Apple Inc. (AAPL) settled all global lawsuits with HTC Corp. (2498), signaling a new willingness to resolve patent disputes without resorting to the "thermonuclear war" stance favored by co-founder Steve Jobs.
Apple, which had accused HTC of copying features that made its iPhone unique, "will continue to stay laser-focused on product innovation," Chief Executive Officer Tim Cook said in a statement yesterday with HTC, which surged as the companies announced a 10-year licensing deal. HTC had claimed the maker of iPads and MacBooks infringed wireless patents.
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The settlement with HTC, the first company Apple sued for violating iPhone patents, suggests Cook will take a softer line than Jobs, who vowed before his death last year to wage all-out war against smartphones powered by Google Inc. (GOOG)'s Android software. The agreement may also serve as a blueprint for Apple to negotiate patent accords with Samsung (005930) Electronics Co. and Google's Motorola Mobility business, said Shaw Wu, an analyst at Sterne Agee & Leach Inc.
"For as long as Tim Cook has been CEO, Apple has been less interested in pursuing legal assaults against competitors, choosing increasingly to find ways to settle differences out of court," said Carl Howe, an analyst at Yankee Group in Boston. "This settlement indicates a softening of Apple's legal thrusts."
Licensing Revenue
Apple's shares advanced 1 percent to $552.34 at 9:32 a.m. in New York. HTC, the Taoyuan, Taiwan-based maker of One, Desire, and Sensation handsets, climbed by its daily 6.9 percent limit in Taipei trading, trimming its loss this year to 51 percent.
HTC and Apple declined to provide settlement details. Apple will probably receive $6 to $8 per phone, or $180 million to $280 million a year from HTC, Wu wrote in a research report today. That's more than the roughly $5 per phone HTC pays Microsoft Corp. (MSFT), and reflects the relative strength of Apple's patent defenses, Wu said.
"We think it is fair that Apple will get some licensing revenue for the intellectual property it has developed -- in particular multi-touch gestures -- in making the modern smartphone and tablet with touchscreens," Wu said. "Prior to the iPhone and iPad, there were arguably no products that were close in functionality and appearance."
Bigger Threat
Settling with HTC may allow the world's most-valuable company to focus its legal efforts on Samsung, the Suwon, South Korea-based maker of Galaxy handsets that's now the world's largest smartphone maker.
"Samsung is still going hard and has become an even bigger threat" since being sued by Apple, said Lee Seung Woo, a Seoul- based analyst at IBK Securities Co. Apple may have decided it achieved what it wanted by going after HTC because the Taiwanese company's share of the smartphone market has weakened, Lee said.
James Chung, a Seoul-based spokesman for Samsung, declined to comment.
Jobs, who died of cancer last year at 56, summed up his approach in a March 2010 statement accusing HTC of stealing designs by Cupertino, California-based Apple.
"We can sit by and watch competitors steal our patented inventions, or we can do something about it. We've decided to do something about it," Jobs said at the time. "We think competition is healthy, but competitors should create their own original technology, not steal ours."
Google, Samsung
At the time, HTC was the leading maker of smartphones using Android. Since then, its market share has fallen behind Samsung's. Now, Apple's biggest smartphone patent fight is against the South Korean company, and court-ordered negotiations haven't produced a deal.
Samsung is appealing the $1 billion verdict awarded by a California jury in August, and it has won legal cases against Apple elsewhere in the world.
Cook also held talks earlier this year with Google Chief Executive Officer Larry Page regarding patent disputes involving the two companies, a person familiar with the talks said in August. Google completed the $12.5 billion purchase of Motorola Mobility in May in its biggest takeover.
Jobs told his biographer, Walter Isaacson: "I am going to destroy Android. I'm willing to go to thermonuclear war on this."
Apple Complaint
An Apple complaint to the U.S International Trade Commission in Washington sought to block imports of HTC smartphones because the devices allegedly copied the iPhone's pinch-to-zoom feature. HTC fought back, alleging infringement of patents it bought last year for ways to reliably transmit a larger amount of data.
"This is definitely a positive surprise for HTC," said Daniel Chang, who rates the stock underperform at Macquarie Group Ltd. in Taipei. "The shares will probably get a bump on this news, though it doesn't solve the structural problems at the company."
HTC's stock decline this year follows a 42 percent drop last year amid falling sales and lower profit. The company's share of the global smartphone market fell to 5.8 percent in the second quarter from a peak of 10.7 percent a year earlier, according to Bloomberg Industries data.
"HTC is pleased to have resolved its dispute with Apple, so HTC can focus on innovation instead of litigation," Chief Executive Officer Peter Chou said in the statement.
U.S. Customs
In May, HTC said availability of its HTC One X and HTC EVO 4G LTE handsets was delayed due to a U.S. customs review required after an exclusion order by the ITC. The company said it redesigned devices to remove disputed technology while maintaining it breached no patents.
The delay pushed back a release of the devices by Sprint Nextel Corp. (S), which had planned to offer the LTE model to help boost subscriber numbers.
Less than a month later, HTC cut its second-quarter sales projection by 13 percent, citing a delay in U.S. shipments and weaker-than-expected sales in Europe.
In July, the ITC ruled that HTC could keep shipping its devices while the agency investigated whether the phones violate the exclusion order, denying an emergency request by Apple to have the handsets halted at the U.S. border.
'Thermonuclear War'
Apple's complaints included claims HTC copied the iPhone maker's technology for detecting phone numbers in e-mails, allowing users to save the information or make a call without dialing. The dispute, which include a case filed in London, also included Apple accusing its competitor of copying other features such as "slide to unlock," multiple screen touches and using various alphabets when sending messages.
HTC's rebuttal included its $300 million purchase of 3G Graphics Co., a company part-owned by HTC Chairwoman Cher Wang, in a bid to leverage that company's patent claims against Apple to bolster its own defense. The ITC ruled in November 2011 that Apple's Macs didn't infringe two S3 Graphics patents.
A separate case before the ITC may have forced Cook to the negotiating table after a judge said Apple probably would face difficulty getting a series of HTC patents invalidated. HTC bought those patents, covering technology in LTE high-speed wireless devices, from ADC Telecommunications Inc. for $75 million.
"The settlement is a big surprise and is likely due to HTC's LTE patents, which it bought from ADC last year, as Apple's LTE patents are relatively weak," said Jeff Pu, an analyst with Fubon Financial Holding Co. in Taipei who raised his price target for HTC today to NT$270 from NT$160. "What HTC still needs, though, is good products."
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