(AAPL) Apple’s Injunction Bid Rejected

Apple Inc. (AAPL) received an adverse ruling from a federal judge in Oakland, California. Apple had sought to prevent Amazon.com Inc. (AMZN) from using the “App Store” name, according to a report from news agency Reuters.

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.

Earlier, in March 2011, Apple filed a trademark infringement lawsuit against Amazon, accusing the latter of using the words “App Store” since January 2011 for its mobile software download service, stating that Amazon violated the trademark law, potentially confusing developers and consumers.

Apple also argued that Amazon has been promoting a program called Angry Birds Rio on its website with plans to launch it soon. Apple’s objection is related to the fact that its App Store already boasts a very popular program called Angry Birds.

Apple requested the court to restrict Amazon from using the name but did not make a claim for damages. The trial date is expected in October 2012.

Amazon, in its defense, stated that the company uses the word ”Appstore” without a space in between and a lower case “s”, not the way Apple uses it. Amazon further argued that the term is generic and therefore not protectable.

On July 17, 2008 Apple gained the trademark right to use the term “App Store” from the US Patent and Trademark office following the roll out of its 3G-enabled iPhone. Apple’s App Store has been the most successful of its kind, offering over 350,000 games, news and various other downloadable applications for Apple devices such as iPhones, iPods and iPads.

Apple and Amazon are direct competitors in the digital downloading space, as well as in other businesses such as e-books and online movie sales.

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. The 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.

Besides Amazon and Microsoft, Apple remains entangled in a number of lawsuits with HTC, Samsung and Eastman Kodak Co. (EK).

Most recently, Apple lodged patent infringement complaints against Samsung at the International Trade Council (ITC), as reported by news agency Bloomberg. Apple claims that Samsung is infringing seven patents related to the technology and design of the iPhone and the iPad. Apple is also seeking 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 last week that seeks to block imports of Apple’s iPhone and iPad.

ITC typically completes its reviews in 15 to 18 months and has the authority to block import of products that infringe U.S. patents.

Last week, Apple also filed a petition in a federal court in San Jose, California, to stop Galaxy S 4G, Infuse 4G, Droid Charge and Galaxy Tab 10.1 sales until a patent-infringement trial is held.

Apple and Samsung are fighting lawsuits in at least five countries including South Korea, Japan, Germany and the United Kingdom. Although Apple was Samsung’s biggest customer at the end of the March quarter, their relationship has deteriorated in the recent past, due to increasing competition.

Our Take

Apple remains heavily dependent on iPhone sales (50% of second quarter sales) and we believe the company will undertake every possible step to safeguard its dominant position in the smartphone and tablet market, including further lawsuits against major competitors and also allies such as Samsung.

Moreover, as reported in the Wall Street Journal, Apple is expected to launch an upgraded iPhone 5 by September 2011, in order to maintain its dominant position in the smartphone market. Since launching the device in 2007, Apple has sold 108.6 million iPhones.

However, increasing legal complexities and stiff competition in the smartphone and tablet markets remain headwinds for Apple over the long term.

We maintain our Hold rating over the long term (6-12 months). Currently, Apple has a Zacks Rank of  #3, which implies a Hold rating in the near term.

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