Apple lawsuit wrecks HTC’s quiet life

HTC, the Taiwan smartphone maker being sued by Apple for patent infringement, has prided itself on being “quietly brilliant”, in the words of John Wang, chief marketing officer.

The attitude comes from its roots as a contract maker for brands such as Palm, Hewlett-Packard and T-Mobile, before it transformed itself into a branded group that became the biggest producer of Windows Mobile-based phones.

HTC was little known in Europe and the US until it made the first phone using Google’s Android open-source software for T-Mobile in 2008.

It has ridden its success with Android to gain 6.9 per cent of the smartphone market, according to Gartner, yet remains largely faithful to its understated way – it launched its first global advertising campaign last October.

But any chance of HTC remaining out of the limelight all but disappeared with Tuesday’s lawsuit.

Apple accused HTC of violating 20 patents relating to the iPhone’s user interface, underlying architecture and hardware, and asked the US International Trade Commission and a Delaware court to ban HTC sales in the US.

The move sent HTC’s Taipei-listed shares down 3.3 per cent on Wednesday to T$319.

Analysts say the lawsuit indicates growing competition between smartphone makers as the devices become more popular. The fact that Apple’s case centres on the phones’ user interfaces reflects the importance consumers put on phones’ operating systems rather than hardware.

Apple wants to slow down the popularity of the Android platform, says CK Cheng, analyst at CLSA.

“Instead of suing Google, it is much easier to go after the device manufacturer ... Financially, HTC is much weaker than Google.”

HTC says it “values patent rights and their enforcement, but is also committed to defending its own technology innovations”.

Google has yet to comment on the case.

Whether or not HTC was targeted by Apple as a proxy to hinder Google’s advance, the lawsuit highlights why HTC was able to emerge from a relatively unknown position to be the fourth biggest smartphone vendor.

It underlines why it was chosen by Google to make the first Google-branded phone, the Nexus One.

When Google unveiled Android in 2007, few phone manufacturers jumped on it because it was a functional, no-frills system, lacking many features that were an integral part of systems such as Windows Mobile.

HTC was for months the only producer of Android phones. It took advantage of Android’s clean slate to design features such as predictive typing in Chinese and English and searches that show results across e-mails, text messages and contact lists.

Android gave HTC “much greater freedom to make changes and create their own designs in the user interface and the application layer” than Windows Mobile, Mr Cheng says. The fact that some features are alleged to have infringed Apple’s patent shows “everyone is under tremendous pressure to differentiate”.

The consequences of losing the lawsuit would be dire for HTC – half of its revenues come from the US – but there may be a silver lining. Jasmine Lu, analyst at Morgan Stanley, wrote in a note on Wednesday that “timing-wise, we believe the bringing of this lawsuit may signal that shipments of HTC’s Android-based models in the pipeline to leading US operators could be quite promising beyond [the first quarter of this year]”.

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