The Legal Blues Continue for These Tech Companies

Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The technology sector has been in the news for all the wrong reasons over the last few years. The tough competition in the sector forces companies to make compromises and push legal boundaries. This is the very reason that this sector has one of the largest number of lawsuits and infringement claims. Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL) are the two most active companies in this regard, and are almost always in the news for their legal battles. The huge size and global presence of these companies makes them an easy target for accusers and their own misadventures.

Reduced Award

Apple is currently involved in dozens of infringement lawsuits all around the world to protect the unique identity of its iOS, iPhone, and iPad.  Apple won a huge victory against its arch rival Samsung last year when the Korean company was fined a massive $1 billion for infringing on Apple patents. The decision also allowed for the damages to be tripled if the infringement was willful. This was considered a major victory for Apple in its war against other smartphone companies trying to sell high-end smartphones. More importantly, it was taken as the first major victory over Google’s (NASDAQ: GOOG) Android, the rival smartphone operating system that provides a user experience to rival that of iOS. Steve Jobs, the co-founder and late CEO of Apple had promised that he would conduct ‘thermo nuclear warfare’ against Android, and this was one of the first bombs dropped in that war. 

Unfortunately, these days the bad news from Apple investors just doesn’t seem to end. Last Friday a jury overturned the previous billion dollar award to Apple, slashing it by nearly 40% to $599 million. According to Judge Koh, the jury had made incorrect calculations on damages and a new trial was ordered to recalculate the damages. This new trial could means that the award of $450 million might be reduced or increased. The judge also said in her ruling that the court has found an impermissible legal theory on which the award for the 14 devices was based on. The market reacted negatively to the news, and the share price of Apple further slipped 2.5%. This is a major win for Google, because the entire Android operating system had been put under the legal microscope after Apple’s victory over Samsung.

Microsoft’s European Troubles

The software giant has been involved in some of the most high profile litigations of the last decade. The company has already faced legal scrutiny both in US and aboard for engaging in anti-competitive behavior. The PC industry might be heading downhill, but it seems that the legal troubles for Microsoft are still not over. According to a recent ruling by a European court, Microsoft was fined $731 million because it had failed to offer a choice of web browsers to new Windows users. The company had promised the court that it would provide such an option back in 2009.

According to the commission’s investigation, Microsoft failed to give this choice to approximately 15 million users between May 2011 and July 2012. Reports also indicate that this is the first time that the EU’s antitrust authority fined a party for not meeting its obligations. The total fine amounts to a mammoth 11% percent of Microsoft’s quarterly profits and has a net effect of $0.087 per share.  The software giant has already taken responsibility for the incident and cited technical issues as the reason for this massive misstep.

Bottom line

The last couple of weeks have not been good for US technology companies when it comes to lawsuits. Apple will continue its legal war against other handheld manufacturers, but I believe designs of competitors are becoming more unique now because other companies are also spending more on R&D. Apple will also have to increase its R&D spending, as it has one of the lowest R&D/Sales ratios in the industry. Meanwhile, Google should closely monitor the fines levied against Microsoft because the search giant is already involved in a dispute with the EU commission over ranking of search engine results.

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