Ammon News - (Bloomberg) - Samsung Electronics Co. (005930)’s patent-infringement victory over Apple Inc. (AAPL) turned hollow after President Barack Obama’s administration overturned an order barring shipments of some older iPhone models into the U.S.
U.S. Trade Representative Michael Froman, designated by Obama to review the case, yesterday said a ban on versions of the iPhone 4 and iPad 2 3G was unwarranted, based on his consideration of public-policy issues regarding patents on fundamental technology for mobile devices.
It was the first time the executive branch has overturned an import ban ordered by the U.S. International Trade Commission since 1987, when President Ronald Reagan did so in a case involving Samsung computer-memory chips.
“We applaud the administration for standing up for innovation in this landmark case,” Apple spokeswoman Kristin Huguet said in an interview. “Samsung was wrong to abuse the patent system in this way.”
Apple had been ordered to stop importing versions of the Chinese-made iPhone 4 and iPad 2 3G designed for networks run by AT&T Inc. (T), T-Mobile US Inc. (TMUS) and two regional carriers in Texas and Alaska. Cupertino, California-based Apple was counting on the Obama administration’s increased interest in patent disputes to sway the president.
“We are disappointed that the U.S. Trade Representative has decided to set aside the exclusion order issued by the U.S. International Trade Commission,” Nam Ki Yung, a spokesman at Samsung’s headquarters in Seoul, said today in a mobile-phone text message. “The ITC’s decision correctly recognized that Samsung has been negotiating a license in good faith and that Apple remains unwilling to take a license.”
Standards Patents
Apple sold $78.7 billion worth of iPhones last fiscal year, making up half of the company’s revenue. It doesn’t break out sales by model.
It counts on older iPhone models, often given away with a two-year contract, to entice new customers. Sales of older iPhones helped Apple top analysts’ earnings projections in the fiscal third quarter.
IPhone 4 models sold for other networks wouldn’t have been covered by a ban, nor would newer devices including the iPad mini and iPhone 5. The company is expected to release new iPhone and iPad models later this year.
Froman said a four-page ruling that Obama assigned to him the task of evaluating the ITC’s exclusion order on the Apple devices. Froman said he based his decision on the fact that standards patents were at the core of Samsung’s case and the Obama administration has expressed concerns that “potential harms” can result if patent holders use those as leverage against competitors.
‘Patent Hold-Up’
The Samsung patent covers a way data are transmitted over communications networks. It’s a feature in a widely used technological standard agreed on by the mobile-device industry.
Companies that work to establish standards have the advantage of knowing their inventions have to be used in all products in an industry. In turn, they pledge to license any relevant patents on fair and reasonable terms.
There’s a risk standard-patent holders could be gaining “undue leverage and engaging in ‘patent hold-up,’ i.e. asserting the patent to exclude an implementer of the standard from a market to obtain a higher price for use of the patent than would have been possible before the standard was set,” Froman said.
“The administration is committed to promoting innovation and economic progress, including through providing adequate and effective protection and enforcement of intellectual property rights,” Froman said.
License Obligation
At the same time, he said standards now play an important role in the economy.
“Important policy considerations arise in the enforcement of those patents incorporated into technical standards without which such standards cannot be implemented as designed, when the patent holder has made a voluntary commitment” to offer licensing on fair and reasonable terms, he said.
The Obama administration in January sent the ITC proposed guidelines to consider before ordering import bans based on infringement of standards patents.
It said that while patent owners have the right to exclude others from using their inventions, the public benefit of allowing that is limited when it comes to standards patents. The U.S. Federal Trade Commission filed a similar paper with the agency last year.
Apple, Microsoft
Apple and Microsoft Corp. (MSFT) have promised not to use any industry-standard patents they have to block competing products. Samsung and Google Inc. (GOOG), which owns Motorola Mobility and the Android operating system that’s the most popular platform for mobile phones, reserved the right to use them if the other side is an “unwilling licensee.”
Four U.S. senators wrote to Froman on July 30, asking him to “assess the substantial public interest considerations” of using standards patents at the ITC. The senators were Democrats Amy Klobuchar of Minnesota and Barbara Boxer of California, and Republicans Mike Lee of Utah and James Risch of Idaho.
Samsung demanded 2.4 percent of Apple’s iPhone and iPad revenue, which would come to about $18 per phone, Apple argued in its filing with the trade representative. It accused Samsung of being unreasonable.
Samsung, which is under investigation by European regulators on allegations of patent misuse, agreed to not seek sales bans based on its standard-essential patents on that continent. It made no such promise in the U.S. and defended its position, saying Apple refused to pay on any terms.
‘Unwilling Licensee’
“By any definition, Apple is an unwilling licensee of Samsung’s declared essential patents,” Samsung wrote in the filing.
Two federal judges have said Google’s Motorola unit can’t use standards patents to seek court bans of competitors’ products. One of those rulings, against Apple, is scheduled for arguments before the U.S. Court of Appeals for the Federal Circuit on Sept. 11. The other involves a Microsoft breach-of-contract complaint against Google scheduled for trial in Seattle later this month.
The Apple case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, and Samsung’s case is In the Matter of Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-794, both U.S. International Trade Commission (Washington).
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