While no one wants to wake up to the news that Apple—one of the most successful consumer brands—has filed a lawsuit against you, in this case, little-known HTC must have celebrated just a tiny bit.
In 13 years, the Taiwanese has grown to more than 9,000 employees worldwide, including 3,000 engineers and 125 employees in North America. Last year, it hit its stride by releasing some of the flashiest non-iPhone devices on the market, like the Hero, the T-Mobile myTouch and the HD 2. That’s a far cry from the first iPaq personal computer it built for Compaq 10 years ago. Now HTC is in the company of Nokia (NYSE: NOK), which has also exchanged patent disputes with Apple (NSDQ: AAPL).
While the lawsuit may represent some well-deserved recognition, it will also present significant distractions for the small company and increase legal scrutiny it potentially wasn’t prepared for. “Yes, HTC is a significant player in the industry, but it’s a contract manufacturer,” says RBC analyst Mike Abramsky. “I’m not sure it has a big enough patent base with which to defend itself. It’s more vulnerable,” reports AllThingsD.
How immediate of an impact the lawsuit could have on HTC is not clear. Since the suit was filed both with the United States District Court in Delaware and the United States International Trade Commission, Apple could ask the commission to halt shipments of infringing HTC phones that are coming into the U.S.
HTC issued a short statement yesterday saying that it did not believe the lawsuit posed a short-term material impact to its business, or would affect Q1 guidance. It said: “HTC is a mobile technology innovator and patent holder that has been very focused over the past 13 years on creating many of the most innovative smartphones. HTC Corporation values U.S. and international patent rights and will work with in the U.S. Judicial System to protect its own innovations and rights.”
For perspective, here’s how HTC is David and Apple is Goliath:
—Manpower: In this lawsuit, Apple may, in part, be targeting the technical expertise of a small design office in Seattle’s historic Pioneer Square neighborhood, where about 25 people have cooked up their own user interface called Sense. The user interface overlays on top of both the Windows Mobile and Google (NSDQ: GOOG) Android handsets that it builds.
—Market share: According to IDC, HTC had a 4.6 percent global share of the smartphone market in 2009, compared with Apple’s 14.4 percent.
—Financial standing: HTC’s 2009 consolidated revenue was 144 billion Taiwan dollars, or $4.5 billion, down 5.2 percent from the previous year. Gross profit in 2009 was down 9.5 percent, according to the NYTimes. That compares to Apple’s last fiscal quarter, which led CEO Steve Jobs to brag: “If you annualize our quarterly revenue, it’s surprising that Apple is now a $50+ billion company.”
“This is what happens in Silicon Valley,“ Gary Chia, head of Greater China research for Yuanta Securities in Taipei told the New York Times. “When you’re big enough to become a threat, I’ll slap a suit on you sometimes just to slow you down.”
But a lot of observers have pointed out that the lawsuit isn’t about HTC at all. Instead, it’s about the threat of Google and its Android operating system, which is mentioned continuously throughout the lawsuit (See Engadget’s rundown here). Those suspicions gained some momentum today when unprompted Google sent out a statement about the lawsuit to press. A spokesperson said: “We are not a party to this lawsuit. However, we stand behind our Android operating system and the partners who have helped us to develop it.”
More so, there’s a reason why Apple isn’t suing Google, or for that matter other handset makers that are building Android-based phones, like Motorola (NYSE: MOT) and Samsung. Jonathan Zittrain, a professor at Harvard Law School, told the New York Times that Apple is simply going after a less powerful company first—a company with less resources, and a potentially smaller patent portfolio. “It clearly involves some form of litigation strategy of picking off the weaker members of the herd first. They can always add Google to the suit later on,” he said.
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