Losing to Apple is a Tough Blow for HTC

This past week, the U.S. International Trade Commission (ITC) ruled against HTC and in favor of Apple in a legal battle between the two over patents.

Apple, which filed the complaint in March of 2010, alleged HTC used several of its patents with some of its phones. The ITC ruled two of the 10 patents allegedly infringed by HTC were in fact legitimate complaints by Apple. HTC says it plans on appealing the decision.

We are highly confident we have a strong case for the ITC appeals process and are fully prepared to defend ourselves using all means possible, Grace Lei, General Counsel of HTC, said in a statement. We strongly believe we have alternate solutions in place for the issues raised by Apple. We look forward to resolving this case, so we can continue creating the most innovative mobile experiences for consumers.

The loss could be a huge financial blow to HTC according to analysts. Already, the company has suffered with shares of its stock fell 6.5 percent on Monday on the Taiwan Stock Exchange Corp.

Although the ruling is preliminary and is subject to approval of the full six-member commission, the result is encouraging for Apple, which has been aggressively defending its patents by suing major competitors such as Samsung, HTC and Motorola Mobility Holdings Inc. If approved, the ruling will be a huge blow for HTC, as ITC has the authority to block import of products that infringe U.S patents, Zacks Equity Research said in a blog.

Another analyst, Jasmine Lu, from Morgan Stanley, said the ruling could have an effect on HTC's price structure as they might have to begin to pay royalties to Apple.

If Apple views HTC as one of its major competitors in US market for high end smartphones and leverages these legal tactics to seek royalty payments, this could raise HTC's cost structure relative to Apple and other Android makers, and could adversely affect HTC's share opportunity if other Android makers are not required to pay the same royalties as HTC in the near future, Jasmine Lu, analyst at Morgan Stanley, said in a note.

Mike Abramsky with RBC Capital Markets actually says the ruling could eventually lead to Apple getting the ITC to bar the import of HTC handsets. Abramsky, like other analysts, instead says it's more likely that a high royalty precedent will be set.

While this particular tussle is between Apple and HTC, some say the real battle is probably between Google and Apple. Over the past few years, Apple has gone after several manufacturers that use Google's Android system. In recent months, it has waged legal battles with Samsung as well. While those complaints are hardware, it seems Apple has gone after the major Google Android players.

Apple's disdain for Google's Android operating system is not exactly a secret. In the past year, Apple chief executive Steve Jobs said he thought Google's description that its operating system was open and Apple's was closed as a dishonest description.

Foss Patents, a blog on patent law, said the actual Apple complaints have to do with Android's operating system rather than the phone's physical makeup. The blog says this could have an impact on all U.S. based Android phones in the future as HTC may only represent the precedent.

Other companies have gone after Google for its Android operating system as well. Microsoft has allegedly asked Android handset makers to license its technology while Oracle complained Android infringed on its Java patents and copyrights in the operating system.

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