HTC subsidiary loses patent infringement suit against Apple


TAIPEI –Graphics chipset designer S3 Graphics Co., a subsidiary of Taiwan smart phone maker HTC Corp., failed in a patent infringement lawsuit against Apple Inc. in the United States Monday.

In a notice posted on its website, the U.S. International Trade Commission (ITC) overthrew a July 26 preliminary decision, saying that Apple’s Mac OS X system had not infringed on texture compression patents held by S3, which was recently purchased by HTC for US$300 million (NT$9.06 billion).

“We are disappointed, but respect the ITC’s decision. 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,” said Grace Lei, general counsel of HTC, in a statement.

S3’s setback means that HTC has failed in an attempt to bar U.S. imports of some Macs, which generated US$17.5 billion in sales last year, or 27 percent of Apple’s revenue.

S3 accused Apple in May 2010 of violating four patents owned by the company. The ITC ruled in July this year in a preliminary decision that Apple’s Mac OS X system had infringed on two texture compression patents of S3, but the iPhone and iPad had not.

Herbert Ho, a Taipei-based analyst at the Topology Research Institute (TRI), said the ruling will give Apple breathing space and that it might file new patent complaints against HTC’s LTE (long-term evolution) phones, which are seen as the next growth engine for HTC in the United States.

“HTC is under pressure to win this complaint, because Apple at this stage has no intention of settling with HTC. It wants to chase its rivals away from the market,” Ho told CNA.

“Apple’s iPhone does not yet support 4G networks. It is inevitable that all phone makers will shift from 3G to 4G technologies, and Apple will certainly endeavor to protect its interests in the market,” he said.

However, Gartner Inc. analyst C.K. Lu said it is not difficult for smart phone makers to avoid using patents owned by other companies.

“Patents usually have specific definitions, so there are many ‘gray zones’ in which companies can have room to maneuver,” Lu said.

If companies cannot get around the patent problems, the worst situation is to increase research and development costs to produce new technologies, or pay royalties, which can lead to a decline in profit margins, Lu said.

On Oct. 17, the ITC ruled that Apple had not violated HTC’s four patents related to technologies for power management and phone dialing.

It was the first ruling in one of two patent-infringement cases HTC has lodged against Apple since May 2010, seeking to ban U.S. imports of Apple’s iPhone, iPod Touch and iPad.

A final ITC ruling is slated for Dec. 6 in another Apple lawsuit against HTC, in which the commission found that HTC had violated two patents owned by Apple.