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Apple's iPhone 5 in Legal Tussle

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The patent war between Apple Inc. (AAPL - Free Report) and Samsung seems to have no end. Reportedly, Samsung has now accused Apple that the latest iPhone 5 has infringed on eight patents that belong to the South Korean company.  Among the eight patents in question, two were standard patents and six were features-related patents. The trial is scheduled to start from 2014.

However, the allegation is unlikely to affect the enthusiasm for the iPhone 5 and going by the fact that Samsung has not yet appealed for a pre-trial ban, sales will also remain on track. Moreover, even if Samsung does so, Apple has a higher chance of being on the favorable side. These eight patents are the same patents for which Samsung had filed a lawsuit against earlier versions of iPhones.

Separately, a U.S. court lifted the sales ban on Samsung’s Galaxy Tab 10.1 in the country. Earlier in June, Apple had won the preliminary injunction after alleging that Samsung had infringed iPad patents.

Last month, Apple won a preliminary ruling from the U.S. International Trade Commission (“ITC”) that temporarily cleared it of four patent infringement charges brought by Samsung Electronics related to certain wireless technology. Although the current ruling will be reviewed by a six-member ITC panel, the full commission doesn't usually contradict with the judge's determinations. The ITC is expected to issue the final verdict in January next year.

In August, Apple won a key trial against Samsung at the U.S. District Court in San Jose, California. The nine-member jury ruled that the South Korean company had infringed upon six of Apple’s patents and also rejected all counter claims by Samsung. Moreover, Samsung was ordered to pay $1.05 billion to Apple.  

Apple has been highly vocal about defending its intellectual property from misuse and violations. Moreover, any advantage for Apple could act as a stumbling block for Samsung and curb the proliferation of Google Inc.’s Android operating systems in the near term.

Apple remains the biggest growth story based on its product pipeline, popular apps, iCloud, the new iPhone 5, the new iPad, Apple TV and a loyal customer base.  With a solid balance sheet and robust revenues, we expect Apple to outperform its peers in the long run.

However, the impending lawsuits and stiff competition from Samsung with its wide range of products in the smartphone and tablet markets will remain an overhang on the stock going forward.

We have a Neutral recommendation over the long term (6-12 months). Currently, Apple has a Zacks #3 Rank, which implies a ‘Hold’ rating in the near term.

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