updated 06:00 pm EDT, Sat August 3, 2013
Last-minute ruling is the first ITC reversal since 1987
US Trade Representative Michael Froman, on behalf of the Obama administration, has decided to invoke a Presidential veto of the recent ITC ruling against Apple that would have resulting in a sales ban on GSM iPhone 4 devices (and other models no longer being actively sold). The ruling, in which the ITC reversed its own prior judgements on whether a Standards Essential Patent (SEP) that is under dispute should ever qualify for a sales injunction, was widely criticized even by Apple's competitors as a poor decision that overstepped the ITC's boundaries.
"After extensive consultations with the agencies of the Trade Policy Staff Committee and the Trade Policy Review Group...I have decided to disapprove the USITC's determination to issue an exclusion order and cease and desist order in this investigation," Ambassador Froman said in a letter to the US International Trade Commission Chair Irving A. Williamson. "This policy decision is not an endorsement or a criticism of the Commission's decision or analysis. My decision to disapprove this determination does not mean that the patent owner in this case [Samsung] is not entitled to a remedy. On the contrary, the patent owner may continue to pursue its rights through the courts," the letter concludes.
The very-last-minute ruling was most crucial to Apple's continued selling of the iPhone 4, the only model it still carries that allegedly infringes on an SEP patent held by Samsung. In a statement, the Korean manufacturer expressed disappointment with the ruling, saying that "the ITC's decision correctly recognized that Samsung has been negotiating [a license for the SEP] in good faith and that Apple remains unwilling to take a license."
However, Samsung's statement omits the fact that Samsung has tied granting a license on the SEP (which normally requires Fair, Reasonable and Non-Discriminatory -- aka FRAND -- terms) to Apple granting Samsung a FRAND license on non-SEP patents it is already violating. The ruling of the ITC -- which inferred that this was an acceptable practice -- is what has drawn the most criticism.
"I believe the ITC's majority opinion was so out of step with basic antitrust rules (such as tying) and its effects would have been so very anticompetitive and anti-innovative that this veto was unfortunately necessary," wrote patent case analyst Florian Mueller. " The issue here is not primarily what would have happened to those older iPhones and iPads -- I'm sure Apple could have handled the situation somehow. The problem is that this would have made the ITC the forum of choice for SEP abusers (strategic abusers who want to get away with infringement of non-SEPs as well as overly aggressive monetizers)."
An Apple spokesperson applauded the court's ruling saying that the administration was "standing up for innovation in this landmark case" and adding that "Samsung was wrong to abuse the patent system in this way." The company is also appealing the ITC final ruling -- which reversed its own preliminary finding -- to the federal courts, arguing that both the final ruling and the sales injunction would cause "long-term, dynamic harm" to competition and innovation for all companies, not just Apple. The ruling from the ITC was issued with one dissent which agreed with the same arguments Apple is making in court.
Despite Samsung's characterization of Apple as an "unwilling" licensee of the SEP, in fact Apple has had numerous face-to-face meetings with its rival over the matter, but calls Samsung's 2.5 percent royalty -- which would amount to about $18 per iPhone -- "unreasonable," saying it violates the FRAND obligations Samsung promised to abide by when it declared the patent standards-essential. Apple is having similar trouble with Google's Motorola Mobility, which seeks a similarly high royalty on SEPs (widely judged to be orders of magnitude higher than the actual FRAND rate).
This is the first time an ITC ruling has been vetoed by a presidential administration since 1987 when the Reagan administration overturned a ban -- ironically in another case involving Samsung. In a further twist, despite the reversal being seen as a loss for Samsung, the Galaxy smartphone maker will almost certainly benefit from Ambassador Froman's admonition to the ITC that it consider more carefully the implications of sales injunctions against SEPs in the long run.
Samsung is currently battling a company called InterDigital in an entirely different ITC complaint involving SEPs that could have seen Samsung's products banned if the court rules in InterDigital's favor. This is now seen as less likely thanks to the threat of vetos, overrides and court challenges if the ITC again wrongly imposes a sales ban over disputed SEPs.