Tuesday, June 4, 2013

ITC bans importation of older iPhones and iPads into the U.S. over 3G-essential Samsung patent

The United States International Trade Commission (USITC, or just ITC) has just ordered a U.S. import ban against older iPhones and iPads which were found to infringe a cellular standard-esential patent (SEP) asserted by Samsung, 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 3G-essential patent). Newer iPhones and iPads coming with Qualcomm baseband chips (starting with the iPhone 4S) are definitely not affected, limiting the potential impact of this decision on Apple's revenues -- basically, Apple would have to make the iPhone 4S its entry-level iPhone model and discontinue U.S. sales of older iPhones (and the "new iPad 4G", the third-generation iPad, its entry-level model for iPads with cellular connectivity; WiFi iPads are not affected at all). Formally the decision also relates only to the AT&T versions of those older products, but Samsung reserved the right to allege infringement by Apple products running on other networks (unless they come with Qualcomm baseband chips).

The decision terminates the investigation of Samsung's complaint against Apple. The exclusion order (import ban) will enter into force unless vetoed by the White House during the 60-day Presidential Review period. Apple will appeal the ruling to the United States Court of Appeals for the Federal Circuit and said in a statement that there's no impact (for the time being) on the availability of iPhones and iPads in the U.S. market.

This decision is a major surprise. Observers expected an infringement finding with respect to the '348 patent after the ITC asked the parties and third-party stakeholders questions relating to this scenario (several months after a first list of partly FRAND-related questions), and prior to that I had written in my analysis of the preliminary ruling by an Administrative Law Judge that this patent was Samsung's best shot in this case. But I can't believe that the ITC has completely thrown out Apple's FRAND defense ("[t]he Commission has determined that Samsung's FRAND declarations do not preclude [import bans]"), taking a position that is fundamentally inconsistent not only with how U.S. federal courts have recently adjudged SEP-based injunction requests (1, 2) but also with opinions expressed by antitrust regulators and, especially, U.S. lawmakers. With a view to this decision, four Senators and four Congressmen (from both sides of the aisle) reiterated concerns over SEP-based import bans. Last year the Senate and the House of Representatives held hearings on this issue, with bipartisan consensus that holders of SEPs should not be allowed to renege on their FRAND licensing pledges by seeking import bans from the ITC that federal courts would likely deny.

The White House earlier today proposed a package of patent reform measures, and the fifth legislative proposal on this list aims to raise the bar for ITC exclusion orders. (You can find a few comments from me on the patent reform initiative in this Bloomberg BusinessWeek article.) Under these circumstances it is quite possible that the White House will veto the ITC's decision, and the ITC could not have done more to show to Congress that its granting of injunctive relief is far too permissive and a threat to the U.S. tech sector, irreconcilable with the ITC's original mission to protect domestic industry against unfair imports. Critics of the ITC have warned all along that this trade agency with quasijudicial powers is not going to reform itself and have urged lawmakers to require the ITC to apply a standard to import ban decisions that should be more (or fully) consistent with the eBay v. MercExchange four-factor test applied by U.S. federal courts. (The inconsistency in those standards is also highlighted by the fact that a federal judge denied Apple an injunction against Samsung despite a jury verdict identifying infringement of half a dozen non-standard-essential intellectual property rights.)

Not only does the ITC recommend an import ban but it also determined that a cease-and-desist order (preventing Apple from selling, after the exclusion order enters into force, any already-imported infringing devices in its inventory) was appropriate. Interestingly, this remedy was denied to Apple when it won an import ban against HTC over a non-SEP.

Depending on how quickly Congress will fix the problem that the ITC gives SEP abusers and patent trolls access to injunctive relief that they wouldn't win in U.S. federal court, the impact of today's decision on other cases may be limited. But if Congress doesn't move quickly, other SEP abusers might be able to leverage today's decision in settlement negotiations with implementers of industry standards.

The decision was not unanimous: "Commissioner Pinkert dissents on public interest grounds from the determination to issue an exclusion order and cease and desist order."

Samsung's track record in asserting patents against Apple has been rather dismal. More than two dozen SEP assertions by Samsung, and all of its non-SEP assertions, have failed so far, though Samsung has not yet exhausted all appeals and some German cases have only been stayed, not definitively dismissed. Prior to today's ITC decision Samsung won a couple of SEP infringement rulings against Apple in its own country, South Korea, where an injunction was ordered but stayed, and it also proved infringement of an SEP in the Netherlands, where injunctive relief had previously been ruled out and Samsung is only entitled to (limited) monetary compensation.

Samsung's SEP assertions against Apple -- demanding a 2.4% royalty, which Apple rejected as blatantly unreasonable, and seeking injunctive relief in various jurisdictions (according to a recent Apple filing, even before making any SEP licensing offer, which Samsung disputes) -- have already prompted a Statement of Objections (SO), a preliminary antitrust ruling, by the European Commission, and investigation by the United States Department of Justice (DoJ), and an investigation by the Korean antitrust authority. But if U.S. competition enforcers had acted more forcefully, today's decision would never have happened: in the EU, Samsung felt forced to withdraw all of its SEP-based injunction requests against Apple in December.

Samsung brought this ITC complaint in late June 2011 over five patents. Apple filed its own ITC complaint about a week later, and a preliminary ruling in Apple's favor is currently undergoing a thorough review, with a final ruling currently scheduled to come down on or before August 1.

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