According to a recent report from news agency Reuters, smartphone makers Apple Inc. (AAPL) and Samsung are facing strict scrutiny from the European Union’s (EU) anti-trust department. EU regulators are currently investigating whether the smartphone makers have violated anti-trust laws.
Although the EU said that the investigation is a standard procedure to ensure whether the principle of fair, reasonable, and non-discriminatory (FRAND) licensing had been adhered to or not, legal experts believe the probe more likely targets Samsung than Apple.
EU regulators also said that they have requested statements from both Samsung and Apple regarding the enforcement of 'standards-essential' patents in the mobile telephony sector. Standard essential patents refer to internationally accepted technology standards, such as 3G and UMTS technology.
Recently, a Dutch court dismissed Samsung patent infringement claims against Apple, ruling that the 3G patents against which action was sought were in fact a part of the essential standards, which are not licensable under FRAND terms. This implies that under the principle of FRAND, Samsung would not be able to use its 3G wireless patents to win court injunctions.
However, the analysts believe that the EU investigation may have resulted from an informal complaint by Apple against Samsung, and the information gathered from Apple is likely to be used as evidence against Samsung. If found guilty of anti-trust infringements, the EU can fine Samsung up to 10% of its global turnover and can also force the company to drop patent infringement claims against Apple in Europe.
Apple and Samsung, who were technology partners at one point in time, are currently entangled in at least 30 legal battles across 10 countries worldwide. The feud initiated with Apple accusing Samsung of blatantly copying the iPhone and iPad design for the Galaxy series of mobile devices.
Samsung on the other hand is seeking to restrict the sale of iPhone 4S in France, Italy, Japan and Australia based on the claims that the iPhone maker infringed upon Samsung's wireless technology patents. In a motion filed in Japan, Samsung also claimed that Apple had violated its design patents as well as a mobile technology patent.
However, Apple seems to have the upper hand so far, since it has successfully defended its design-related patent lawsuits in several countries, where Samsung’s Galaxy Tabs and smartphones were banned.
Apple has not only restricted the growth of the Galaxy series of products but has also temporarily stalled the growing popularity of Google Inc.’s (GOOG) Android-based products in Europe, of which Samsung is a premier vendor. In the recently ended third quarter, Samsung surpassed Apple to become the leading smartphone vendor, primarily based on the popularity of Android.
However, we believe a favorable anti-trust ruling in EU will boost Apple’s market share going forward. Nonetheless, the impending lawsuits in different countries will remain an overhang on the stock going forward.
Also, Apple’s ability to spur the popularity of its products in developing nations, where the market is more cost-sensitive, will help dictate the company’s fortunes in future.
We maintain our Neutral rating over the long term (6-12 months). Currently, Apple has a Zacks #2 Rank, which implies a Buy rating in the near term.
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