Thursday, March 14, 2013

Dissenting opinion says ITC should not have allowed Apple and Samsung to present evidence and argument at this late stage

At close of business on Wednesday the ITC once again delayed its final ruling on Samsung's complaint against Apple (until May 31, 2013) and asked the parties for input (argument as well as potentially new evidence) with respect to the FRAND licensing issues relevant to the only Samsung patent the ITC appears to be inclined to find infringed. The ITC's notice mentioned that a dissenting memorandum by Commissioner Shara L. Aranoff would appear on the trade agency's electronic document system. I've just downloaded it, and this is what Commmissioner Aranoff says:

"On March 13, 2013 the Commission determined to seek additional written submissions on public interest issues in the above referenced investigation. Commissioner Shara L. Aranoff dissents from the Commission's decision. In her view, the parties, as well as the public, have had several opportunities to present evidence and argument on public interest issues relevant to this investigation and should not be afforded another opportunity to raise isues they chose not to raise to date."

Commissioner Aranoff undoubtedly feels that there was enough material in the record for the Commission to make a decision. Her statement does not indicate whom such a decision would favor -- Apple or Samsung.

From a procedural and institutional point of view Commissioner Aranoff undoubtedly has a point: this investigation started in mid-2011, the initial determination came down six months ago, and third-party stakeholders were already invited to comment on certain FRAND issues late last year. Also, stakeholders already shared their views on standard-essential patents (SEPs) with the Commission in the investigations of Motorola's complaints against Apple and Microsoft.

As I wrote yesterday, the questions raised by the Commission suggest to me that Samsung is not going to overcome Apple's FRAND defense. The Administrative Law Judge (ALJ) had dismissed Apple's FRAND defenses inhis preliminary ruling, but since he identified no violation, he wouldn't even have had to reach those issues. He addressed them anyway, and in a way that is squarely at odds with the positions taken by U.S. federal judges in different circuits and districts as well as antitrust regulators not only in the U.S. but also in Europe. Now that the reasonableness of Samsung's 2.4% royalty demand is going to be analyzed, I don't think Samsung is going to get a more favorable outcome at the ITC than it did in other jurisdictions including Japan and the Netherlands, where its insistence on its initial 2.4% demand was considered unreasonable.

Should Commissioner Aranoff have meant to say that there was enough evidence in the record to throw out Samsung's request for an SEP-based import ban, then I would agree with her wholeheartedly. If one extrapolates Samsung's 2.4% demand to the totality of FRAND-pledged cellular SEPs that an iPhone or 3G/4G iPad must implement, it's clear that no one could have a viable business anymore in this industry. But if the Commision needed some more evidence to support this conclusion, then the request for information on the terms of Samsung's other license deals involving its portfolio of SEPs in general and the particular SEP at issue here is going to carry the day for Apple. I'm convinced that no serious industry player is paying Samsung 2.4% for its cellular SEPs.

While I understand Commisioner Aranoff's criticism of the procedural path chosen, I believe that the late-stage reopening of the factual record is simply due to the fact that the ITC is in the process of defining its position on SEPs. In the past the mere threat of exclusion orders typically resulted in settlements, and various other SEPs asserted at the ITC were withdrawn or not found infringed. Now there are cases in which the ITC actually has to decide on potential SEP-based exclusion orders, and it's just developing its case law in this area. After this Samsung-Apple case, ALJs presiding over other investigations are going to have some useful guidance as to what kinds of evidence and argument are relevant. So far different ALJs had different approaches. In a Motorola-Microsoft case a 2.25% royalty demand was (rightly in my opinion) considered irreconcilable with a FRAND licensing obligation. In the Samsung-Apple case, the ALJ basically said that Apple failed to convince him that Samsung's 2.4% demand is a FRAND violation. (The numbers can't be compared directly because different standards, patents and products are at issue, but the inconsistent approaches become clear regardless of those parameters.)

Another special circumstance is that the ITC is well aware of the proposed FTC-Google consent order relating to SEPs, even though this isn't binding precedent. The analysis the ITC is going to perform now will also shed light on the question of whether Apple is a willing licensee (and, conversely, whether Samsung is a willing licensor or just made a prohibitive offer in order to have an excuse to seek an exclusion order). The FTC published its envisioned settlement with Google in early January, after Apple, Samsung and third parties briefed the ITC prior to yesterday's request for further evidence and argument. This is also a non-reoccurring circumstance that I believe justifies some procedural flexibility.

My concern about the ITC's approach is primarily that it's extremely burdensome on defendants. I'm not worried about Apple, which has the resources and sophistication to deal with this. But the ITC should make it generally easier, also with a view to less well-heeled and less experienced respondents, to fend off abusive injunction requests based on SEPs. Other fora have been able to deny Samsung injunctive relief in more efficient ways.

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