Obama Administration Stops ITC Ban on iPhones and iPads
What This Means To You
- The ITC may be more hesitant to issue exclusion orders based on infringement of standards-essential patent.
- Owners of standards-essential patents should develop a strong factual record demonstrating that a defendant refused to license the patents despite being offered a license on fair, reasonable and non-discriminatory terms.
On August 3, the Obama administration overturned the International Trade Commission (ITC)’s ban on the importation of several of Apple’s older smartphone and tablet products, which made it the first Presidential veto of an ITC remedial order in over a quarter century.
On June 4, 2013, the ITC found Apple’s older smartphone and tablet products infringed a single patent owned by Samsung Electronics. The infringed patent is a standards-essential patent (SEP) that is allegedly infringed by practice of a 3G wireless communication standard. Samsung had previously committed to license the patent to those who practiced the 3G standard on fair, reasonable, and non-discriminatory (“FRAND”) terms.
Following its infringement determination, the ITC issued an exclusion order prohibiting Apple from importing the identified smartphones and tablets into the United States and a cease-and-desist order prohibiting Apple’s sale of the products as well. In issuing its orders, the ITC considered whether they would negatively impact the public interest and concluded that they would not. The ITC also rejected Apple’s argument that Samsung’s commitment to license the patent on FRAND terms precluded an exclusion order.
The President of the United States is authorized to review any exclusion or cease-and-desist order to assess whether policy reasons justify vetoing the ITC’s order. These policy reasons include the order’s impact on (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. If the President does not disapprove the ITC’s order within 60 days, then it becomes final and takes full effect. The President delegated his review authority to the United States Trade Representative (USTR).
The President’s Veto
Prior to this past weekend, the President and the USTR had exercised the right to veto an ITC order only five times in the Tariff Act of 1930’s history. On August 3, 2013, the USTR Ambassador Michael Froman issued a determination vetoing the ITC’s exclusion and cease-and-desist orders against Apple’s smartphone and tablets. Ambassador Froman did not discuss the ITC’s factual or legal determinations, but found that policy considerations concerning the ban’s “effect on competitive conditions in the U.S. economy and the effect on U.S. consumers” warranted his veto. Ambassador Froman expressed concern with:
the potential harms that can result from owners of standards-essential patents (‘SEPs’) who have made a voluntary commitment to offer to license SEPs on terms that are fair, reasonable, and non-discriminatory (“FRAND”), 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 that would have been possible before the standard was set, when alternative technologies could have been chosen.
However, Ambassador Froman made clear that the Obama administration was not issuing an absolute prohibition on exclusion orders that involved SEPs. Whether such orders are appropriate “depends on the specific circumstances at issue.” Instances where an exclusion order based on a SEP may be appropriate include those in which “the putative licensee is unable or refuses to take a FRAND license and is acting outside the scope of the patent holder’s commitment on FRAND terms,” or if the “putative licensee is not subject to the jurisdiction of a court that could award damages.”
Ambassador Froman’s decision is another in a growing line of decisions that have limited the ability of plaintiffs to seek injunctive relief for infringement of SEPs. While Ambassador Froman did not outright prohibit the issuance of an exclusion order as a remedy for infringement of a SEP, his decision will cause owners of FRAND-encumbered SEP patents to give greater consideration prior to selecting the ITC as an appropriate venue for enforcing their infringement claims. Those owners who do continue to seek relief from the ITC will want to develop a strong factual record demonstrating that the particular circumstances of their case justify an exclusion order. Relevant facts would include evidence that the defendant was offered a FRAND license and rejected it or that the defendant constructively rejected the FRAND license by refusing to enter into negotiations.
Despite Ambassador Froman’s decision, the ITC remains an attractive venue for most plaintiffs as it continues to offer a speedy proceeding that provides injunctive relief as its sole remedy. Even those plaintiffs seeking to enforce SEPs should continue to consider the ITC as a potential venue given the fact that Ambassador Froman’s decision is the first in more than a quarter century to veto an ITC exclusion order. While Ambassador Froman may be at the front of a growing trend, decades of precedent continue to suggest that the executive branch will not frequently upset ITC orders.