Apple's Patent War Against HTC: What You Need To Know

| About: Apple Inc. (AAPL)

By Kevin Donovan

The byzantine world of patent law can be shrouded in mists to rival any cloak-and-dagger tale, a long, tortuous twilight struggle with shareholder value in the balance. Apple (NASDAQ:AAPL) watchers and owners are closely following the arc that patent litigation has been following in Apple's defense of intellectual property it claims has been purloined by competitors in the smart-phone market.

Apple recently won a ban on imports of HTC phones using Google's (NASDAQ:GOOG) Android operating system. Briefly, the U.S. International Trade Commission last month found that HTC was in violation of Apple's patent '367 covering "data tapping" technology, which allows the user of an iPhone to click on a link in a message and dial a phone number or otherwise pull up information. Investors should note that the ITC cannot award a monetary damage award in this type of case. It can only ban or seize imports under a section 337 investigation.

HTC, a Taiwanese manufacturer, is forbidden under the ITC ruling from exporting certain products to the United States beginning in April that contain the data-tapping technology used in the iOS-based i-Phone.

It was one of four patent infringement claims the court was considering, and both sides of the dispute said they were vindicated. For its, part, HTC noted that just one of the four claims was upheld and that the original Apple assault had asserted claims on 10 patents, which were winnowed to the final four.

This doesn't mean HTC will have to junk the feature. It has until April to come up with the tried and true patent-bending maneuver called a workaround, which would allow it to keep the data-tapping feature using a solution different from Apple's. In my opinion, a workaround is feasible and depends on (true) technical skill to get around the patent's claims.

Patent law is sufficiently pliable, and corporate spokespersons sufficiently artful, to allow both companies to claim victory. Apple would appear to have gained a more significant advantage, though, and here's why.

First, the ruling provides Apple with ammunition against other Android phone makers, and, more importantly, it plays to a strength of the kind of company Apple prides itself as being - a differentiator by product.

Although Apple's late leader Steve Jobs had declared he was prepared to go "thermonuclear" against Google for using iPhone technology, there is nothing in the rhetoric to suggest that the company would be averse to a workaround.

This contrasts with Microsoft's (NASDAQ:MSFT) strategy, which aims to license its technology to secure a steady stream of revenue, a hallmark of a mature company, a moniker that Apple would prefer not to have hung around its neck. Apple would prefer not to suggest it has run low on ideas or won't continue to be an innovator in personal electronic gear, but let's face it, growth could be circumscribed going forward if only by the law of large numbers, which is one reason Apple commands a market-like price-to-earnings ratio, not the often lofty multiples sported by young technology brats that discount expectations of hyper growth.

Nevertheless, technology leadership is the polish on the Apple brand and its fuel for earnings surprises, as we've noted, and the company that began in a garage is guarding that patina with zeal. Investors would be well-served to monitor how effectively the company can defend its cachet as the smartest phone in the room.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.