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IP, Patent

Can HTC Get A Second Bite At The Apple While Creating American Jobs?

By now you’ve heard that HTC has lost a critical stage in its patent fight with Apple.  In short, an administrative law judge at the International Trade Commission has agreed with the fruit company that its Android-based smartphone devices infringe two Apple patents.  The penalty for HTC, if this determination is affirmed, would be something called an “exclusion order” which would bar importation of the infringing goods.

While the ITC cannot award damages, the exclusion order is a very powerful remedy, particularly for goods like cellphones that are universally manufactured overseas.  Further, unlike Microsoft, whose royalties from Android-based phones exceed revenues from its own mobile platform, Apple stands to gain market share by eliminating a chunk of HTC phones from the US marketplace.  Also worth mentioning, exclusion of HTC imports could also harm profitability of Microsoft’s ongoing license royalties it receives from HTC.

However, I can’t help but notice that each patent seems to be infringed by either the combination of the Android software with a physical device, or the operation of the device itself.  For example, US Patent 5.946,647 includes a limitation in Claim 1 of “a user interface enabling the selection of a detected structure and a linked action.”  A claim chart shown over at FOSSPatent’s blog points to the software supporting this limitation: “For example, the Nexus One contains applications for browsing the Internet and for viewing email messages or conversation histories. ”  In addition, Claim 15, a method claim,  also relies heavily on the software.  The other patent at issue, US Patent 6,343,263, requires, among other things, a “realtime application program interface (API).” Again, the claim chart points to software: “On information and belief, the HTC Nexus One kernel source code defines an API coupled between the subsystem comprising the host CPU and the real-time processing subsystem (i.e., the DSP processor).”

In other words, HTC’s hardware must be combined with Android software to actually constitute an “infringing good.”  Therefore, HTC might very well avoid the effects of an ITC exclusion order by importing its phones into the United States, and then only installing the operating system stateside.  The company may further compound the issue by shipping the largest discrete components of the phones, and completing the final assembly and installation in the US.

Ultimately, would HTC still be infringing? Of course. But the ITC order would have no practical effect, Apple would have to bring its fight to the courts, which would protract the legal battle and give HTC another bite at the apple on both infringement and validity.  On the downside, HTC would undoubtedly be hit with willful infringement if they lost, but that’s a calculated risk that should at least consider.  Bottom line, Apple may not quite be holding all the cards.

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Discussion

3 thoughts on “Can HTC Get A Second Bite At The Apple While Creating American Jobs?

  1. I believe there is precedent at the ITC, potentially under an exclusion order or a cease and desist order, to cover subassemblies and components for an infringing product under the scope of the order – even if the components in a vacuum are not infringing under the claims.

    Posted by Matt Macari | July 17, 2011, 1:29 am
    • There may be anti-circumvention language as well, but at the same time, avoidance of importing infringing goods in the manner I suggest would eliminate/reduce injury ITC orders were designed to prevent.

      Posted by Patrick | July 17, 2011, 1:33 am
  2. Patrick, let’s say that the ITC does find in Apple’s favour and HTC takes the gambit you write about here. There is still the suit in Delaware (as I remember without searching it out). Would the ITC’s finding of infringement have any legal implications on the Delaware case?

    Eric

    Posted by eric perlberg | July 19, 2011, 7:12 pm

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