S3 Patents that Apple Violated Were Ruled Unpatentable

In a rather interesting turn of events, the two patents owned by S3 that the U.S. International Trade Commission (ITC) were being violated by Apple’s Mac OS X operating system have been ruled to be unpatentable due to prior art by the U.S. Patent & Trade Mark Office (USPTO). The curious thing about the ruling, however, is that it came the same day as the ITC ruling, five days before HTC bought S3 in order to use that ITC ruling against Apple.

The U.S. patent system is a tangled web, with various and sundry governmental bodies having overlapping jurisdictions, including the USPTO, which issues (and reviews) the patents, the ITC, which among other things has the power to ban the import of products it finds violate a U.S. patent, and the U.S. court system, which hears many and more cases of patent infringement from companies looking to collect damages for said infringement.


Apple vs. HTC


1 - S3’s Case

To give this situation context, we’re going to back up a little: S3 Graphics was pursuing patent infringement complaints against Apple through the ITC. S3 has already successfully enforced its patents in the field of image compression against other companies, including Nvidia, and was bringing those same patents to bear against Apple for its Macs and iOS devices.

2 - Parallel Complaints, Suits, Reviews

At this point, we’ll have to lean on Matt Macari’s analysis at LitigatingApple for help: The USPTO had already ruled that two of those four patents were unpatentable due to prior art, and Apple was able to get that information in front of Administrative Law Judge James Gildea, who was in charge of investigating the S3 patent claims against Apple. Not surprisingly, Apple was not found to be infringing on those two patents.

According to Mr. Macari’s analysis, there isn’t anything that necessarily binds the ITC to pay attention to USPTO reviews, but it’s common for it to do so. The other two S3 patents were still being reviewed, however, and it’s a complete coincidence that the USPTO’s review findings were issued on the same day that AL Gildea issued his own ruling.

All this happened on July 1st — the ITC found that Apple was infringing on the S3 patents (it was July 26th when the ITC revealed some details of the ruling, including that it was Apple’s Mac OS X that infringed, clearing iOS in the process) and the USPTO ruled those same patents as unpatentable.

3 - Enter HTC

On July 6th, HTC entered the squabble between Apple and S3. It was on that day, five days after the ITC handed down its ruling, and not-so-coincidentally, five days after the USPTO found those patents to be unpatentable — that HTC plunked down US$300 million to buy S3.

We realize that due to the obscene amounts of money Apple makes these days, $300 million may not sound like a lot of money, but we checked, and it turns out that $300,000,000 is still a lot of money, especially when you’re buying a company’s unpatentable patents to help fight off Apple.

It seems like $300 million could have been spent on hiring better attorneys, for instance, or maybe hiring someone like Matt Macari from LitigatingApple to explain it to you.

1 + 2 + 3 = WTF?

The question is, why would HTC do this? We’ll point out that it took us four weeks to put the pieces together. After all, these rulings took place on July 1st and we’re just now covering it, but as we noted at the beginning of this piece, the U.S. patent system is a tangled web, and most news sites missed these connections.

At the same time, none of those sites have the resources of even a modestly successful tech company like HTC, you know, the company that had $300 million to buy a couple of worthless patents and a soon-to-be-cast-aside patent infringement victory.

Since it was public knowledge that Apple was pursuing the parallel review process at the USPTO, you would think that HTC would have bothered checking in on that process before plunking down its money for S3.

Perhaps this will all end up making sense in the long run, and HTC’s seemingly perplexing move will end up looking like a brilliant gamble that paid off. What’s more likely, however, is that HTC will still be faced with a patent infringement victory by Apple against its Android smartphones, but that the company will have approximately $300 million less to do anything about it.