling published on Friday shows that Apple told Samsung that it owns a "thicket of patents" and would offer third parties a license to only "lower level patents". Samsung's patent portfolio is huge compared to that of HTC, and Samsung is still a key component supplier to Apple, so Samsung would be in a much better position than HTC to negotiate a deal with Apple on favorable terms. If Apple doesn't even offer Samsung a license to its key patents, HTC won't get a license to those. And Google lacks the power (regardless of the proposed acquisition of Motorola Mobility) to force Apple into an all-encompassing cross-license agreement.

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