Friday, August 9, 2013

ITC orders import ban against Samsung over two Apple patents -- how good are the workarounds?

Today the United States International Trade Commission (USITC, or just ITC) handed down its final ruling on Apple's July 2011 complaint against Samsung. Over the last few months the Commission, the U.S. trade agency's highest-level decision-making body, conducted a thorough review of two preliminary rulings by Administrative Law Judge (ALJ) Thomas B. Pender, and concluded that Samsung infringes the following two Apple patents, which it failed to prove invalid and with respect to which Apple established the existence of a domestic industry:

Judge Pender had found Samsung to infringe two more Apple patents: a design patent and a translucent images patent. The Commission disagreed with those parts of his decision.

An import ban has been ordered and will take effect at the end of the 60-day Presidential review period. Even though there may be expectations in South Korea that Samsung should benefit from a Presidential veto only because Apple just won one last Saturday, "me too" doesn't make sense here because standard-essential patents (SEPs) like the one over which the ITC wanted to grant Samsung an exclusion order come with FRAND (fair, reasonable and non-discriminatory) licensing obligations and can't be worked around without prohibitive switching costs, while non-SEPs are traditional exclusionary rights and, most importantly, can be worked around. In fact, Samsung presented to the ITC products that it said (and Judge Pender agreed) don't infringe. If legality is so readily available, a veto isn't warranted.

ITC import bans are not limited to the exemplary infringing products at issue in an investigation, which are typically rather old. They broadly prohibit any violations committed through the importation of infringing goods by a respondent. (In the case of Samsung's complaint against Apple, the ban is limited to older iPhones and iPads only because newer iDevices come with Qualcomm baseband chipsets, which Samsung affirmatively did not target in that case, but no such circumstance exists in Apple's offensive case.) Just like injunctions by federal courts, they do not cover workaround (or "designaround") products, i.e., products that don't come with a patented feature or implement it in a non-infringing manner. As I mentioned above in the veto context, Judge Pender also evaluated certain designaround products at Samsung's request, and held that these don't infringe the respective patents-in-suit. Apple argued that he had no legal basis to adjudicate those products, which Apple didn't accuse of infringement in this investigation. The announcement of the Commission ruling says that "[t]he orders [import ban and cease-and-desist] do not apply to the adjudicated design around products found not to infringe the asserted claims of the ’949 and the '501 patents as identified in the final [initial determination]."

The commercial impact of the import ban completely depends on the quality of Samsung's designarounds. It's one thing to avoid further infringement in a legal sense, which is always an option if the relevant patent isn't standard-essential. It's another to obey the law without an outright removal of functionality (in which case the term "workaround" is merely a euphemism for "throwout") or some more or less noticeable degradation of the user experience or performance, or incompatibilities with existing applications originally built on top of an infringing platform. Companies that have to respect an injunction (such as an import ban) always claim that their workarounds don't have a major (if any) negative impact on their products. Sometimes it's true; sometimes it's not. Sometimes they're not even right that their workarounds are legally above board. Again and again I'm surprised when commentators and analysts simply consider a patent injunction irrelevant because the convicted infringer says it has a workaround. No, it's not that simple. It depends. And any sophisticated company asserting a non-SEP knows that the other party can and, if necessary, will steer clear of infringement. They're not that stupid. Still they bring those lawsuits because forcing someone to work around is often strategically valuable. This is not about a total knock-out.

Samsung has sold at least some unknown quantities of the designaround products it presented to the ITC, but it's not known how many and how successfully. But it remains to be seen whether Samsung can comply with today's limited exclusion order in ways that don't make its Android-based smartphones and tablet computers less attractive. I'm not taking a position here on whether or not these workarounds come with a price. All I'm saying is that the commercial significance of the exclusion order depends on the viability of those workarounds, which cannot be assessed yet.

The lack of information on Samsung's workarounds also makes it difficult at this stage to assess the effect of today's decision on the prospects for a settlement of the wider, global dispute between these two players. There's no question that there will be a settlement at some point. What's unclear is whether the parties have enough guidance from the courts at this stage to reach an agreement. And sometimes it takes more than guidance: infringement can be a viable business strategy as long as right holders can't obtain meaningful remedies. For example, almost a year ago a jury found Samsung to infringe half a dozen intellectual property rights held by Apple, and the court didn't overturn any of these liability findings, but Apple has not yet received even one cent of damages (a limited damages retrial is scheduled for November) and was denied a permanent injunction. Based on how today's appellate hearing relating to that injunction request went, I believe Apple is clearly on the winning track, and the Federal Circuit's opinion on injunctive relief is going to be strategically more important for the wider Apple-Samsung dispute than any other issue or matter, including what was decided today. As I explained in the post I just linked to, the outcome of that appeal is also going to be key with a view to next year's second California trial, which involves more powerful patents. Still, today's ITC ruling is significant because it gives Apple additional leverage in the near term. All in all, today has been a good day for Apple, and the likelihood of Samsung accepting to settle on Apple's terms has definitely increased, though the dispute could also continue for another year or more (nobody knows).

Public interest

Remedies are usually a non-issue at the ITC. The ITC can't order damages, but it does order an import ban more or less every time that an infringement is identified. Public interest arguments were raised in the build-up to today's decision. In June I saw that the ITC staff (which participates in certain investigations as a third party and is not a decision-maker itself) rejected Google's public interest arguments against an import ban. Public interest submissions supporting Samsung -- some of them discouraging an import ban in general, while others just wanted to ensure that it would be "narrowly-tailored" -- were also made by politicians, carriers, and minority activists.

As I explained further above, the availability of workarounds/designarounds makes Apple's offensive ITC case against Samsung more than distinguishable from Samsung's offensive case.

In a submission to the Commission made a couple of months ago, Apple accused Samsung of lawless conduct:

"By the time the Commission issues its Final Determination, this Investigation will be nearly two years old. During this entire length of this Investigation, Samsung has continued importing electronic digital media devices that infringe Apple's Patents-at-Issue, and Samsung is still importing such infringing devices. During the entire length of this Investigation, Apple has been significantly harmed by these unabated unfair acts. Further delay in providing Apple relief would effectively subsidize Samsung’s continued infringement of Apple's intellectual property, thus creating perverse incentives for infringers, such as Samsung, and disincentives for companies that have committed to innovation through domestic investment in research and development, such as Apple. The Commission should therefore decline to tailor remedial orders to delay implementation and should instead provide for such orders to go into effect as soon as possible."

Two initial determinations reviewed

The procedural background of today's decision is slightly more complex than that of other final Commission rulings on ITC complaints. Usually there's an initial determination by the Adminstrative Law Judge in charge of the first stage of the investigation, followed by a Commission decision on whether to review the initial determination, which happens most of the time and culminates (typically after further briefing by the parties on specific review questions) in a final decision. There are also cases in which there's a remand after the first Commission review, and then another review after the judge's remand initial determination. What happened here is this: the October 2012 preliminary ruling was followed by a January 2013 order that did two things at once. The Commission said that the (original) initial determination would be reviewed in its entirety, but it didn't conduct that review immediately; instead, it also ordered a limited remand of certain infringement issues to the judge. These questions gave Apple the chance to broaden the infringement findings with respect to two patents that had already been found infringed. In April the related ruling (the remand initial determination) came down, finding Android's text selection feature to infringe two more claims of an Apple patent than previously identified. Shortly thereafter, both parties filed petitions for review of the remand initial determination (Samsung, because it disagrees with the supplemental infringement finding; and Apple, because it wanted to broaden its victory). In late May, the ITC then decided to conduct a thorough review of both the initial determination and the remand initial determination and asked the parties to comment on specific questions.

The final ruling was at some point scheduled for August 1 and then postponed by eight days.

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