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Is HTC-Apple Patent Peace the First of Many?

Is HTC-Apple Patent Peace the First of Many?
November 12, 2012 1:19PM

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The HTC-Apple patent licensing settlement may have broader implications for the rest of the industry. Samsung and Google-owned Motorola are still in the throes of litigation with Apple. So, does the HTC deal drive Android competitors closer to a settlement? Analyst Shaw Wu believes so -- and he believes the HTC deal could serve as a blueprint.

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Apple has not given up its patent battle against Samsung, but it has reached a global settlement with HTC on the Android front. The Apple-HTC agreement means all lawsuits are dismissed as the companies agreed to a 10-year cross-licensing agreement.

According to the companies, the license extends to current and future patents held by both parties. The terms of the settlement are confidential, but some analysts believe HTC will be paying Apple $6 to $8 per handset it ships.

"We are glad to have reached a settlement with HTC," said Tim Cook, CEO of Apple. "We will continue to stay laser-focused on product innovation."

Meanwhile, HTC President and CEO Peter Chou said, "HTC is pleased to have resolved its dispute with Apple, so HTC can focus on innovation instead of litigation."

Paying the Apple Tax

Shaw Wu, an analyst at Sterne Agee, is among those who believe Apple is likely getting a net licensing fee because it has a much stronger patent portfolio than HTC. Although Apple was not the first to put out a smartphone or a touchscreen device, Apple is widely considered the inventor of the modern smartphone with a touchscreen. The big question on Wu's mind is whether Samsung and Motorola will also reach settlement agreements.

"From our conversations with industry sources, we estimate the net licensing fee to Apple to be in the $6 to $8 per phone range, which means about $180 to $280 million in annual revenue given the 30 to 35 million Android smart phones HTC will likely ship in 2013," Wu told us.

"This is apparently lower than the range that Apple initially proposed. But to put this in context, this compares to press reports indicating HTC pays Microsoft $5 per phone running Android."

Wu said one could make the argument that Microsoft has fewer patents and less intellectual property in this space than Apple. With that argument in mind, he thinks $6 to $8 seems reasonable if not a relatively small price for HTC and others to pay for the right to sell a modern smartphone with touchscreen.

Is Motorola Next?

"For a lot of companies, $180 to $280 million in annual licensing revenue from one vendor is material but for Apple it will likely be immaterial to its financials given its large revenue base of $193 billion and $48 billion in net income that the investment community is forecasting for fiscal year 2013," Wu said.

Indeed, the settlement may have broader implications for the rest of the industry than it does for Apple. Samsung and Google-owned Motorola are still in the throes of litigation with the iPhone-maker. So, does the HTC deal drive Android competitors closer to a settlement? Wu believes so -- and he believes the HTC deal could serve as a blueprint.

"We think it is fair that Apple will get some licensing revenue for the intellectual property it has developed -- in particular multi-touch gestures -- in making the modern smartphone and tablet with touchscreens," Wu said. "Prior to the iPhone and iPad, there were arguably no products that were close in functionality and appearance."

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