The Obama administration on Saturday effectively vetoed a looming U.S. import ban on older models of Apple's (NASDAQ:AAPL) iPhone and iPad, overturning a ruling from the U.S. International Trade Commission in a rare decision that dealt a blow to Apple rival Samsung Electronics and could change how paint battles are fought.
The ruling, delivered in a letter by Michael Froman, the United States trade representative and the president's adviser on international trade issues, was the first time in 25 years that an administration had vetoed an ITC decision. The administration had to decide whether to intervene by today. Froman wrote that Samsung can still pursue its case through the courts, and Samsung indicated it plans to do so.
In June the ITC ruled that Apple infringed on a cellular data patent held by Samsung and ordered an import ban on iPhones and iPads made for AT&T Mobility (NYSE:T) and T-Mobile US (NYSE:TMUS) networks, including the iPhone 4, the iPhone 3GS, the iPad 3G and the iPad 2 3G. The ITC said Apple did not infringe on three other Samsung patents, which Samsung has appealed.
Froman wrote that his decision was in part based on the ruling's "effect on competitive conditions in the U.S. economy and the effect on U.S. consumers." Froman wrote that the ruling also was the result of fears that companies like Samsung are "gaining undue leverage" over their competitors with import bans, and that "licensing SEPs on FRAND [fair, reasonable, and non-discriminatory] terms is an important element of the administration's policy of promoting innovation and economic progress."
Froman wrote he "strongly shares" concerns raised in January by the Department of Justice and the U.S. Patent and Trademark Office, which said ITC important bans should rarely be allowed in cases involving standard-essential patents.
"We applaud the administration for standing up for innovation in this landmark case," Apple spokeswoman Kristin Huguet told the New York Times, adding "Samsung was wrong to abuse the patent system in this way."
Samsung said that it was disappointed with the ruling, adding, "The ITC's decision correctly recognized that Samsung has been negotiating in good faith and that Apple remains unwilling to take a license."
South Korea's government said in response to the ruling that it was concerned about its effect on Samsung's patent rights, according to a statement from the Ministry of Trade, Industry & Energy. The government said it will look closely at a ruling the ITC is expected to make on Friday on whether to ban U.S. imports of certain Samsung Galaxy devices following an Apple complaint of patent infringement. "We hope to see a fair and reasonable decision on the matter," the statement said.
The ruling could have broader implications for technology companies, and smartphone makers in particularly as they decide whether to pursue import bans through the ITC, a tool that has become more common in the past several years. Some technology firms such as Microsoft (NASDAQ:MSFT) have argued against such bans, while others, including Qualcomm (NASDAQ:QCOM), which makes a great deal of money through licensing patents, have argued that courts and trade bodies need to protect the value of patents.
"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?" Christal Sheppard, a former ITC attorney who is now an assistant professor at the University of Nebraska College of Law, told the Wall Street Journal.
Wells Fargo analysts Maynard Um and Munjal Shah wrote in a research note that the Obama administration ruling could change how the ITC rules in the future since it said the ITC should take "public interest" into account at the outset of any proceeding. They also wrote that companies might not seek import bans as much.
"The ITC had become an avenue for companies to pursue over U.S. courts as injunction decisions have traditionally taken less time," they wrote. "This weekend's ruling may alter the strategy of some companies and potentially change (or prolong) dispute outcomes if the ITC becomes more constrictive in handing down cease and desist orders. Note that we expect cease and desist orders to still be possible; rather, we are highlighting that there may be more scrutiny in those determinations, which could result in less cease and desist orders."
Others said the ruling, which does not set a precedent in federal court cases, could lead to a great deal of uncertainty, since it does not rule out import bans involving standard-essential patents in all cases.
The Innovation Alliance, an industry group that includes Qualcomm and InterDigital, said it was "tremendously disappointed" by the ruling, 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, according to the Journal.
For more:
- see this Obama administration ruling (PDF)
- see this NYT article
- see this Reuters article
- see this WSJ article (sub. req.)
- see this separate Reuters article
- see this separate WSJ article (sub. req.)
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