Apple Mac OS X Violates S3 Patents, IPhone Cleared, ITC Says

Apple Inc. (AAPL)’s Mac OS X computer system violates patents held by S3 Graphics Co., while the platform for the iPhone, iPod Touch and iPad tablet doesn’t, a U.S. agency said in a July 1 ruling made public today.

Mac computers have an operating system that infringes two S3 patents related to graphics chips, U.S. International Trade Commission Judge James Gildea said. Notice of the ruling was disclosed July 1 without explaining which products were in violation. Additional information was released today.

Closely held S3, which agreed this month to be bought by Taiwanese smartphone company HTC Corp. (2498), makes image-compression technology. If Gildea’s decision is upheld in a review by the full six-member commission, the ITC can ban U.S. imports of some Macs, which generated $17.5 billion in sales last fiscal year, or 27 percent of Cupertino, California-based Apple’s revenue.

Macs that have Nvidia Corp. (NVDA) graphics processing units have an implied license to the patents, the judge said. Gildea found that two other S3 patents were invalid, as were aspects of the two patents found to be infringed. Fremont, California-based S3’s Texture Compression feature is used in Nintendo Co.’s Wii and Sony Corp.’s PlayStation portable gaming systems.

The iPhone and iPad are no longer under threat of a ban from the S3 case. The two devices accounted for about 46 percent of Apple’s revenue last fiscal year, according to data compiled by Bloomberg.

HTC Flyer

HTC, which makes phones that run on Google Inc.’s Android operating system, agreed to pay $300 million to buy S3 on July 6 in an effort to boost its standing in a patent dispute with Apple. A different ITC judge found on July 15 that HTC’s Android phones infringed two Apple patents, a decision that could lead to a block of the HTC phones from the U.S. if upheld.

Apple filed a separate complaint against HTC at the trade commission on July 15, this one targeting the new Flyer tablet computers as well as HTC’s Android-based phones.

HTC Chief Financial Officer Winston Yung said in an interview today that the companies have had talks to settle the fight “on and off,” and the Taoyuan, Taiwan-based company is open to a settlement.

The full ruling on the S3 case isn’t yet public as the companies debate what confidential information should be redacted, Gildea said. The conclusion naming specific products was released at Apple’s request, according to the order.

The case In the Matter of Certain Electronic Devices with Image Processing Systems, 337-724, U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net.

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net

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