Wednesday, August 7, 2013

USTR disapproves of ITC decision on Apple import ban

Wednesday, August 07, 2013
On June 4th, 2013, the International Trade Commission (ITC) issued a ruling prohibiting Apple Inc. (Apple) from importing its iPhone 3G, iPhone 3Gs, iPhone 4, iPad and iPad 2 because they infringe a patent owned by Samsung Electronics Co. (Samsung). On August 3rd, the United States Trade Representative (USTR), in a rare interventionist move, disapproved of the ITC’s ruling allowing Apple to continue its importation of the infringing products.

Under § 1337 of the Tariff Act, the ITC may issue an exclusion order (injunctive type relief) against an entity that imports a patent infringing product. In deciding whether to grant the exclusion order, the ITC must consider the effects of the order on US trade and commerce. If the ITC believes that the public interest would not be best served by the issuance of the exclusion order, it has the discretion to refuse it.
Samsung’s patent is what is known as a “standard-essential patent” (SEP). These patents cover inventions that must be incorporated into a given device if they are to meet some applicable technical standard. SEPs have the potential to give vertically integrated patent holders an advantage over their competitors whom, for all intents and purposes must license the technology from them.
To combat anti-competitive behavior while still allowing the best technology to form industry standards, standards-developing organization (SDOs) encourage patentees to establish “fair, reasonable, and non-discriminatory” (FRAND) licenses. FRAND licenses allow any player in a given market, incumbents and new entrants, to obtain a license to use the SEP technology on a fair and reasonable license thereby stimulating a more robust and competitive marketplace and eliminating a phenomenon known as “patent hold-up” whereby the holder of an SEP asserts its patent with the goal of frustrating a competitor’s entry into the market.
Far from trying to hold-up the process, Samsung alleges that it sought to negotiate a license in good faith with Apple over the technology.  Samsung further claims that it was Apple who refused to negotiate a FRAND license in good faith resulting in a “reverse hold-up” situation: where the patentee is faced with a recalcitrant would be licensee.
The Office of the President of the United States has a 60-day window in which it may exercise veto power over an ITC decision. This power was assigned by the President to the USTR in 2005. In deciding whether to honor the ITC’s initial decision, the USTR will consider the following factors:
1.       Public health and welfare;
2.       Competitive conditions in the U.S. economy; 
3.       Production of competitive articles in the United States;
4.       U.S. consumers; and
5.       U.S. foreign relations, economic and political.
In the present case, the USTR’s rejection of the ITC’s decision was bolstered in part by a policy document ( released jointly by the Department of Justice (DOJ) and the United States Patent and Trademark Office (USPTO). The document warns against the issuance of injunctions and exclusion orders in instances when the American economy would not be best served by the measure.
In the very same policy document, however, the DOJ and USPTO note that exclusion orders are still sometimes appropriate, even when the patent at issue is an SEP. One instance identified as appropriate is when “the putative licensee is unable or refuses to take a F/RAND license and is acting outside the scope of the patent holder’s commitment to license on F/RAND terms”. If Samsung’s statements about Apple’s reticence to negotiate are to be taken as true, it would seem that the present case was expressly contemplated by the DOJ and USPTO as an instance in which the imposition of an exclusion order is justified.
The USTR’s disapproval letter was clear that its ruling applied only to the present case and should not be taken as a blanket statement that exclusion orders should never be issued when the infringed patent is an SEP. The ITC (and the USTR on review) will examine the facts of each case in light of the policy considerations outlined above. It would seem that in this case, despite the undisputed violation of Samsung’s patent rights, the USTR found that in this case Apple was too big to fail; or perhaps more accurately, too big to enjoin.
By James Plotkin
LL.L, J.D.
Summer Student with MBM