A California-based maker of image-compression technology has been acquired in a strategic move that can be seen as a battle in a war between two tech industry giants.

HTC Corp., the world’s second-largest maker of smart phones, agreed to acquire S3 Graphics Co. earlier this month. Of most interest to HTC may be S3’s patented image technology, which is also used in Nintendo’s Wii and Sony’s PlayStation. HTC will pay $300 million for S3, which is based in Fremont, California.

HTC has been locked in a legal battle with Apple over several patents, with the two companies suing and counter-suing each other for patent infringement. S3, on the other hand, recently won a lawsuit against Apple regarding two image-compression patents Apple allegedly used in making its popular consumer electronics products. That explains why S3’s patents are so interesting to HTC – it’s been proven they are immune to Apple lawsuits. HTC’s chairwoman even commented that S3’s patent portfolio is a large part of what made it appealing. HTC will acquire 235 patents as part of the purchase. Most of the patents are related to graphics technology.

Although the names of the companies involved in this transaction may not be familiar to most people, their products are most likely known to consumers. HTC makes the EVO and Sensation 4G smart phones and Apple makes the iPod tablet and the industry-leading iPhone.

The technology behind small consumer electronics like tablets and smart phones have been causing a lot of contention among technology companies as of late. Apple has also been fighting with Oracle over software used in smart phones. Given the public’s appetite for new gadgets, the cutthroat competition between tech firms is not likely to die down any time soon, meaning this should remain an interesting industry to follow.

Source: Bloomberg, “HTC to Acquire Chip Designer S3 Graphics, Securing Patents in Apple Fight,” Tim Culpan, 6 July 2011.