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Apple's App Store Suit Rejected

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According to Reuters, Apple Inc (AAPL - Free Report) has lost a part of its lawsuit against (AMZN - Free Report) as a U.S. District Judge, Phyllis Hamilton, ruled against Apple’s false advertising allegations.

The lawsuit dates back to 2011, when Apple had accused Amazon of using the words “App Store” for its mobile software download service, stating that Amazon violated the trademark law, potentially confusing developers and consumers. In Amazon’s defense, the online retail giant had said that it uses the word “Appstore” without a space in between and also uses a lower case “s”, not the way Apple uses it. Apple had filed for the trademark right to use the term App Store from the US Patent and Trademark office following the roll out of its 3G-enabled iPhone on July 17, 2008.

The lawsuit to decide Apple’s remaining claims against Amazon is scheduled to go on trial in August. The current defeat is a real dampener for the iPad maker, as Apple and Amazon are direct competitors in the digital downloading space.

Along the same lines, Apple was recently dealt a major blow as its request to ban Samsung’s smartphones in the U.S. was turned down by U.S. District Judge Lucy H. Koh. This was a major defeat for Apple against Samsung in the U.S. after the U.S. Court of Appeals for the Federal Circuit had overturned a lower court’s ban on sales of Samsung’s Galaxy Nexus smartphones in the country in October 2012.

We believe that the impending lawsuits will act as a headwind for Apple. Additionally, increasing product-related costs and supply-chain constraints are the other near-term headwinds. Moreover, Apple continues to face increasing competition from Google’s Android-based products.

Nonetheless, Apple’s solid product line, Apps, iCloud, loyal customer base and a strong balance sheet are the long-term drivers. Strong sales of iPhone and iPad will drive near-term results.

The company’s expansion in China and other developing nations should act as a positive catalyst going forward. Moreover, the recent shareholder-friendly moves, such as dividend payment and share buyback, are expected to drive the stock going forward.

Currently, Apple has a Zacks #3 Rank (Hold).

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