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Veto of Apple Ruling Likely to Upend Big Patent Battles
By Ian Sherr | The Wall Street Journal – 10 hours ago
The Obama administration's decision to overturn an international trade ruling against Apple Inc.—the first such veto in more than 25 years—promises to upend long-running battles over intellectual property in the smartphone market and change the strategies some of the world's biggest technology companies use to defend their inventions.
Increasingly, those companies have been using patents to try to hobble rivals in a mobile-device market expected to top $400 billion this year. In 2012, the number of patent cases filed in the U.S. jumped nearly 30% from a year earlier to 5,189, according to consulting firm PricewaterhouseCoopers.
Agence France-Presse/Getty Images Trade Representative Michael Froman based the decision on the potential harm the ban would cause to consumers.
Apple and Samsung Electronics Co., in particular, have been engaged since April 2011 in patent fights throughout the world. In the case that provoked Saturday's veto, the U.S. International Trade Commission in early June ruled that sales of some older iPhones and iPads should be banned because Apple infringed a Samsung patent.
Such orders, and the role of the ITC, have split the technology industry, raising questions about how best to promote innovation. Companies including Intel Corp. and Microsoft Corp. fear that injunctions stemming from patents on tiny features of their products could restrict their ability to bring improved devices to consumers. They and some other tech companies argued against ITC sales bans in such cases.
Other companies that make money from licensing patents, including Qualcomm Inc., take the opposite position. They argue that courts and trade bodies need to be able to impose sales or import bans or the value of patented inventions will be diminished.
"Once you get a patent, how do you know what it's worth because your expectations are changing on a daily basis because of what the courts say, what the ITC says and now what the White House says?" said Christal Sheppard, a former ITC attorney who is now an assistant professor at the University of Nebraska College of Law.
One of the industry's starkest divides has been over the type of patent at issue in the ITC case, one of many covering basic kinds of functions that many companies' products have to perform—in this case, connecting to a wireless network.
Such patents are deemed to be essential to creating products based on technical standards set by industry groups. Companies are expected to license these "standard essential" patents on fair, reasonable and nondiscriminatory terms.
In a letter explaining the veto, U.S. Trade Representative Michael Froman, who was charged with overseeing a presidential review of the ITC ruling, said he came to his decision after extensive consultations with government trade bodies "as well as other interested agencies and persons." Mr. Froman said he based the decision on the potential harm the sales ban would cause to consumers and the U.S. economy. He suggested Samsung could still enforce its patents in the courts.
He said he "strongly shares" concerns raised in January by the Justice Department and the U.S. Patent and Trademark Office, which said ITC product bans should rarely be allowed in cases involving standard-essential patents. Among other issues, the agencies discussed the possibility that holders of such patents could use them in ways that would unduly increase the royalty rates they might receive for licenses.
The veto could discourage companies from taking patent disputes to the ITC, a strategy that had gained favor because the agency tends to issue orders in such cases faster and more easily than federal courts, patent experts said. It also could reduce some patent holders' leverage in licensing talks, cutting the commercial value of their patents.
A Samsung spokesman said the company was disappointed by the veto, and that it had behaved correctly in patent-licensing negotiations with Apple. "The ITC's decision correctly recognized that Samsung has been negotiating in good faith and that Apple remains unwilling to take a license," he said.
An Apple spokeswoman said the company applauded the Obama administration for standing up for innovation in this "landmark" case. "Samsung was wrong to abuse the patent system in this way," she said.
The Innovation Alliance, an industry group that includes patent holders Qualcomm and InterDigital Inc., said it was "tremendously disappointed" by the decision, which it said represented "perhaps the worst of all possible outcomes—a decision that overturns decades of settled understanding without clear guidance" for licensing negotiations.
Unlike a court ruling, Mr. Froman's veto, which can't be appealed, doesn't set a precedent. His letter suggests the ITC needs to take a closer look at public-interest issues in future cases, but doesn't rule out import bans involving standard-essential patents in all cases.
Indeed, the veto creates considerable uncertainty. Raymond Van Dyke, a lawyer who has argued cases before the ITC, said "the Obama administration's overruling of the commission may well be a harbinger of things to come, or it may be an outlier, a once-in-a-few decades event."
The ITC case is just one front in a global patent war between Apple and Samsung, touched off in April of 2011 when Apple accused Samsung of copying aspects of its iPhone and iPad, which were originally released in 2007 and 2010, respectively.
Apple's suits against Samsung have involved different classes of patents, including those covering the distinctive look of the iPhone and iPad, as well for individual software and hardware features. Many of Samsung's suits have cited standard-essential patents, but the South Korean company hasn't had much luck so far with them.
Apple was found not to have infringed some patents Samsung asserted in courts in California, Germany and the Netherlands. Some of Samsung's patents were also found to be invalid in cases in South Korea and the U.K., among others, according to a court filing.
Samsung is scheduled to face a ruling by the ITC Friday on whether some of its products infringe Apple patents and should be barred from import as a result. One person familiar with ITC proceedings said the commission might choose to delay that decision in the wake of the Obama administration's veto.
The veto could have an immediate impact on several other wireless industry cases pending at the agency that involve standard-essential patents.
InterDigital, for example, has brought patent infringement claims and sought product bans against several companies, including Samsung, Nokia Corp., Huawei Technologies Co. and ZTE Corp. Meanwhile, Samsung and the Swedish telecom equipment giant Ericsson filed complaints against one another at the ITC late last year.
Federal courts, meanwhile, have also been showing skepticism toward patent-infringement lawsuits that seek to ban a competitor's products, even in cases that don't involve standard essential patents.
The trend was sparked by a 2006 Supreme Court ruling in a case involving eBay Inc., which made it more difficult for companies to obtain injunctions against rival products because of patent infringement.
Since the ruling, courts have often found that monetary damages are penalty enough for a company that infringes a rival's patents.
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