A High Court in London ruled out Apple Inc.’s (AAPL) claims that Samsung’s Galaxy tablets had infringed on iPad’s designs, according to Reuters. British High Court Judge Colin Birss said that Galaxy tablet designs were “not as cool” as those of the iPad. Apple had sued Samsung in the U.K. and alleged that the latter had copied the designs from iPad.
Over the last couple of years, Apple has been actively defending its intellectual property from misuse and violations. The company has been filing lawsuits against other handset makers such as Samsung and HTC in order to protect its patents. Apple has accused these manufacturers of blatantly copying its iPhone and iPad designs.
Recently, Apple secured a ban on Galaxy 10.1 tablets in the U.S. until July 30, when the case goes on trial. Ruling in favor of Apple, Judge Lucy Koh stated that the Cupertino-based company had a strong case against Samsung in the design-related patent case. The Judge also noted that Apple would be "irreparably harmed" if the ban on Galaxy 10.1 tablets was not imposed as the designs of iPad and Galaxy 10.1 tablets were indistinguishable.
By targeting Samsung tablets in different countries, Apple’s main objective is to stall the growth of Google Inc.’s (GOOG) Android OS. Samsung is leveraging on Android to become one of its most significant competitors and the company is already the largest vendor of Android-based products. The fact that Android is expected to continue its very strong growth all over the world is a major headache for Apple. Despite these factors, Apple remains the leader in the tablet market with 68% market share in the first quarter of 2012, according to IDC.
We believe that Apple’s legal tussles will continue as competition heats up in the smartphone and tablet space. The impending lawsuits in different countries will remain an overhang on the stock going forward.
So far, these lawsuits have yielded mixed results for Apple. Although it won some cases against Samsung in the recent past, Apple has lost a couple of cases against Motorola and HTC.
Interestingly, in the HTC case, the London High Court Judge Christopher Floyd ruled that three of the four patents claimed by Apple were invalid. The judge also set aside Apple’s claims that HTC had infringed upon the patents of the iPhone maker. The patents in question were related to certain touch screen technology used in smartphones.
The defeat against HTC is a big blow for Apple, as the contested patents being rendered invalid by the court sets an unfavorable precedent and could impact its ability to defend itself in other courts.
Despite the litigations, Apple remains the biggest growth story based on its product pipeline, popular apps, iCloud, iPhone 4S, 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.
We maintain our Outperform 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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