Apple's Mixed Fortunes at ITC - Analyst Blog

Apple Inc. (AAPL) received a favorable preliminary judgment in a patent infringement case at the International Trade Commission (ITC) against Nokia Corp. (NOK). The ITC judge ruled that Apple did not violate five cell phone patents that Nokia had complained of in December 2009.

The commission, which hears patent cases involving imported products, has the authority of blocking imports of such products that violate U.S. patents.

Nokia had alleged that Apple’s iPhone, iPad and iPod infringed a number of Nokia’s patents related to numerous functions, including touch user interfaces, on-device app stores, signal noise suppression, antenna structures, message functionality and chipsets, caller ID, and the integration of multiple radios.

The bitter legal battle between Apple and Nokia dates back to 2009, when Nokia filed a lawsuit claiming that the iPhone infringed 10 Nokia patents related to GSM, UMTS and WLAN technologies, after attempts of working out a licensing deal with Apple failed.

Apple countersued Nokia, alleging that the Finnish cell phone maker infringed 13 of Apple’s patents related to iPhone technology. The concerned patents include one relating to the ability of plugging a mobile phone into a computer with a USB cable, one that relates to teleconferencing applications, one connected with the iPhone's energy-saving features and several relating to the technical workings of mobile phone software.

Apple also alleged that Nokia infringed one of its patents related to the way the iPhone allows the user to scroll through documents, enlarge documents by touching the screen and flip between landscape and portrait modes when the phone is rotated.

In January, 2010, Nokia filed a lawsuit in a federal court in Delaware, alleging that a number of Apple’s products, such as iPhone 3G, iPhone 3GS, iPod touch, iPod nano, iPod classic, iMac, Mac Pro, Mac mini, MacBook, MacBook Pro and MacBook Air violated seven patents owned by Nokia.

In May, 2010, Nokia expanded its legal battle against Apple by including the tablet computer iPad. Nokia complained that iPad and iPhone have violated five patents owned by Nokia. The patents, which cover signal-to-noise modulation, geo-location and antenna technologies, were different from the 17 patents Nokia previously claimed in two earlier infringement suits.

In September, 2010, Apple extended its patents infringement case against Nokia in the United Kingdom.

Both companies filed complaints with the U.S. International Trade Commission, seeking restriction of importing infringed products. ITC agreed to look into both Nokia's and Apple's complaints.

The ruling follows an earlier recommendation by the ITC staff in November, 2010 that favored Nokia,. ITC is expected to give its final decision in August, 2011.

Apple vs. Eastman Kodak

In a separate case, Apple faced a setback, when an ITC judge ruled that the federal agency would review a patent-infringement claim by Eastman Kodak Co. (EK).

Kodak had filed the lawsuit in January 2010 and the defendants included both Apple and Research In Motion Ltd. (RIMM). The patent in question related to image-previewing that Kodak obtained in 2001.

However, the complaint was set aside in January 2011, when an ITC judge ruled that Apple's iPhone and RIM's BlackBerry did not violate the image-preview patent. The judge’s decision to review the claim, however, revives Kodak's hopes of negotiating royalties worth $1 billion or more. ITC will give its final decision in May, 2011.

Apple faces two more lawsuits filed by Eastman Kodak in a federal court in Rochester. Eastman Kodak had complained that Apple infringed patents related to digital cameras and certain computer processes.

In April, 2010, Apple countersued Eastman Kodak claiming that Kodak infringed on two of their granted patents.

Recommendation

Apple remains embroiled in other legal battles over its mobile products. Besides Nokia and Eastman Kodak, Apple is in legal battle with Taiwanese handset maker HTC, regarding the violation of numerous patents in March 2010. HTC manufactures several phones powered by Google Inc.’s (GOOG) Android mobile operating system.

We maintain our Outperform rating over the long term (6-12 months). We believe Apple is well positioned to achieve strong top-line growth over the long term based on product innovation, strong sales from iPad and iPhone and aided by growth in Macintosh.

However, Apple is seeing significant competition from Motorola Mobility Holdings, Inc. (MMI), Samsung Electronics Co., Research In Motion and Hewlett-Packard Co. (HPQ).

Currently, Apple has a Zacks #3 Rank, which implies a Hold rating in the near term.

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