Apple Inc. (AAPL) has often been criticized for its aggressiveness at blocking competition against two of its core products, iPhone and iPad. Apple critics have blamed the company for using the well-trodden path of filing lawsuits for patent violation in order to stall the growth of a competitive product. It now seems that a U.S. Judge is also questioning Apple’s intentions regarding this issue.
According to a recent news feed from Reuters, U.S. Federal Judge Richard Posner has asked Apple to validate its request for an injunction against Google’s (GOOG) Motorola phones that allegedly uses its technology. Although the judge did not provide any formal ruling, he noted that the confused state of the U.S. patent system made it extremely difficult to point out a patent infringement.
The Judge noted that in such a situation it would be “catastrophic” to ban the sales of Motorola phones. On Apple’s insistence of issuing an injunction that compels Motorola to remove the alleged technologies from its phones within three months of launch, the judge suggested that Apple license the patent to Motorola for a compulsory royalty. The judge noted that compelling Motorola to adopt an inferior technology would not be beneficial for consumers.
Motorola also received some flak from the judge over its request to issue an injunction against Apple for allegedly violating a patent related to wireless communication. Judge Posner noted that an injunction cannot be issued for using a patent that is an essential standard.
Judge Posner’s comments follow his earlier ruling this month. The judge canceled a pending trial between Apple and Motorola, citing lack of concrete evidence from both the sides to prove substantial patent violations. Motorola had sued Apple way back in October 2010, mostly viewed as a pre-emptive measure against Apple. Apple countered Motorola’s suit by filing its own complaint in the same month.
Although the judge cancelled the majority of complaints between the two technology giants, he agreed to hear Apple’s plea regarding the injunction against Motorola. An injunction would have placed Apple in a much better position against Motorola, as it would have strengthened its position to negotiate cross-licensing deals. Moreover, Apple could have cited the injunction as part if its argument in the upcoming Samsung trial, scheduled next month in California.
Apple’s Lawsuits Have Yielded Mixed Results
Over the last couple of years, Apple has been highly vocal about saving its intellectual property from misuse and violations. The company has been aggressive in filing lawsuits against other handset makers such as Samsung and HTC, in order to protect its patents. Apple has accused these manufacturers of not only blatantly copying its iPhone and iPad designs, but also its technology as in the case of Motorola.
So far, these lawsuits have yielded mixed results for Apple. Although it won some cases, Apple has lost a couple against Motorola recently. Early this year, an ITC judge rejected Apple’s allegations that Motorola Mobility had violated three of its patents. In December last year, a German court issued an injunction favoring Motorola.
We believe that the loss at the hands of Motorola will not deter Apple from continuing with its aggressive strategy of suing other handset makers, particularly the ones who use Google’s Android platform, going forward. We believe that the entry of Google in the handset manufacturing market (through the acquisition of Motorola Mobility) will intensify competition between the two companies going forward.
Apple lost its #1 position in the smartphone market to Samsung in the first quarter of 2012. According to research firm Strategy Analytics, Samsung sold 44.5 million smartphones (30.6% market share) as compared with Apple's 35.1 million iPhone sales (24.1% market share). Samsung’s strong market share growth was primarily driven by the dominating position of Android as compared to iOS. According to Gartner, Android was the #1 platform with 47.0% market share, whereas iOS had 23.0% market share and was #2.
According to research firm IDC, Android market share is expected to increase to 43.8% by 2015, compared to Apple’s 16.9%. We expect Apple-Google relationship to deteriorate further as competition heats up in both the smartphone and tablet markets. However, Apple’s innovative product portfolio, loyal customer base, huge cash balance and international expansion opportunities keeps us positive on the stock.
We have an Outperform rating on Apple over the long term. Currently, Apple has a Zacks #2 Rank, which implies a Buy rating over the next 1-3 months.Read the Full Research Report on AAPL
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