Graphics chipset designer S3 Graphics, a subsidiary of smartphone maker HTC lost a patent infringement suit against Apple Inc.

The U.S. International Trade Commission ruled that Apple didn't violate S3's patent rights over a method of compressing images to appear three-dimensional on an electronic display. The ITC decision overturns a previous ruling in July that Apple's Mac computers infringed on two S3 patents.

"We are disappointed, but respect the ITC's decision. While the outcome is not what we hoped for, we will review the ruling once the commission provides it and will then consider all options, including appeal ," said Grace Lei, general counsel of HTC, in a statement.

The ruling has called into question the Taiwanese company's decision to buy the California-based S3 Graphics. Citigroup Inc. analyst Kevin Chang told Bloomberg that HTC could have just licensed the patents S3 owned instead of buying the company. S3 Graphics' Texture Compression feature is used in Nintendo's Wii and Sony's PlayStation gaming consoles. HTC also acquired 235 patents when it bought S3 Graphics.

HTC Chief Financial Officer Winston Yung defended HTC's decision to buy the graphics and video company.

"There are many [patents] that are very strong...we think the acquisition is justified because of all the patents," Yung told Dow Jones Newswires.

HTC had hoped that a victory with the Trade Commission would have been helped against its legal battle against Apple over patent suits. HTC and Apple have traded patent lawsuits in the ITC and U.S. District Court. The six-member ITC panel took up the latest dispute in September after an administrative law judge ruled against Apple for patent infringement against S3. The decision is the first time the commission has ruled on one of the dozen cases still pending at the agency.

Apple has declined to comment on the issue.