Apple's Patent Loss To Samsung Isn't A Big Deal Yet

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The tables seem to have turned on Apple ( AAPL ) in its ongoing patent war with Samsung Electronics ( SSNLF ). The iDevice maker received an import ban order on some of the older models of the iPhone and the iPad after the U.S. International Trade Commission ( ITC ) found the devices in violation of a 3G wireless patent held by Samsung.

The import ban is limited to only those models that work on AT&T ( T ) and T-Mobile's airwaves, but Samsung holds the right to allege infringement against the other CDMA-based models as well. Since Apple gets these mobile devices made in the Far East, the ruling basically makes it impossible for Apple to sell them in the U.S. once the order takes effect.

See our full analysis for Apple | Samsung Electronics

The ruling has come as a surprise to many because the patent in question is a 'standards-essential' one, meaning that the patent holder is obligated to license it out at reasonable terms. A patent win for Samsung should therefore have resulted only in monetary charges for Apple and not on outright import ban. However, the ITC doesn't adhere to these rules, which are otherwise generally followed by the U.S. courts. The White House has previously recommended to Congress that the ITC be asked to abide by the same principles and that its ability to impose import bans in cases pertaining to these patents be limited. However, it remains to be seen if the Obama administration's stance leads to an overturning of the ITC's decision during the 60-day period that the President has to review the case.

Minimal Impact on Sales

Considering that iDevice sales will not be affected during the review period and that the iPhone 4 and the iPad 2 are nearing the end of their life cycle anyway, the impact on Apple may be limited to only a few months. The extent of the impact will depend on when Apple decides to launch the next-generation iPhone and iPad this year, which is when both the iPhone 4 and iPad 2 are likely to be taken off the shelves. In the specific case of the iPad 2, whose Wi-Fi and non-AT&T cellular versions haven't been banned, the impact is likely to be even more muted. The ruling may however cause Apple to speed up its development process so that the iDevices are launched sooner than earlier expected.

Apple will however do well to avoid taking undue risks while accelerating the product build. With its profits declining as gross margins take a hit amid intensifying competition, it will be foolhardy to launch a new product without taking the requisite steps to get the supply chain ready or making the new OS bug-free, just for the sake of offsetting the short-term sales loss of a three-year old product.

As for Samsung, the patent win could help it shed its 'copycat' image in the U.S. after its brand took a beating last year when Apple had won a $1 billion patent infringement case against it. The South Korean smartphone maker is ramping up its efforts to win market share in the U.S. with the Galaxy S4, and this patent win could help it market its high-end mobile devices better. (see Samsung Has Its Sights Firmly On Apple With Galaxy S4 Launch ) A stronger foothold at the high-end of the smartphone market is what Samsung is gunning for, since that is where most of the profits in the mobile market lie.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , GOOG , ITC , SSNLF , T

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