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HTC's patent troubles

UNTIL a few years ago HTC was pretty small and relatively obscure. But the Taiwanese company's recent growth has been remarkable. In the second quarter it sold 11m smartphones, more than doubling its revenues compared with a year earlier. HTC's main rivals, Nokia, Samsung and Apple, still sell around twice as many smartphones. But HTC's rapid growth, especially in Apple's American home turf, has made it a competitor worth worrying about.

One reason for HTC's surging sales is the relentless pace of its innovation: in the past quarter, in which Apple had no new iPhone to launch, HTC introduced ten new models. Another is Google’s Android operating system, on which most of HTC’s smartphones are now based. Android phones have proved a hit among consumers, and their combined sales overtook those of iPhones last summer.

Apple has not taken the challenge from HTC lightly. On July 15th the US International Trade Commission made a preliminary ruling upholding two claims in a far larger patent suit Apple had filed against its rival. Earlier in the month, Apple had filed additional claims and MOSAID, a Canadian company, said it would sue HTC and Sony Ericsson for allegedly infringing its patent for transmitting a mobile handset’s location when its user makes an emergency call.

The outcome of these cases will be of keen interest not just for HTC but for all other handset-makers using Android: promoted as a free, open-source system, it is proving increasingly expensive. This is because it relies on a whole host of basic features that are, or may be, subject to patent: how a screen is swiped with a finger, how a phone number embedded in an e-mail can be called by tapping it, and so on.

Apple, having recently settled a patent case brought against it by Nokia, is suing Samsung and Motorola as well as HTC. Last year HTC resolved another claim over Android, with Microsoft, agreeing to pay it significant royalties . More such suits may yet emerge (from Nokia for example), and prove costly. HTC’s shares, which had surged in reaction to the strong growth of its smartphone sales, have dropped by a third since early June.

HTC will appeal against the trade commission’s ruling. It will also fight back in other ways. Earlier this month it bought a lossmaking software firm, S3 , for $300m.

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