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.
Our Take
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.
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