Wednesday, March 13, 2013

ITC postpones Samsung-Apple ruling to May 31, apparently found infringement of FRAND patent

The United States International Trade Commission (USITC, or ITC) has just given notice of a determination to extend (once again) the target date for its final ruling on Samsung's complaint against Apple, and to seek further briefing from the parties and input from the public on the potential impact of an import ban against the accused iPhones and iPads.

The Commission notice focuses on the scenario of an infringement finding of the asserted claims (75, 76, and 82-84) of U.S. Patent No. 7,706,348 on an "apparatus and method for encoding/decoding transport format combination indicator in CDMA mobile communication system", an allegedly UMTS-essential patent. Given the advanced stage of this investigation it's pretty clear that the Commission is presently inclined to hold Apple to have infringed at least one of the asserted claims of the '348 patent. That's why public interest considerations regarding an import ban against the accused products as well as FRAND licensing issues (relating to the history of negotiations between the parties) are now the kinds of topics on which the Commission is seeking further input.

This development is neither a huge surprise to me nor all bad news for Apple. On September 14, Administrative Law Judge (ALJ) E. James Gildea had recommended the dismissal of Samsung's complaint, finding no violation with respect to any of the four remaining patents-in-suit. In my analysis of the full text of Judge Gildea's initial determination (and the ITC staff's related recommendations) I wrote that the '348 patent was "probably Samsung's best shot at the review stage". Samsung declared this patent and another patent-in-suit (the '644 patent) essential to the third-generation cellular standard (UMTS). That's why FRAND issues were already key when the Commission review started.

The good news for Apple is that the Commission now wants the parties to brief their positions on FRAND licensing questions. The judge disagreed with Apple, and now the Commission allows not only pleading based on evidence previously filed but also the submission of new evidence. Samsung's 2.4% royalty demand will finally come under scrutiny. For example, Commission question 6 requests a summary of "all licenses to the '348 patent granted by Samsung to any entity". It's a safe assumption that no one (at least no serious player in this industry) is paying Samsung a royalty anywhere near its prohibitive 2.4% demand from Apple. Also, the Commission wants to apply the Georgia-Pacific factors, a set of criteria for patent infringement damages, to its analysis of Samsung's royalty demand. While the Georgia-Pacific framework can lead to overcompensation of patent holders (especially in the SEP context), Samsung's 2.4% demand is so outrageous that it can't possibly be justified even under Georgia-Pacific.

The ITC has now given its first indication in the current wave of smartphone patent disputes as to how it intends to analyze FRAND licensing defenses. Without a doubt the ITC is absolutely unwilling to deny injunctive relief based on FRAND-pledged SEPs as a general rule. The ITC wants to continue to be the forum of choice for abusers of FRAND-pledged U.S. patents, and it won't remove the threat of SEP-based exclusion orders. But FRAND defenses can succeed depending on the ITC's analysis of the patent holder's royalty demands and the overall history of licensing negotiations. For a deep-pocketed, sophisticated litigant like Apple, that's acceptable. For some other litigations, it means that FRAND patent abusers will be able to leverage ITC investigations to extract non-FRAND terms. This is a serious policy issue as I wrote earlier today in my commentary on an ITC judge's denial of a motion to stay an investigation of an InterDigital complaint. Last year the United States Senate held a hearing to discuss the problem of SEP-based ITC import bans.

Samsung's only chance would have been for the ITC to find that Apple somehow "waived" its right to raise FRAND arguments. But Apple's FRAND defenses are alive, and Samsung won't be able to overcome them. Samsung's conduct in its SEP licensing negotiations with Apple has been viewed unfavorably by regulators and courts around the globe:

Even if Samsung convinced the ITC that all these regulators and other courts got it wrong, which I doubt very much, an import ban would not necessarily apply to Apple's current products. In the proceedings before the ALJ Samsung accused only older Apple products of infringement of the '348 patent: the AT&T models of the iPhone 4 (but not the 4S or 5), 3GS and 3, and of the iPad 3G and iPad 2 3G. One of the questions the Commission raised in today's notice relates to what an import ban would then mean for Apple's newer iPhones and iPads implementing the standard in question. The specific issue here is that Apple switched baseband chip suppliers. Its newer products come with Qualcomm chips, and the licensing situation between Qualcomm and Samsung is a different one than the agreement Samsung had in place with Intel and Infineon (Intel acquired Infineon's wireless baseband chip division). The iPhone 4S and the "new iPad 4G" were the first Apple products to come with Qualcomm chips. Courts in France and Italy agreed with Apple that Samsung's license agreement with Qualcomm precluded it from seeking cellular SEP-based injunctions against Apple products incorporating Qualcomm baseband chips. Also, it's interesting that Samsung did accuse the iPhone 4S during the course of this investigation, but not of infringement of the '348 patent.

In a parallel case the ITC is investigating Apple's complaint against Samsung (no SEPs involved there). A final ruling on that case is likely to issue this summer.

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