Friday, February 17, 2012

ITC dismisses HTC's first complaint against Apple: final ruling consistent with initial determination

After Apple brought its first ITC complaint (and an unrelated federal lawsuit) against HTC in March 2010, HTC fired back in May 2010 with an ITC complaint of its own. It was a "me, too" kind of complaint: HTC wanted to demonstrate its willingness to fight. It probably never expected too much to come out of this. Today, the ITC has closed the investigation and found no violation.

Here's some background:

In October 2011, an Administrative Law Judge made an initial determination that identified no violation of four of HTC's asserted patents. HTC had originally also asserted -- but meanwhile withdrawn -- a fifth patent.

HTC asked the Commission, the six-member decision-making body at the top of the ITC, to review the ALJ's preliminary ruling. In December, the Commission granted a review, but with respect to only one of the patents. Today's ruling terminates the investigation with respect to the sole remaining patent. HTC could appeal the ITC's final decision to the Federal Circuit, but that may not be a good use of its resources because it looks that this case is fundamentally weak.

In November, a final ITC ruling dismissed S3 Graphics' complaint against Apple. S3 Graphics' complaint was most likely motivated by Apple's action against HTC's Android-based devices. S3 Graphics and HTC are basically part of the same family of companies. At a time when it looked like S3G might win something against Apple, HTC decided to make an offer to buy S3G.

Smartphone-related patents have a very high drop-out rate at the ITC. In my observation, only about 1 out of 20 asserted patents is deemed violated. The challenges that patent holders face at the ITC have contributed to the popularity of certain German courts, especially the Mannheim Regional Court and the Munich I Regional Court, among patent plaintiffs.

One of a very few patents to have succeeded at the ITC is Apple's "data tapping" patent, the '647 patent. In December, Apple won an import ban against HTC Android devices infringing that patent. HTC's sales in the U.S. won't be interrupted: the feature was removed. HTC claims it's rarely used. I would disagree because I frequently tap on phone numbers to call people back, but there's no question that this ruling was too narrow to force HTC out of the U.S. market. Apple is hoping to broaden the technical scope of the ruling (by having at least one other patent deemed violated) through an appeal to the Federal Circuit. I actually think Apple may succeed with that effort, but it will take time.

Since all of Apple's federal lawsuits against HTC have been stayed by the United States District Court for the District of Delaware, there probably won't be any final ruling on any of Apple's claims against HTC in the U.S. in 2012. There may be some other developments in the U.S., such as a preliminary ruling on Apple's second ITC complaint against HTC (currently scheduled for early November), but I don't anticipate anything enforceable before next year except in Germany, where Apple is suing HTC over four patents (apparently two in Mannheim and two in Munich; no trial dates known yet).

Last summer, HTC brought a set of new claims against Apple, most of them relating to nine patents it received from Google for the specific purpose of suing Apple. It's too early to tell, but at the outset those claims certainly looked stronger than the complaint that was dismissed today -- whether they're strong enough is another question.

While I'm sure that Apple still plans to prove HTC's alleged wide-ranging infringement at some point and that HTC remains concerned, both parties have higher priorities than this dispute:

  • For Apple, the dispute with Google subsidiary-to-be Motorola and the world-spanning ten-country court fight with Samsung are much more important battles. If, hypothetically, Apple hadn't previously sued HTC and had to choose a third Android device maker besides those two to sue today, the choice might be HTC, but it could also be Amazon at this stage.

  • HTC's management is probably more concerned about market momentum than about Apple. The Taiwanese company was a rising star that made itself a worldwide brand name coming almost out of nowhere. I know many people who use HTC phones, and all of them are satisfied customers. But more recently, Samsung has absorbed pretty much all of the profits of the Android ecosystem, Amazon is heavily subsidizing its Kindle Fire, and Google will probably soon own Motorola, which will make that one a much more important force in the market than it is now. Cannibalization within the Android ecosystem is a far greater concern to HTC in the short term than Apple's patent assertions.

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