Presidential Veto of ITC Ban on Apple Devices Brings ITC in Line with Other Authorities When Addressing Standard Essential Patents

Managing Intellectual Property

On June 4, 2013, the United States International Trade Commission (ITC) determined that Apple had violated Section 337 of the Tariff Act by importing iPhone and iPad devices that infringed a valid Samsung patent. The ITC issued an exclusion order that would have prohibited Apple from importing such infringing devices into the United States. On August 3, 2013 — the day before the order was to have gone into effect — the United States Trade Representative rejected the ITC’s remedy and disapproved the order.

Presidential vetoes of ITC decisions are rare. Indeed, this is the first in over a quarter century. While it is possible to view the Obama administration’s decision as an effort to protect an important American company, it is more accurately an effort to limit ITC exclusion orders over standard essential patents.

As the name suggests, a “standard essential patent” is one that is necessary for a product to meet the requirements of a formal industry standard. Such standards are commercially important because they permit devices to operate together. For example, an Apple iPhone can connect to a Samsung phone because both devices implement the same standards.

A patent that covers part of a standard can give the patent holder disproportionate leverage over an accused infringer because it is not possible to design a product to meet the standard without infringing the patent. Thus, most standard setting bodies require their members to agree to license standard essential patents on fair, reasonable, and non-discriminatory terms.

Samsung had previously declared that the asserted patent was essential to the Universal Mobile Telecommunications System promulgated by the European Telecommunications Standards Institute.  In other words, according to Samsung, Apple could not make a device that would meet this standard without infringing Samsung’s patent. While Samsung had agreed to license this patent in a “fair and reasonable” manner, Samsung and Apple were unable to agree on an appropriate royalty — Apple contended that Samsung’s demand of a 2.4% royalty was unreasonable and Samsung claimed Apple would not negotiate in good faith.

The ITC determined that it was required to investigate complaint of patent infringement even for standard essential patents.  After a 10-day hearing, the ITC determined that the Samsung patent was valid and infringed. Thus, the ITC ordered Apple to stop importing older Apple iPhones and iPads that practiced the 3G wireless standard.

Unlike a district court decision, an ITC exclusion order is reviewed by the President of the United States before it goes into effect. That power has been delegated to the United States Trade Representative who, on August 3, 2013, rejected the ITC’s exclusion order because of his concern “about the potential harms that can result from owners of standards-essential patents who have made a voluntary commitment to offer to license…on terms that are fair, reasonable, and non-discriminatory, 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….”

While the Trade Representative made clear that there could be rare circumstances where an ITC exclusion order related to a standard essential patent could be appropriate — for example, when the infringer refuses to take a fair and reasonable license or is outside the jurisdiction of a court that could award damages — it is clear that the burden for obtaining such an exclusion order has substantially increased. Indeed, the Trade Representative directed the ITC “to examine thoroughly and carefully” the public interest in other investigations concerning standard essential patents, to develop a factual record on these issues, and make explicit findings as to why an exclusion order might be warranted.

This disapproval of the ITC’s exclusion order brings the ITC in line with U.S. district courts, which are unlikely to grant an injunction with respect to a standard essential patent. The presidential veto also is consistent with policy statements issued by the U.S. Department of Justice Antitrust Division, the U.S. Federal Trade Commission, the U.S. Patent & Trademark Office, and numerous international authorities. Unlike district courts, however, the ITC cannot award money damages and has no remedy other than injunctive relief. If such injunctions are not available with respect to standard essential patents, there is little reason to assert them in the ITC.

By Bas de Blank and John "Jay" Jurata

This article was originally published in Managing Intellectual Property in August 2013.