Quick to jump the gun, HTC shares fell more than six percent Monday morning. The stock slide was a clear result of Friday’s announcement that the US International Trade Commission (ITC) had issued a preliminary ruling in favor of Apple in a patent infringement case which may prevent the import of HTC smartphones. A preliminary ruling is by no means a closed case so let’s sit back, relax and take a look at the facts.
As Taiwan’s number one brand name supplier of smartphones, HTC recently enjoyed its third consecutive month of record revenue. The exponential growth of Android has helped the company grow from 2008’s NT $12 billion a year in revenues to its current NT $124.3 billion a quarter. Despite such tremendous numbers, HTC’s shares have lost 20 percent of their value between July 6th and July 14th due to investor concerns. Friday’s ITC news simply added fuel to that already burning fire.
Though a stock price slide may signal widespread panic, ITC’s preliminary decision is far from final. The decision needs to be reviewed by a six-member commission and a final determination is not due until December 6th. During the next four and a half months, HTC will build a case for the ITC appeals process and defend itself using “all means possible”, according to HTC’s General Counsel, Grace Lei.
The lawsuit filed by Apple accuses HTC of infringing 10 patents. Six have been dropped and the ITC judge ruled in favor of Apple on two of the remaining four. This leaves HTC with two clear and present dangers. According to the Wall Street Journal, “ITC rulings are rarely overturned”. Though that might be true, HTC’s CFO Winston Yung confirmed a staff attorney at the ITC independently examined the case and found the company didn’t violate any patents.
A staff attorney’s review, while relevant, is hardly the ITC’s final decision so what’s the worst case scenario? If the ITC’s final decision rules in favor of Apple, expect a HTC import ban unless one of two conditions is met. Either HTC will need to developer a technological “work-around” to avoid violating the two patents or HTC must pay royalties to Apple for use of its technology. Should Android be considered in violation of either of these patents, we could expect a similar royalty be enforced.
In tech, lawsuits are an all too common occurrence. Patent law is a lucrative business and companies deserve to be rewarded for their investments in research and development. As both an iOS and Android user, the possibility that Google may have to pay Apple royalties as a result of the ITC case against HTC is a bit unsettling, as is the potential ban of imports of HTC handsets. The good news is that HTC has plenty of time to work the appeals process and the company is flush with cash should royalties be enforced.
