In a case seen as a proxy for a larger fight between Google Inc's Android operating system and Apple's iOS, the U.S. International Trade Commission ruled that HTC infringed on one of four patents Apple had disputed and imposed a sales ban on some of the Taiwan maker's phones.
While the ruling is unlikely to hurt HTC as much as initially feared because it will have time to work around the offending technology and has until April before the ban becomes effective, it offers Apple ammunition to pursue other makers it believes infringe on its technology.
"This is one skirmish in one battle, which is forming a much larger war and each side has got some ammunition left," said David Wilson, a London-based partner at the intellectual property group with Herbert Smith LLP.
The patent in question, '647, relates to technology that helps users clicking on phone numbers and other types of data in a document, such as an email, to either dial directly or click on the data to bring up more information.
As it is widely used in almost all smartphones, industry experts foresee similar rulings should Apple bring other cases.
"With this ITC ruling, I think other phone companies are all scratching their heads now as to how to resolve the same technology they are using," said Melvin Li, a Hong Kong-based patent agent and counsel consultant at U.S. IP law firm Heslin Rothenberg Farley & Mesitic PC.
Li said he expected courts in other jurisdictions such as Canada, Australia and Europe to rule similarly on the patent.
Smartphone and tablet technology has already spawned a wealth of patent litigation.
HTC has countersued Apple and is also fighting a patent case in Germany. Microsoft Corp and Motorola Mobility also have lawsuits against each other.
Apple's battle with Samsung Electronics Co Ltd, which also uses Android software and is a supplier as well as competitor, has been especially bitter, with some 30 legal cases in 10 countries.
ANDROID DOMINATES ASIA
Apple's founder, the late Steve Jobs, was quoted in his biography as saying that he was going to "destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this."
But the Android system dominates the Asia-Pacific ex-Japan smartphone market with a 53 percent share this year versus 15 percent for Apple's iOS, according to technology research company IDC, and Android is not likely to lose much ground.
"We still expect a lot of momentum around Android and especially with Ice Cream Sandwich out now," said Bryan Ma, a Singapore-based analyst with IDC, referring to the name for the latest version of Android. "It's not really a lawsuit issue. Those are going to continue on the background anyway."
Apple had initially accused HTC of infringing 10 patents, but six were dropped from the case. The ITC judge then issued a preliminary ruling that HTC infringed two of the remaining four before issuing the final ruling on one patent.
The U.S. trade agency imposed a formal import ban on any HTC phones that infringe on the patent, starting April 19, 2012. HTC gets almost half its revenue from the U.S. market, but may not be hurt too much because the ruling gives it time to launch products that avoid the technology in question.
"It's a limited victory for a variety of reasons," said Peter Toren, an intellectual property litigator and partner with the Shulman Rogers law firm in the United States.
"It gives HTC plenty of time to implement a design-around, which I understand they are already working on," he said. "The order does in fact take effect in April, but the practical impact won't be felt for some months after that."
HTC STILL STRUGGLING
Shares in HTC rose by the daily maximum allowed 6.97 percent in Taipei trading on Tuesday, also helped by a company announcement that it would buy back 10 million of its shares.
HTC said the ruling was a win for it.
"We are very pleased with the determination and we respect it. However, the '647 patent is a small UI experience and HTC will completely remove it from all of our phones soon," Grace Lei, HTC's general counsel, said in a statement.
Apple spokeswoman Carolyn Wu said of the ruling: "We think competition is healthy, but competitors should create their own original technology, not steal ours."
But HTC may not be fully out of the woods yet.
It has struggled recently after slashing its fourth-quarter revenue guidance due to stiff competition and concerns still linger over whether it can convince investors it sill has the innovative streak that catapulted it from an obscure contract maker to a top brand.
"I have a negative and bearish view (on HTC)," said Yuanta Securities analyst, Bonnie Chang. "I expect its first quarter will still not be good because U.S. phone operators will worry about the injunction and will not pull in inventory until HTC's new models are approved."
She said the new phones have to prove competitive enough to regain market share because rivals Samsung and Motorola Mobility are selling very well in the fourth quarter.
(Poornima Gupta reported from SAN FRANCISCO; Additional reporting by Argin Chang in TAIPEI and Lee Chyen Yee in HONG KONG; Editing by Andre Grenon, Jonathan Standing and Matt Driskill)
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