ITC Rules Mac OS X Violates S3/HTC Patents, Clears iOS

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The U.S. International Trade Commission (ITC) revealed on Tuesday that Apple is violating patents once owned by S3 Graphics with Mac OS X, but the commission cleared iOS of any infringement, according to Bloomberg. HTC, a company that recently lost a patent infringement ruling from the ITC, is currently the owner of those S3 patents, which means the ongoing legal battle between the two companies is ratcheted up a notch.

Apple vs. HTC

The patents involved cover image-compression technology, and the initial ruling that found Apple in violation was handed down on July 1st. The details of that ruling were not released until Tuesday, however, when Apple requested that the infringing products be named.

While the full details still have not been released, Administrative Law Judge James Gildea said on Tuesday that Macs that shipped with graphics cards and GPUs purchased from Nvidia have an implied license, meaning that only those Macs that shipped with graphics cards from ATI infringed upon S3’s patents.

As is the case with other patent cases being fought out in the ITC, the ruling handed down by Judge Gildea is subject to review by the full six-member Commission, and any decision from that body is then subject to appeal.

HTC purchased S3 on July 6th, five days after the ruling against Apple. The US$300 million deal was widely seen as an effort by HTC to boost its patent portfolio, and strengthen its hand against Apple in the ongoing patent battle with Apple.

On July 15th, the ITC ruled that all of HTC’s Android smartphones violate two of Apple’s own patents, a ruling that could theoretically lead to a ban on those smartphones from entering the U.S. The same is true about the ruling against Apple — it could theoretically lead to some Macs being banned from import, though it’s more likely to result in damages and licensing fees that will be paid to HTC, now that it owns the S3 patents.

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14 Comments Leave Your Own

Nemo

The problem is that HTC purchased the S3 patents to use as leverage against Apple in its dispute with Apple over its Android devices.  The S3 purchase has now failed in that purpose.


As for the Macs that may ultimately be found to infringe, that shouldn’t create too much of a problem.  For its Macs, Apple doesn’t make graphic chips, which are the parts the ALJ found to be infringing, but purchases those parts from third party suppliers.  At worst, Apple will simply change supplier to, for example, Nvidia, whose chips were found to have an implied license to S3 patents at issue.

Thus, S3 patents and HTC’s provisional victory with two of them doesn’t appear to give it much leverage against Apple, though some of Apple’s third-party chip suppliers will have to scramble and may have indemnify Apple for any harm it suffers as a result of HTC’s provisional victory today at the ITC.

What is interesting to me is whether HTC will go after other PC OEMs that use the same graphic chips in Apple’s computers that the ALJ found to be infringing.

Bryan Chaffin

I disagree, Nemo. Leverage over Mac OS X will translate into leverage concerning Android. It’s all one big dance, after all.

Nemo

Bryan:  I’d agree, but HTC doesn’t get much leverage over OS X, because Apple need only change suppliers for the graphic chips for its OS X devices to a supplier that can provide non-infringing chips, and Apple can do that much more quickly than the ITC and the courts can render an ultimate decision in HTC’s favor.

And remember that the ITC only has jurisdiction to ban imports; it can’t award HTC any damages.  For that, HTC must go to court, but even there, HTC may not get anything from Apple, because Apple will have a claim in court for either express indemnification from its supplier(s), if the contract so provides, or for implied indemnification, that is, it is the supplier that supplied the infringing part, and it is, therefore, implied that Apple’s can seek indemnification from its suppliers for any damages it must pay for the supplier’s chips that infringe on S3’s patents.

So, because Apple can switch to non-infringing parts for its OS X devices and has a right to indemnification from its supplier for infringing parts, HTC doesn’t have much leverage.  At best, this ruling in HTC’s favor, if ultimately affirmed, appears to be nothing more than a nuisance.

Bryan Chaffin

You make a great point about the relative weight of the leverage, Nemo. My mistake was thinking that settling the past Mac OS X infringement would come even close to the leverage of the ongoing Android infringement.

It is still leverage, but the one doesn’t come anywhere close to balancing out the other.

With that in mind, I concede the relative merit of your first claim, sir. smile

Nemo

Bryan:  HTC’s damages could be a big number, but it isn’t likely to exceed $300 million, which is what HTC is reported to have paid for S3.  And once again, it is quite likely that Apple won’t ultimately have to pay the damages; its supplier will.

What this really show is a lack of sophistication on the part of HTC’s patent counsel and its senior executive responsible for HTC’s IP litigation strategy against Apple.  HTC paid $300 million for something that couldn’t help it much, which shows either poor due diligence in reviewing the quality of S3’s patents prior to purchase, a bad strategic decision on how to gain leverage against Apple, or desperation or all the foregoing.  HTC should have been able to see this and either kept its $300 million in the bank or at least paid a lot less for S3’s largely irrelevant patents. 

Too many think that having many patents or some patents is enough; while that often is important, because it increases the likelihood that an opponent is infringing some of your patents, it can often come down to whether one has the right patents.  Here, HTC appears to have the wrong patents.

But this could disrupt Apple’s development plans, if it is forced to use Nvidia graphic chips in some or all of its OS X devices, when it would prefer to use something else.  That alone could cost Apple a few million.

Terrin

If the issue is OSX, Apple could avoid the ITC problem by shipping the Macs to the US without OSX installed, and installing the OS here. Then the ITC decision is meaningless for the Macs. The ITC can only ban products shipped in from overseas that it deems infringe a patent.

Nemo

The issue isn’t OS X but appears to be the third-party graphics chip in certain Macs.  While replacing those chips may disrupt some of Apple’s development plans, it should be able to replace the infringing graphic chips with non-infringing ones, hopefully without any compromise of any Macs functionality.

Ronin

“Boys and girls, can you spell ‘cross licensing’?”

Nemo

HTC doesn’t have enough leverage to force cross-licensing.  Not even close.

Ronin

That may or may not be, but Apple is in litigation or threat of litigation with just about everyone. Sometimes they start it and sometimes the other side does.

Unless Apple have an incredibly strong belief that the ruling will be overturned (and the track record of the ITC is against this conclusion) it may well be best to work something out and move along.

The Wright brothers spent their energies suing everyone over their patents and sooner than later fell behind on development. E.G. Curtis Wright, at the urging of Alexander Graham Bell, used ailerons to get around the Wright brothers’ patent on wing warping as a flight control. How many modern aircraft use wing warping?

Besides, who says there won’t be some other things involved and perhaps some boot?

Nemo

Dear Ronin:  See Mr. Chaffin’s latest story on the S3’s patent ruling at the ITC.  Apparently, on the same day that the ALJ ruled for S3 on the two patents, the USPTO, after an exparte re-examiantion, found that both of the S3 patents at issue before the ALJ were unpatentable.  This most likely means that the full Commission will vacate the ALJ’s decision in favor of S3.

As for Apple’s many patent battles, I think that Mr. Sewell, Apple’s General Counsel, would say that is happening because so many of Apple’s competitors, having been unable to match Apple’s innovations and inventiveness in intellectual property (IP), have decided to compete by infringing on Apple’s IP, so that Apple has no choice but to defend its IP in the appropriate tribunal to both maintain the competitive advantage conferred by its IP and avoid being deemed to have waived its IP rights by not enforcing them.  Thus, Apple’s defense of its IP is not merely advisable business policy; it is a mandated fiduciary to duty to Apple’s shareholders, employees, and even Apple’s customers. 

Though Apple is unlikely prevail in all of its IP battles, in the important ones, I concur with Apple’s view that it is engaged in just, necessary, and wise defense of its IP rights.

Ronin

Dear Nemo: Thank you for the reference to Mr Chaffin’s updated story. I had not been back to the website since then to see it.

I do not know if the article is accurate as to the timing of the USPTO action invalidating the S3/HTC patents. If it was prior to the filing of the ITC action, why was Apple unaware of it and why was it not raised early on in the action? Could it be that there is some confusion about the date of the USPTO ruling? If the USPTO’s invalidation of the S3 patents was actually five days prior to the HTC purchase that not only places the entire ITC proceeding in a new light, but raises a whole new set of questions. If HTC knew or should have known of the USPTO ruling at the time of the filing of the lawsuit they may be subject to sanction and/or separate action for filing the lawsuit.

Apple would certainly be interested in recovering their costs, both because of the cost of defending the action and to serve as an example to others to be certain of their facts before filing suit against Apple.

It appears that the USPTO ruling was on the basis of prior art rather than the subject matter not being patentable. Some things simply are not patentable, but patents are issued anyway in the crush of processing applications by a staff that is quite busy if not overwhelmed. (I have been known to observe that many patents have been issued which sometimes appear to be patenting gravity, which if patentable at all, was patentable by a guy named Newton a long time ago when the famous apple fell from a tree. Yes, it is ironic.) In the lingo of the business some patents have been “improvidently awarded”. The USPTO has even conceded that it has done so and has conducted limited review of some patents to determine their patentability.

Interestingly, the USPTO action with regard to prior art means that Apple can not patent those matters either.

It would appear that Apple will be vindicated in this action, but I will still observe that Apple are involved in a great deal of litigation which is a burden on the company.

Cheers

Nemo

Dear Ronin:  Neither Apple or the ALJ was aware that the USPTO invalidated the claims at issue in the two S3 patents, because the USPTO issued its finding of the unpatentability of the relevant claims on the same day, 1 July 2011, that the ALJ issued his ruling that Apple’s Macs, or rather certain third-party graphic chips in certain Macs, infringed on the two S3 patents.  So no one, other than staff at the USPTO, knew that the USPTO had found the claims at issue unpatentable before the USPTO issued that finding on 1 July 2011.  Now that Apple has the USPTO’s ruling, Apple is certain to present it to the Commission, which, if it follows its customary practice, will vacate the ALJ’s finding of infringement on the grounds that the claims alleged to be infringed are unpatentable.

As for Apple, it has no interest in patenting the IP at issue.  People seem to be overlooking that the allegedly infringing parts in Macs were third-party graphic chips and not Apple’s IP.  So the ALJ’s finding of infringement, even if it stands, doesn’t amount to much, because Apple can simply can suppliers of its graphic chips.  Apple would probably have chosen Nvidia’s chips, because the ALJ found that those chips are protected by an implied license.  But, of course, now, after the USPTO’s finding that S3’s claims are unpatentable, Apple almost certainly won’t have to change its supplier of third-party graphics chips.

The real party with egg on its face is HTC, which paid $300 million dollars for bupkis.

Ronin

Dean Nemo: Yes, HTC surely lost out on this purchase. Perhaps there are other patents of note which will soften the blow, but these particular ones are nothing at all.

I am on the way out the door and can’t go into great detail, but there was that troubling quote about “five days prior to the HTC purchase”. I suppose that was simply misreporting of the facts…which happens all too frequently.

Cheers

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