Why HTC's Courtship of S3 Might Be Too Clever By Half

HTC's Courtship of S3

There has been quite a bit of buzz about the strategic value of HTC’s recent acquisition of S3 Graphics just days after an administrative law judge (ALJ) at the ITC issued an Initial Determination that Apple infringed two of S3’s patents. So how can the purchase of S3 potentially help HTC against Apple? Simply put, it's assumed that HTC wants to step into S3's shoes and use that as leverage to settle its dispute(s) with Apple - specifically, HTC's adverse infringement ruling from the ITC. Here's a visual representation of the logic:  

This makes perfect sense on its face. However, a more extensive review of what is going on in S3’s ITC case against Apple suggests that HTC’s strategy may have some holes in it. You see, Apple is simultaneously challenging S3’s patents at the U.S. Patent Office through a “reexamination” process (a reexamination allows third parties to challenge the validity of patents after the patents are granted). While these patent reexamination proceedings do not automatically effect the value or enforceability of the patents asserted at the ITC, there is a history in this particular ITC dispute between S3 and Apple that at least suggests recent reexamination developments may cause S3, and now HTC, some grief.

Apple's Parallel Attack on S3's Patents

S3 argued at the ITC that Apple infringed four patents (Patent Nos. 6,775,417, 7,043,087, 6,658,146, and 6,683,978). However, the ITC found that Apple only infringed two (we'll call these the First Patent Group) of those four patents. This is not uncommon. After all, S3 only needs to prove infringement of a single claim in a single patent to be successful against Apple. This is all true, but it's difficult to look at S3’s unsuccessful attempt to convince the ITC that the other two patents (we'll call these the Second Patent Group) were infringed, and the influential events occuring in the parallel patent reexaminations at the Patent Office, and not make some predictions about what might be coming next.

The events leading up to S3’s ITC ruling against Apple are interesting. Less than a month before the ALJ ruled in the case, the U.S. Patent Office made its own initial determination that claims of two of S3’s patents were not patentable in view of relevant prior art. Not surprisingly, those two rejected patents were the same patents that make up the Second Patent Group (Patent Nos. 6,775,417 and 7,043,087) the ITC indicated were not infringed by Apple. And we know that Apple fought to get the Patent Office's patentability rejections of this Second Patent Group in front of the ALJ to strengthen its defense before the ITC ruling was handed down. So why do we care?

It is a basic patent law maxim that: an invalid patent claim cannot be infringed. Keep that in mind when considering Apple's strategy of simultaneously challenging the validity of S3's patents while defending against S3's infringement allegations at the ITC for those same patents. Apple is working to establish, via the reexamination process, that each of the S3 patents is invalid, with an eye toward using these reexamination decisions to bolster its defense in the ITC proceeding. It seems to have worked for the Second Patent Group. At a minimum, the ALJ likely found the Patent Office's rejection of the Second Patent Group compelling when ruling that Apple did not infringe those patents. 

Off Timing

So, how does any of this influence the ITC's findings that Apple did infringe the First Patent Group? After all, if the reexamination findings can influence the ITC, why did the ITC determine that Apple infringed the First Patent Group? Well, all four of S3’s asserted patents were subject to reexaminations initiated by Apple, but only the reexamination rejections for the Second Patent Group were available to the ALJ when he made his ruling on July 1. Apple simply didn’t have any reexamination news to report on the First Patent Group at the time the ALJ ruled in S3's ITC case. So have the circumstances recently changed? Yes, and the timing of the change is intriguing.  

The very day (July 1) the ITC issued its ruling that Apple infringed claims from the First Patent Group, the Patent Office issued actions in Apple’s favor, finding that the relevant patent claims from the First Patent Group were not patentable. As such, all of the patent claims remaining in the ITC ruling against Apple now have been rejected by the Patent Office. Again, this all happened on the same day. As a result, the ITC has not yet had an opportunity to consider these new Patent Office rejections of the First Patent Group. What does this mean? It means Apple is likely eager to get these recent developments in front of the ITC for consideration.

Practical Ramifications? 

The next opportunity for Apple to get this information in front of the ITC is sometime before the full Commission reviews the ALJ’s Initial Determination of infringement, in the next few months. Does this mean that the ITC will automatically adopt the Patent Office's invalidity contentions and reverse S3's infringement win against Apple? Again, no. But there should be no doubt that Apple sees an opportunity here to kill off S3’s remaining infringement case. And as S3 goes, so goes HTC - at least when it comes to using the S3 acquisition as leverage against Apple. Such a turn in events would effectively put HTC back where it was before it purchased S3, forcing HTC to face Apple's initial ITC win head on. There are many factors that can influence whether HTC retains what it perceives as valuable leverage against Apple. We’ll have to closely follow the evolution of these intertwined patent disputes to determine the final win/loss outcome. Only time will tell, but it certainly will be interesting to see how things take shape in the months to come.

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