HTC Corp (TPE:2498) and QUALCOMM, Inc. (NASDAQ:QCOM) are working to design a new chip to power the HTC One after some of the company’s other phones were banned from the U.S. for violating two Nokia Corp patents. Although the HTC One isn’t named in the suit, it uses the same offending chip, and Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has already said they believe the import ban can be extended to other, newer models, Eva Dou, Juhana Rossi and Lorraine Luk of The Wall Street Journal report.
HTC would lose out on any existing inventory
The patents in question are used to improve the phone’s connection, so it should be possible to simply alter the existing chip and produce new HTC One phones, though possibly with worse reception. HTC Corp (TPE:2498) would lose out on any existing inventory that they are unable to ship, though the older models can probably just be sold in other markets. Potential lost sales from being pushed out of the U.S. market would be far more damaging.
HTC is expected to post losses for the first time
HTC Corp (TPE:2498) is expected to post losses for the first time since it went public in 2002, and 20 percent of the company’s sales are in the U.S. To lose even a fraction of that may be more than the company can bear. The Federal Trade Commission hasn’t issued its final ruling, so there is a chance that HTC Corp (TPE:2498) could still persuade it not to include the One in the ban, but clearly they aren’t banking on that outcome. HTC Corp (TPE:2498) could also reach a licensing agreement with Nokia, though it might be cheaper to simply retool what they have and avoid a new recurring cost.
Essentially, the same case is also working its way through U.S. District courts, and if HTC loses there as well it could be forced to pay damages to Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) for violating its intellectual property rights.
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), once one of the world’s leading phone manufacturers, is going to sell its phone business to Microsoft Corporation (NASDAQ:MSFT), and now exists primarily to make money from its extensive set of telecommunication patents. The company estimates that it will rake in $675 million from patent loyalties, and the decision to sue HTC Corp (TPE:2498) can be seen as a way of protecting this new business model.