In yet another patent infringement suit, Apple Inc. (AAPL) has been ordered by a federal jury in Eastern Texas to pay $8 million in damages to Personal Audio LLC, according to Bloomberg. Personal Audio, a Texas based patent licensing company, had claimed $84 million in damages for the patent infringement.
In 2009, Personal Audio had sued Apple, Sirius XM Radio, Archos, and Coby Electronics for infringement of two of its patents that covered an audio player. The audio player could download a navigable playlist and thereby enable users to skip forward or backward through the downloaded list. In the middle of 2010, Sirius XM Radio, Archos, and Coby Electronics settled their cases with Personal Audio. However, Apple chose otherwise and continued its fight.
Apple’s iPod was launched in the fall of 2001 with features of a downloadable playlist from computers and has been very popular among music lovers since then. The iPod generated $8.3 billion in revenues last year, which is roughly 13% of Apple’s revenues. According to Personal Audio, Apple has been violating the patents every time a new version of iPod or iPhone was launched.
Apple’s Tryst with Legal Issues
In recent times, Apple has been entangled in a number of lawsuits with several companies such as HTC, Eastman Kodak Co. (EK), Samsung and Amazon.com Inc. (AMZN). Moreover, though Apple has settled the patent dispute with Nokia Corp. (NOK), it will have to make a one-time payment to the latter and is to pay regular royalties going forward. Specific financial details were not divulged.
Earlier this month, Apple had received an adverse ruling from a federal judge in Oakland, California. According to Reuters, Apple had sought to prevent Amazon from using the “App Store” name.
The judge rejected Apple’s preliminary injunction petition, owing to the iPhone maker’s failure to establish its claim that there was a “likelihood of confusion” with Amazon’s services.
Moreover, Microsoft Corp. (MSFT) has also challenged Apple regarding the use of the phrase “App Store” before a special board of the US patent and Trademark Office. Legal proceedings are currently underway. Microsoft believes that the phrase “App Store” should not be trademarked as the term “app” can be used for any software program.
Most recently, Bloomberg reported that Apple had lodged patent infringement complaints against Samsung at the International Trade Council (ITC). Apple claimed that Samsung is infringing seven patents related to the technology and design of the iPhone and the iPad. Apple also wanted a ban on imports of Samsung’s Galaxy S mobile phone and Galaxy Tab computer.
This counters Samsung’s patent-infringement claims filed at the agency in June that seeks to block imports of Apple’s iPhone and iPad.
Recommendation
We believe Apple’s stock continues to be popular in the technology sector due to the company’s robust results and innovative product pipeline. However, increasing legal complexities and stiff competition in the smartphone and tablet markets are headwinds for Apple over the long term.
We maintain our Neutral rating 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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