Saturday, August 3, 2013

Google says Moto X won't be subject to ITC import bans because it's assembled in the U.S.

The popularity of the United States International Trade Commission (USITC, or just ITC) as a patent litigation forum is largely attributable to the difficulties patent holders face in U.S. federal court. District courts are usually slower than the ITC, and even after final liability findings in your favor, it's still doubtful whether -- and when -- you're going to obtain meaningful remedies. The state of affairs in the first Apple v. Samsung litigation in the Northern District of California is a good example: the complaint was filed in April 2011, and in August 2012 a jury found Samsung to infringe half a dozen Apple patents. The court declined to overrule the jury on these liability findings, but Apple was denied a permanent injunction (the related appellate hearing will take place next Friday) and to date has not received even one cent of damages.

By contrast, Samsung's June 2011 ITC complaint against Apple resulted in a liability finding only with respect to a FRAND-pledged standard-essential patent (SEP), but the ITC ordered an import ban in a controversial outlier decision, which will take effect on Monday unless stayed or vetoed at the 11th hour. A ruling on Apple's ITC countercomplaint against Samsung is due next Friday, so Apple may also win an ITC import ban prior to any actual remedy in district court.

The ITC's willingness to order import bans over FRAND-pledged SEPs, its outlier positions on the antitrust issue of tying (1, 2) and the easy access to injunctions it provides to patent trolls are policy issues. Despite concerns about the efficiency and transparency of the related enforcement procedures and a drop-out rate of patent assertions by major operating companies near the 100% mark, patent infringers still fear the ITC.

Google's Motorola Mobility is a company that has been unable to prevail on any offensive claim so far at the ITC. It has three appeals of dismissals of its ITC claims going (1, 2, 3). It has been successful in its defense against Apple's complaint (Apple appealed that dismissal), but in May 2012 Microsoft won an import ban against Motorola's Android-based devices implementing a particular scheduling feature, and Microsoft is working hard to prevail on several more patents with an appellate hearing to take place on Tuesday (August 6).

Contrary to popular misbelief, ITC import bans are usually not limited to particular devices but relate to all devices by a particular company infringing a patent in a certain way, unless there are differences with respect to licensing (for example, Samsung affirmatively did not accuse newer Apple products, which come with Qualcomm baseband chipsets, of infringement of its UMTS SEP).

Thus it wouldn't matter that the new Moto X smartphone was not available at the time of the investigation of Microsoft and Apple's complaints. But in a filing in the enforcement-related dispute between Microsoft and certain government agencies and officials, Google states another reason for which the Moto X, in its opinion, falls outside the scope of an ITC import ban such as the one obtained by Microsoft (click on the image to enlarge or read the text below the image):

"Motorola recently announced a new line of phones, the Moto X™, that will be assembled in the United States and are therefore not subject to the exclusion order. [...]"

Forbes contributor Tim Worstall explained the difference between Made in America and Assembled in America in a recent post. The only part of the manufacturing of the Moto X phone that takes place in the United States is final assembly. Arguably, Google's emphasis of assembly in the U.S. is a marketing ploy. It may also be politically-motivated. And it's fairly likely that Google's analysis of the upside and downside of assembly in the U.S. also involved a plan for an end run around the ITC's jurisdiction.

In a 2011 ruling on an S3 Graphics complaint against Apple, the ITC clarified the boundaries of its mandate. The ITC can prohibit the importation of devices that infringe an asserted patent claim if the act of importation itself constitutes a violation -- as opposed to post-importation activities by the importer. For the Moto X, multiple components of wil be shipped in a non-assembled form to the U.S., and it's possible that Google's Motorola ensures that the Android software is installed only in the U.S. and not prior to importation. If an infringement dispute ever arises with respect to the Moto X, we'll all find out more about the manufacturing chain for this device. For now, what's clear is Google's position: it believes that final assembly in the U.S. puts the product outside the scope of an ITC exclusion order. If Google is right, patent holders can only assert their rights by suing in U.S. federal court (or in foreign jurisdictions), and Apple v. Samsung shows how difficult and time-consuming that process is.

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