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By Tony Dutra
The White House on Aug. 3 invoked a “veto” prerogative and overturned a decision by the International Trade Commission that would have barred Apple Inc. from importing some older iPhone and iPad models.
A letter from U.S. Trade Representative Michael B. G. Froman to ITC Chairman Irving A. Williamson expressed “substantial concerns” about owners of standard-essential patents, such as Samsung Electronics Co. in this case, using the ITC to engage in “hold-up”--obtaining a higher price for use of a patent because of the inclusion of its related technology in the standard.
Though the president has this reversal option under 19 U.S.C. §1337(j), its use is rare and the last to invoke it was President Ronald Reagan.
The potential for the president's reversal in cases similar to this could be a serious blow to SEP holders' access to injunctions, after two highly publicized court cases have concluded that monetary damages are the more appropriate--and perhaps sole--remedy.
However, Froman's letter did not go so far as to suggest that the ITC should not hear such cases or that it should be faulted for hearing this case. Rather, he provided examples of circumstances where an ITC exclusion order might be appropriate and called on the ITC to investigate “relevant factors” early in its review in future cases.
One such factor is “hold-out,” the prospective licensee's refusal to negotiate a reasonable royalty with the SEP holder. But as one attorney told BNA, it was difficult in this case and will be difficult in future cases to distinguish uncompromising hold-out from a reasonable belief that the patents asserted did not warrant SEP status--as either invalid or not underlying the standard.
Samsung filed its complaint in 2011, seeking an exclusion order against Apple phone and tablet imports under Section 337 of the Tariff Act. 76 Fed. Reg. 45,860. Samsung asserted that Apple's devices infringed five Samsung patents (U.S. Patent Nos. 7,706,348; 7,486,644; 6,771,980; 6,879,843; and 7,450,114). Samsung claimed that the patents underlie a portion of the Universal Mobile Telecommunications System (UMTS) standard for wireless communications and that the Apple devices followed those standards.
Apple responded with multiple defenses, including that the patents were invalid and that its products did not infringe. Administrative Law Judge E. James Gildea filed a 600-plus-page initial determination Sept. 14. He found that the '348, '644, and '980 patents are valid but not infringed and that the '114 patent is both invalid and not infringed. Samsung had agreed to terminate assertions related to the '843 patent previously.
However, after two rounds of public commentary on various questions, the commissioners reversed. Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, No. 337-TA-794 (Int'l Trade Comm'n June 4, 2013) (109 PTD, 6/6/13). The specific devices implicated in the commission's exclusion order were models sold through AT&T Wireless, but did not include recent models such as the iPhone 4S or 5 or the iPad 4.
Some of the questions for public commentary related to “public interest” factors: Under 19 U.S.C. §1337(d)(1), the ITC must consider the effect of its exclusion on (1) the public health and welfare, (2) competitive conditions in the United States economy, (3) the production of like or directly competitive articles in the United States, and (4) U.S. consumers.
The commission's notice indicated that the public interest factors “do not preclude issuance of the limited exclusion order and cease and desist order.”
Among its defenses, Apple had claimed that, to the extent that the patents may have been UMTS SEPs, Samsung had committed to license them on fair, reasonable, and nondiscriminatory terms.
According to the commission's notice, though, despite commentary from some of the third parties that Samsung's FRAND commitment is contrary to seeking an exclusion order, “The Commission has determined that Samsung's FRAND declarations do not preclude that remedy.”
Froman's letter disagreed on that decision, citing the relevance of the public interest factors to SEP and FRAND analysis, without either endorsing or criticizing the rest of the commission's judgments.
The letter relied extensively on a Jan. 8 joint policy statement issued by the Department of Justice's Antitrust Division and the U.S. Patent and Trademark Office (07 PTD, 1/10/13).
expresses substantial concerns, which I strongly share, about the potential harms that can result from owners of [SEPs] who have made a voluntary commitment to offer to license SEPs on [FRAND] terms …, 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, when alternative strategies could have been chosen. At the same time, technology implementers also can cause potential harm by, for example, engaging in “reverse hold-up” (“hold-out”), e.g., by constructive refusal to negotiate a FRAND license with the SEP owner or refusal to pay what has been determined to be a FRAND royalty.
Froman further quoted the policy statement's argument that hold-out is one example where “[a]n exclusion order may still be an appropriate remedy,” as well as when “a putative licensee is not subject to the jurisdiction of a court that could award damages.” He urged that the commission in the future develop a factual record from the outset of each proceeding involving an SEP on “the presence or absence of patent hold-up or reverse hold-up. … The Commission is well-positioned to consider these issue in its public interest determinations.”
“My decision to disapprove this determination does not mean that the patent owner in this case is not entitled to a remedy,” Froman said in closing. “On the contrary, the patent owner may continue to pursue its rights through the courts.”
Samsung is pursuing patent infringement litigation against Apple on the same patents in a district court case. Samsung Electronics Co. v. Apple Inc., No. 1:11-cv-00573-LPS (D. Del.). The case was stayed in August 2011 pending the results of the ITC action.
SEP holders have not fared well in seeking injunctions in two well known court cases to date, however.
• Microsoft Corp.'s Xbox game system avoided an injunction sought by Motorola Inc. both within the United States and in preventing enforcement of an injunction imposed by a German court. Microsoft Corp. v. Motorola Inc., No. 2:10-cv-01823-JLR, 106 U.S.P.Q.2d 1127 (W.D. Wash. Oct. 10, 2012) (198 PTD, 10/15/12); Microsoft Corp. v. Motorola Inc., 696 F.3d 872, 104 U.S.P.Q.2d 2000 (9th Cir. 2012).
• Judge Richard A. Posner rejected both Apple and Motorola's attempts at injunctions on SEPs in Apple Inc. v. Motorola Inc., 869 F. Supp. 2d 901, 104 U.S.P.Q.2d 1611 (N.D. Ill. 2012) (122 PTD, 6/26/12).
SEP holders might have been expected to fare better at the ITC, which is not bound by the four-factor test for an injunction laid out in eBay Inc. v. MercExchange LLC, 547 U.S. 388, 78 U.S.P.Q.2d 1577 (2006) (97 PTD, 5/19/06), but the president's reversal option does present an additional challenge to actions at the commission.
Consequent to the administration's action here, per Section 337(j)(2), the ITC's exclusion order has “no force or effect.”
Charles K. Verhoeven of Quinn Emanuel Urquhart & Sullivan, San Francisco, represented Samsung and William F. Lee of WilmerHale, Boston, represented Apple at the ITC. John W. Shaw of Shaw Keller, Wilmington, Del., is lead attorney for Samsung and Richard K. Herrmann of Morris James, Wilmington, Del., is lead attorney for Apple in the district court case.
“Ambassador Froman made the right decision in this case,” Tim Molino, director of government affairs for BSA | The Software Alliance, said in an Aug. 5 press release. “Market exclusion orders might be appropriate remedies in some cases, but generally not when it comes to FRAND-encumbered standard-essential patents.”
BSA was one of the 11 third-party respondents to the ITC's requests for comments. “As we argued in our public comments on the investigation, all patentees should be free to exercise and enforce the full breadth of their intellectual property rights as they see fit,” Molino said. “But if they make the choice to participate in creating such a standard and in the process commit to licensing their technologies on FRAND terms, then they should not be allowed to circumvent that commitment by using the Commission to obtain an exclusion order which could result in extracting unreasonable royalties.”
Patent attorney Matthew L. Woods of Robins Kaplan Miller & Ciresi, Minneapolis, had two problems with the decision, though.
Generally, Woods was concerned with the chilling effect on participation in standard-setting bodies. “If patent holders don't feel they have an option to 'up the ante' in the face of an unwilling licensee, they may reevaluate the value of making broad FRAND commitments in standards-setting situations in the first instance,” he told BNA. “Holding intellectual property out of that process could adversely impact the setting of basic standards which create efficiencies that actually serve the public interest.”
More specifically, in the instant case, Woods pointed out that both the ALJ and the commission rejected Apple's FRAND defense, and that could mean that Froman's “relevant factors” analysis--despite the concern for hold-out--could be easily skirted.
“By failing to meet its affirmative defense, Apple may have in fact been engaging in exactly that type of [hold-out] activity, which could be why the Commission did not disturb the ALJ's findings on this point,” Woods said. “A respondent such as Apple in this case appears to be able to deny (or take no position) on whether the patent is an SEP, and yet still rely upon SEP considerations as a basis for denying relief under Section 337.”
Again, Woods looked to the future and envisioned a deleterious effect. “If the respondent denies that the patent is an SEP, but the patent-holder believes it is, Ambassador Froman's letter would seem to encourage respondents to hold out at least until the patent-holder makes a showing that it has complied with the FRAND elements, knowing that it can always just accept the FRAND terms to avoid an exclusion order,” he said. “It does seem to reward, or at least not punish, respondents for not taking their FRAND negotiation obligations seriously.”
Text of letter is available at http://pub.bna.com/ptcj/FromanITCreversal13Aug3.PDF.
DOJ/PTO joint policy statement is available at http://www.uspto.gov/about/offices/ogc/Final_DOJ-PTO_Policy_Statement_on_FRAND_SEPs_1-8-13.pdf.
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