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Apple Loses to Samsung at the ITC

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Reportedly, the U.S. International Trade Commission (ITC) has upheld one of Samsung’s patent infringement claims against Apple (AAPL - Free Report) while setting aside three others. The ITC in its final verdict imposed a ban on several old models of iPhone and iPad in the country. The import ban was levied since Apple’s devices are assembled in China and are sold in the U.S and the world over.

Despite the import ban, the infringed Apple’s devices can be sold in the U.S. as there is a 60-day period during which President Barack Obama, will review the order of the ITC. Upon reviewing, the U.S. President might overturn the verdict. An intervention by the President is a rarity according to experts, although the government will be curtailing the power of the ITC to ban devices on these grounds, since infringing articles are hard to detect at customs.

Apple had argued that the technology used by it was “standard-essential” and widely used and that Samsung’s claims should not be given precedence. Except for the ITC, the other U.S. courts had ruled in its favor and held that holders of these patents should issue licenses to use them.  

ITC’s ban applies on some of the earlier AT&T (T - Free Report) versions of the iPhone (iPhone 4 and iPhone 3GS) and iPad (iPad 3G and iPad 2 3G) models. However, being the older versions of Apple’s product portfolio, the banned devices make a relatively low contribution to the company’s top line. Moreover, Apple will likely retire the old iPhone model with the expected launch of the new model this year. So, the ban is expected to have a minimal effect on Apple’s financials. However, Apple’s loss at the ITC hurts its innovator image.

Separately, the ITC is set to decide another lawsuit which was filed by Apple, seeking a ban on some of Samsung’s products, such as the Nexus range of Smartphones and Galaxy tablets, alleging that the latter had infringed upon four patents held by them. The final ruling by ITC is scheduled for Aug 1.

Over the last couple of years, Apple has hardened its stance in protecting its intellectual property from misuse and violations. The company has been aggressive in filing lawsuits against handset makers, such as Samsung and HTC, and has accused these manufacturers of blatantly copying its iPhone and iPad designs. So far, these lawsuits have yielded mixed results for Apple.

Despite its efforts to curb competition, Apple’s share of the smartphone market has dropped from 23.0% in the first quarter of 2012 to 17.3% in the first quarter of 2013, according to IDC. During the same period, however, Samsung’s market share rose from 28.8% to 32.7%.

Apple remains heavily dependent on iPhone sales (52.6% of second-quarter 2013 sales). However, Apple’s iPhone segment reported a sequential decline in units (down 22%) and revenues (down 25%), with less-than-encouraging year-over-year growth in units (up 7%) and revenues (up 3%). The lower growth seen in recent months is expected to weigh on the stock in the near term.

Moreover, stiff competition from Samsung, both in terms of product range and pricing of products, are headwinds for the company, going forward. Other smartphone makers, such as Nokia (NOK - Free Report) , Sony and Research In Motion are other contenders for market share.

Currently, Apple carries a Zacks Rank #4 (Sell).

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