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Apple Tries to Get USTR to Undo the ITC's Injunction Against It - More FRAND Arguments ~pj
Wednesday, June 26 2013 @ 11:27 PM EDT

As you know, the ITC early in June ordered an injunction and a cease and desist order against some of Apple's products, on a complaint from Samsung that Apple was refusing to pay anything at all for a FRAND patent of Samsung's. The shock waves from that were heard throughout the patent universe. And now Apple is trying to block it from happening. Both Apple and Samsung have filed written submissions with the USTR, as The Essential Patent Blog reports. The President of the United States can undo that ITC injunction order based on the public interest, and Apple is asking the Office of the United States Trade Representative, as the President's representative in such matters, to do exactly that:
If left standing, the ITC determination permitting Samsung to use a single FRAND-committed patent to exclude Apple products from the United States marketplace will set a dangerous precedent and would undermine U.S. foreign relations by upsetting the international consensus against FRAND abuse. Further, the order is plainly inconsistent with recently stated Administration policy and contrary to statements of the agencies charged with enforcing competition policy. The order threatens to harm consumers and slow the pace of technological innovation, and will cement the ITC as the SEP-holders litigation venue of choice: it will be dramatically easier to get extraordinary relief at the ITC than in district court.
And it will make baby Jesus cry. I'm sure. This is the company that wanted Samsung to be blocked from the market for a slide-to-unlock patent. What the above left out is that if the ITC ruling stands, it will upset Apple and Microsoft's campaign to make FRAND patents worthless, so they can wipe the floor with Android, thanks to all the valuable utility patents the two are aiming and will aim at Google, while Google has limited defenses. And that strategy was going so well, too. Now? The apple cart has indeed been upset.

Samsung's position is simply this: Apple said publicly it thinks it shouldn't have to pay *anything* for the Samsung patent, and that is why the ITC found this case to be one of reverse hold-up:

Instead, in a recent brief to the Commission, Apple publicly declared that “Apple should not have to pay any royalty at all” for a license including the ’348 patent. Apple’s Submission in Response to the Commission’s Request for Additional Written Submissions on Remedy and the Public Interest at 49 (April 3, 2013). By any definition, Apple is an unwilling licensee of Samsung’s declared essential patents.
Everyone has been lecturing the courts and the world about the dangers of FRAND hold-up by patent owners, but sometimes, Samsung points out, there comes along a company that follows a deliberate policy of refusing to pay, and when that happens, an injunction is exactly the right remedy for reverse patent hold-up, even when the patent is a standard essential patent. Besides, the affected Apple products aren't made in the USA and it's such a limited exclusion, it will have limited impact on the public, and there are plenty of other products to fill the gap, including others of Apple's.

Here are the two filings, as PDFs:
Apple's
Samsung's
As you can see, Apple's is huge, 73 pages but I'll show you the central meat of it, and Samsung's is quite brief, so I'll show you Samsung's in full. If anyone wants to finish Apple's for me, I'll gladly copy and paste it in.

Apple's argument could be summed up like this -- our argument that FRAND patents shouldn't ever get injunctions reached consensus all over the place, so this shouldn't be allowed to happen:

I. Introduction

Policy considerations compel the United States Trade Representative (USTR) to exercise the power delegated to it pursuant to 19 U.S.C.§ 1337(j)(2) to disapprove the exclusion order issued by the International Trade Commission (ITC) on June 4, 2013. This investigation marks the first time that the Commission has approved an exclusion order for the infringement of a standard-essential patent (SEP). As Commissioner Pinkert’s dissent recognized, this decision will have grave consequences if left unchanged. Commissioner Aranoff explicitly invited the President to “decid[e] whether to disapprove the remedy the Commission is issuing today,” and Apple respectfully requests that the USTR, as the President’s delegate, accept that invitation and disapprove the remedy.

When a patent holder declares a patent essential to a standard, the patent holder makes an irrevocable commitment to license that patent on “fair, reasonable, and non-discriminatory” (FRAND) terms as a quid pro quo for participating in setting industry standards. The patent holder receives the benefit of reasonable assured royalty payments—if the patent is valid and truly infringed by those who use the standard—but forgoes the ability to pursue certain legal remedies. The ITC decision threatens to render meaningless a FRAND commitment made to a standard-setting organization.

To be sure, the ITC plays an important role in the United States trade regime, as a critical defense against the importation of goods that will result in unfair competition in the domestic market. But that role is circumscribed by the terms of Section 337—which explicitly requires the ITC to consider the public interest implications of any exclusion order—and the commitments the U.S. has made to its international trading partners. When Congress amended Section 337 in 1974 to give the ITC responsibility for issuing exclusion orders, it made clear that the “public health and welfare and the assurance of competitive conditions in the United States economy must be the overriding considerations in the administration of this statute.”1 In defending Section 337 as consistent with its international trade obligations, the United States justified the Section 337 exclusion order remedy as the “functional equivalent” of a district court injunction against a domestic manufacturer, made necessary where the supplier of the accused infringing products is outside the jurisdiction or otherwise difficult to reach or identify.2 Yet here, the ITC issued a remedy that sharply diverged from any that a district court could properly order for a FRAND patent.

Given the special considerations that attend FRAND patents, the public interest dictates that the ITC could properly issue an exclusion order on a FRAND patent only in limited circumstances—such as where the accused infringer is a foreign entity not subject to jurisdiction in a United States court, or where the alleged infringer had refused to pay FRAND royalties previously set by a court or arbiter. This case presented no such circumstances, and the ITC exceeded its statutory mandate by issuing an exclusion order here. The USTR should disapprove the decision because:

  • The decision is plainly inconsistent with Administration policy. On the very same day the ITC issued the exclusion order, the White House issued a set of legislative proposals related to patent litigation, including one to make it more difficult for a patent holder to obtain an exclusion order at the ITC. The ITC decision would do the opposite. The National Economic Council and the Council of Economic Advisors issued a report that same day acknowledging the potential policy concerns raised by an exclusion order issued on a SEP. The ITC decision is the realization of those same concerns.

1

  • The decision creates substantial competition policy risks. The nation’s competition policy regulators have warned of the dangers of issuing an exclusion order based on a SEP. The Department of Justice and the Patent and Trademark Office issued a joint statement explaining how an ITC exclusion order based on a SEP distorts the negotiating process and undermines the public interest. Similarly, the Federal Trade Commission has found that seeking an injunction or exclusion order for the alleged infringement of a SEP violates federal competition law.

  • The decision will harm consumers and slow the pace of technological innovation. Not only will the decision eliminate popular products from the market, depriving consumers of the opportunity to purchase them, but the decision will also have a chilling effect on incentives to innovate. If a SEP holder can exploit the market value conveyed by standardization and “hold-up” unsuspecting implementers of the patent, then incentives to innovate are removed. The Administration’s policy statements echo this point.

  • The decision makes the ITC an outlier internationally and domestically. The decision upsets the international consensus against FRAND abuse, making the ITC an outlier among agencies and tribunals around the world. For example, the European Commission issued a preliminary determination that Samsung had violated European competition law by pursuing injunctions on FRAND patents against Apple, and Samsung has withdrawn all such injunction requests in Europe. Yet here in the United States, Samsung has continued to pursue injunctions and exclusion orders, and the ITC has now rewarded that conduct. The decision likewise goes against the jurisprudence of U.S. courts, allowing SEP holders to evade U.S. court decisions. As such, the decision will create a unique venue for SEP-holding plaintiffs to obtain special relief that has been rejected by the many other authorities that have considered the issue, attracting to the ITC other parties that wish to use their SEPs for hold-up.

  • The decision runs counter to the mission of the ITC. Section 337 exists to protect American companies from unfair methods of competition. Here, Samsung is engaging in activity that the United States Federal Trade Commission has characterized as an unfair method of competition. Section 337 should not be used as a vehicle that enables unfair competition against an American company.

  • The decision creates international trade concerns. By providing a remedy that would decidedly not be available in similar circumstances against infringing domestic products in a United States district court, the ITC’s action raises the same types of international trade concerns that led to the 1989 GATT action.

For all of these reasons, the ITC’s decision establishes a dangerous policy precedent. The USTR has the responsibility “for policy reasons, [to] disapprove[] such determination” pursuant to Section 337(j)(2), and Apple respectfully submits that the far-reaching policy consequences of the ITC’s decision compel that the USTR exercise this authority. Disapproval would help restore the statutory public interest factors to their proper role in ITC decision-making, and bring the ITC into alignment with the policies of other domestic and international authorities regarding standard setting and FRAND commitments.

II. Background

For context, we briefly review: (A) standards; (B) the problem of patent “hold-up”; (C) FRAND as the safeguard against hold-up; and (D) the history of this case.

2

A. Standards

A standard is a set of rules, agreed to by a group of industry participants, to govern certain functionality in devices in that industry. The purpose of standards is to ensure that products made by different companies will work together, or interoperate, seamlessly. A simple example is an electric plug, the design of which is covered by a standard (e.g., those promulgated by the International Electrotechnical Commission). Because the plug design is standardized, electronic equipment made by many different manufacturers can “plug in” to electrical outlets made by many other manufacturers.

This common interoperability serves as a platform on which companies can compete—by developing their own unique innovations on the foundation of the shared, standardized functionality. The plug may be the same, but what is connected to the plug will vary endlessly, to the benefit of competition and consumers. Standardization can increase product quality, spur innovation and lower prices to consumers, and reduce barriers to entry by creating a stable, widely-implemented platform for suppliers to offer products that interoperate efficiently yet vary in important and consumer-pleasing ways.

Through consensus-based standard-setting organizations (SSOs) such as the European Telecommunications Standards Institute (ETSI), the mobile-device industry has set a series of cellular standards in progressively more advanced “generations.” The most popular “third generation” (or 3G) cellular standard is the Universal Mobile Telecommunications Standard (UMTS), which the members of ETSI and other SSOs developed together in the 1990s and 2000s. 3 The SEP at issue in this case relates to UMTS.

B. Patent “Hold-Up”

For all their benefits, standards pose a problem: if a party holds a patent on an aspect of a standard, that patent becomes artificially valuable simply because it is a part of the standard. Before standardization, the patented invention competes with other technologies performing the same or similar function; after standardization, manufacturers may have only a single choice: the standardized version. For example, travelers abroad will encounter a variety of electrical plug designs, many of which will function equally well as a purely technical matter; however, in any one country, the plug design is limited to the standard used in that country. If a party holds a patent on the standardized version—or even some small aspect of it—that patent becomes artificially valuable by virtue of standardization.

In the course of developing a standard, the SSO can choose among alternative technologies competing to perform a function, and can also decide not to standardize that function at all. These alternatives constrain the price of any one option, and the value of each is determined solely by its technical merit. But if the SSO chooses to select one option and discard others (even if equally good on the technical merits), the dynamic changes, and the “winner” suddenly gains market power that is a function of standardization rather than technical merit. As the Federal Trade Commission has recognized: “By its very nature, standard setting displaces the competitive process through which the purchasing decisions of customers determine which interoperable combinations of technologies and products will survive.” 4 A patent covering a technically trivial feature can nonetheless become a “standard essential patent” or SEP.

3

As the industry becomes locked-in to the chosen functions, those that claim to hold SEPs gain the power to “hold-up” companies making products that practice the standards, by demanding exorbitant royalties or other licensing terms as the price for access to the SEPs. A White House intellectual property task force recognized in a report issued on June 4, 2013—the same day as the ITC decision—that “a product that complies with such a standard will necessarily read on these patents, creating a potential incentive for patent owners to raise the price of a license after the standard is set.”5

This potential for hold-up is especially pervasive in industries like telecommunications, where companies claim to hold thousands of SEPs on standards such as UMTS. Modern mobile devices contain features subject to dozens of standards, multiplying the potential for hold-up.

Against that backdrop, SSOs, economists, industry participants, agencies, and courts have long recognized that “standards, without proper safeguards, are inherently anticompetitive.”6 Of the safeguards that SSOs have developed, the most critical is the FRAND licensing requirement.

C. FRAND

As the United States Court of Appeals for the Third Circuit has stated: “To guard against anticompetitive patent hold-up, most [SSOs] require firms supplying essential technologies . . . to commit to licensing their technologies on FRAND terms.”7 The European Commission has likewise observed: “[T]he concept of FRAND has been developed in an attempt to limit the ability of SEP [standard-essential patent] holders to abuse their market power and to provide effective access to the standard for all interested third parties.”8

The Intellectual Property Rights Policy (IPR Policy)9 of ETSI, under which Samsung promised to license the alleged SEP at issue here, is a case in point. It provides, in Clause 6.1 (emphasis added):

When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licenses on fair, reasonable and non-discriminatory terms . . . .
This commitment implements ETSI’s Policy Objectives of “seek[ing] to reduce the risk to ETSI, MEMBERS, and others applying ETSI STANDARDS . . . , that investment in the preparation, adoption and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a STANDARD . . . being unavailable” by striking a “balance between the needs of standardization for public use in the field of telecommunications and the rights of the owners of IPRs.”10

Two aspects of FRAND commitments are particularly critical, as recognized by federal appellate judge—and law and economics scholar—Judge Richard Posner, in his decision rejecting a request for a SEP injunction. First, the FRAND declarant disavows hold-up power and agrees to “confine [its] royalty demand to the value conferred by the patent itself, as distinct from the additional value—the hold-up

4

value—conferred by the patent’s being designated as standard essential.”11 Second, the FRAND declarant commits to license its patent “to anyone willing to pay a FRAND royalty and thus implicitly acknowledge[s] that a royalty is adequate compensation for a license to use that patent.”12 Having agreed that anyone can practice the patent (which necessarily means the patent holder will not be injured by others practicing the patent) and that money is adequate compensation, a FRAND patent holder cannot claim a need or right to an injunction—as Judge Posner and many others have recognized. (See Section III, infra.)

5

__________
1 S. Rep. 93-1298, at 197 (1974) (emphasis in original) (quoted with approval in U.S. Dep’t of Justice & U.S. Patent & Trademark Office, Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments at 10 (Jan. 8, 2013), available at http://www.justice.gov/atr/public/guidelines/290994.pdf (“DOJ/PTO Statement”)).

2 GATT Panel Report, United States Section 337 of the Tariff Act of 1930, L/6439, adopted Nov. 7, 1989, BISD 36S/345, paras. 5.31-5.33.

3 Most of these standards were set long before Apple entered this market. Apple did not participate in the standard-setting process for UMTS, but relied upon assurances patent holders made to SSOs when Apple entered the smartphone market in mid-2007.

4 Opinion of the Commission at 3, In the Matter of Rambus, Inc., Dkt. No. 9302 (F.T.C. Aug. 2, 2006), available at http://www.ftc.gov/os/adjpro/ d9302/060802commissionopinion.pdf.

5 President’s Council of Economic Advisors, Nat. Econ. Council, & Office of Sci. & Tech. Pol., “Patent Assertion and U.S. Innovation” at 12 (June 2013), available at http://www.whitehouse.gov/sites/default/files/docs/patent_report.pdf.

6 Research in Motion Ltd. v. Motorola, Inc., 644 F. Supp. 2d 788, 796 (N.D. Tex. 2008).

7 Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 313 (3d Cir. 2007).

8 Commission Decision Pursuant to Art. 6(1)(b) of Council Regulation No. 139/2004 at ¶ 113, Google/Motorola Mobility, Case No. COMP/M.6381 (Feb. 13, 2012).

9 ETSI IPR Policy (Nov. 2011), available at http://www.etsi.org/images/etsi_ipr-policy.pdf.

10 Id. at Clause 3.1.

The rest of the filing is a long list of all the entities that have expressed that there shouldn't be injunctions issuing for RAND patents. But here's how Samsung responds to that argument in its filing:

SAMSUNG’S SUBMISSION TO THE OFFICE OF THE U.S. TRADE REPRESENTATIVE
IN CONNECTION WITH ITC INVESTIGATION NO. 337-TA-794

JUNE 19, 2013

Samsung Electronics Co., Ltd. and Samsung Telecommunications America, LLC (“Samsung”) appreciate and welcome the opportunity to submit this statement relating to the Section 337(j) review of the remedial orders issued in ITC Inv. No. 337-TA-794 to the U.S. Trade Representative and members of the Trade Policy Staff Committee. As discussed herein, there are no policy reasons to disapprove of the Commission’s remedial orders resulting from this investigation. In particular, the limited impact this exclusion order will have does not begin to approach that caused by several recently issued exclusion orders on smartphones that were allowed to take effect, and any concerns regarding the potential for abuse of standard essential patents (“SEPs”) do not apply on the clear facts found by the Commission in this investigation.

While Samsung fully supports the FTC, Justice Department, and Patent Office’s concerns that injunctions and exclusion orders should not be used by patent holders to engage in “hold-up” activities (Samsung is presently a respondent in two such investigations at the ITC), this investigation demonstrates that a bright-line rule prohibiting exclusion orders for SEP infringement would be misplaced because it would create incentives for implementers to unreasonably refuse to negotiate and enter into FRAND licenses for their infringing use of essential IPR—a problem known as “reverse hold up” and characterized by Apple’s stance as an unwilling licensee to Samsung’s portfolio of declared essential patents, including the ’348 patent at issue here.

Samsung has participated in over forty Section 337 investigations, predominantly as a respondent. Apple is also a frequent participant before the ITC, filing six complaints against its competitors in the last three years, including the 796 investigation against Samsung that will be decided in August. Samsung firmly believes that technology companies should compete in the market, not the courtroom, and should negotiate licensing arrangements that respect the technological contributions of others. Samsung is proud of its contributions to the development of mobile telephony, and began producing cell phones commercially in 1988. Samsung is now the world’s largest manufacturer of smartphones, with thousands of US employees engaged in research and other activities across the United States developing the next generation of mobile devices.

Samsung filed this action only after Apple both refused to negotiate toward a patent license and sued Samsung for patent infringement. This litigation is not an isolated event between the companies, but is one part of a global conflict started by Apple that has spanned several years. Samsung placed a generous, FRAND-compliant offer for a license including the ’348 patent on the table well before the ITC’s decision, the ITC validated that offer, and it still stands. While Apple can accept that offer at any time and avoid the 794 exclusion order, Samsung did not present it as a “take it or leave it” option. [REDACTED] As discussed below, because Apple has refused to even engage in negotiations of a FRAND license to Samsung’s SEPs, Samsung deserves the exclusion order issued by the ITC to be allowed to take effect.

2

The limited impact of this exclusion order dispels any economic policy concerns

The ITC’s limited exclusion order (LEO) currently applies only to two commercially available models of Apple products: the GSM versions of its iPhone 4 mobile telephone and the iPad 2 tablet computer.1 Both of these low-end Apple products are currently approaching the end of their life cycles. Exclusion of these devices will have a much smaller impact on the market and consumers than other recently allowed exclusion orders.

The iPhone 4 was released in June 2010. Unlike Apple’s more recently released iPhone 5, the iPhone 4 does not support broadband 4G network access. Apple generally sells three versions of its smartphones at three price points. For example, AT&T currently offers the iPhone 4 for free with a 2 year contract, the iPhone 4S for $99; and its flagship iPhone 5 for $199. Whenever Apple introduces a new phone, it discontinues the phone at the bottom of the range and shifts the others down a notch. While Apple keeps its marketing plans secret, based on past behavior the iPhone 4 will likely be phased out within the next few months. Moreover, the LEO applies only to the iPhone 4 model A1332 that is designed to work on GSM-based networks, such as AT&T and T-Mobile. The iPhone 4 model sold for use on CDMA-based networks, such as those owned by Verizon and Sprint, is not affected.

The iPad 2 was released in March 2011. Since then, three new iPad versions have been released, including the current, fourth generation version being marketed as “iPad with Retina display,” and the iPad Mini. The iPad 2 is available in three models: WiFi only, WiFi + 3G GSM, sold for exclusive access to the AT&T network, and WiFi + 3G CDMA, sold for the Verizon network. Like iPhones, the more recent versions of iPads are sold at higher price points, though the iPad mini is less expensive than the iPad 2. Only the model A1396 iPad 2 is subject to the LEO. The WiFi only and CDMA versions of the iPad 2, all versions of the iPad with Retina display and the iPad mini are not subject to the LEO.

Apple did not provide the Commission with current data regarding its import and sale of products subject to the exclusion order in its April, 2013 submissions on remedy and the public interest. [REDACTED]2

Apple did not mention whether most of those sales occurred in the first half of 2012, before the launch of the iPhone 5 or fourth generation iPad with Retina display. Nor did Apple inform the Commission whether it already has plans to discontinue these models as new products are released this year. Even assuming Apple surprises the market by not introducing a new iPhone and iPad this year, the impact from withdrawal of the two affected products from the market will be far smaller than the impact of the recently approved exclusion orders against Motorola (337-TA-744) and HTC

3

(337-T A-710). [REDACTED]3 yet Apple told the Commission in the 710 investigation that:
The mobile communications industry is intensely competitive, and thus the exclusion of HTC’s Infringing Products (which constitute only a small share of the industry) will have no material impact on competitive conditions.
See Apple’s Reply on Remedy, Public Interest and Bonding, Inv. 337-TA-710 at 11 (Oct. 17, 2011). If excluding all of HTC’s Android smartphones would have “no material impact” on competitive conditions, [REDACTED] See id. at 14 (“HTC itself recognizes that its Infringing Products are used by a relatively small portion of the overall market, only 14% of overall postpaid smartphone subscribers as of June 30, 2011. Thus, the intense competition in the industry and numerous manufacturers could easily replace the relatively small market share of HTC’s Infringing Products, if excluded.”).

Nor would exclusion of these two Apple products have a material impact on consumers. Those who feel locked into Apple’s closed iOS ecosystem can upgrade to a broadband 4G iPhone 5 or iPad with Retina display.4 Apple has recently told the Commission in the 796 investigation that it has considerable flexibility in its supply chain, and should easily accommodate such vertical moves. Those consumers who do not feel locked into Apple’s iOS ecosystem can find many more 3G and 4G substitute smartphones and tablets from over a dozen manufacturers.

Apple argued to the Commission that exclusion of only GSM mobile devices would upset competitive conditions at US carriers because it would only impact GSM carriers such as AT&T and T-Mobile.5 Apple failed to mention that it did not sell its phones to T-Mobile until 2013, and has played carriers off each other for years. No carrier except AT&T has ever been permitted to sell the infringing GSM iPad 2. Finally, it is worth noting that the ITC has protected consumers who currently own the excluded products by including an exception to the exclusion order permitting refurbished articles imported on or before June 3, 2015 for use as a replacement for identical articles that were imported prior to the date of the LEO.

In sum, the limited impact of the LEO on current Apple products raises no economic policy concerns sufficient to take the extraordinary and nearly unprecedented step of disapproval of the LEO.

4

The limited exclusion order will have no impact on public health, welfare, US production, or
foreign relations

The limited range of excluded Apple devices negates any impact on public health and welfare, because a number of alternative devices (including non-excluded Apple products) can replace the E911 functionality and health and safety applications that may be run on the GSM iPhone 4 and iPad 2. There will be no shortages of substitute products to consumers, physicians or first responders, and neither of the excluded products is even capable of broadband 4G connectivity needed to run more sophisticated health and safety applications.

All of the excluded Apple products are manufactured in China by contract manufacturers unrelated to Apple, and there is no US production of smartphones or tablets in the United States to be impacted. Finally, the exclusion will not impact the United States’ foreign relations with China any more than the recent exclusion of Motorola and HTC smartphones, which are also manufactured in China. There remain plenty more Chinese manufactured electronic devices (including those made for Apple) that will not be impacted by the LEO.

This is not the right case for a broad pronouncement about the enforceability of standards-
related patents at the ITC

Samsung believes that standard essential patents subject to a FRAND commitment should not be eligible for an injunction or exclusion order except in those cases where the implementer of a standard is clearly unwilling to license SEPs on FRAND terms. [REDACTED] In this circumstance, an exclusion order is appropriate.

After careful analysis of the facts and Apple’s arguments, the Commission determined that Samsung complied with its FRAND obligations and Apple failed on its FRAND defenses.6 [REDACTED] Given Apple’s deliberate strategy to avoid licensing SEPs, Samsung had to choose between allowing Apple free and unfettered use of its most important patents or to respond to Apple’s patent lawsuits by availing itself of its right to initiate a Section 337 action at the International Trade Commission. Under the facts found by the Commission, the exclusion order should not be overturned.

Apple's assertion that Samsung forfeited any right it might otherwise have had to obtain an exclusion order when it made a FRAND commitment for its declared essential UMTS patents

5

has now been rejected twice: first, by the very same Northern District of California jury that initially awarded Apple more than $1 billion in damages for alleged infringement of various Apple intellectual property rights, and now by the Commission after a full hearing on the merits and extensive public interest submissions from Apple, Samsung, and numerous third parties including consumer groups, electronic associations, and participants in standards organizations. [REDACTED]7

The ITC found that Apple’s position illustrates the problem of “reverse patent hold-up”

Samsung has always honored its commitment to license its declared-essential patents on FRAND terms and conditions. Samsung has never refused to license its SEPs to other companies, including direct competitors like Apple. And Samsung has never offensively used its patents, essential or not, to keep competitors out of the market. To the contrary, as the Commission’s opinion notes, [REDACTED]

[REDACTED] In December 1998, Samsung submitted a general IPR licensing declaration to ETSI stating that should its technical proposals be incorporated into the UMTS standard, Samsung would make that IPR available on FRAND terms. Over time, Samsung submitted numerous undertakings to ETSI in which it promised to license patents that it believed might be essential to ETSI’s work. Samsung submitted an undertaking in 2002 for the ’348 patent that Apple was found to infringe, in which it promised to license that patent, to the extent it remained essential to an ETSI standard, on fair, reasonable, and non-discriminatory terms and conditions to any company that desired to implement that standard [REDACTED] show that Samsung has honored that pledge.

The Commission’s Opinion sets forth the parties’ license negotiations in great detail, noting that the facts were largely undisputed. [REDACTED]

6

[REDACTED]

[REDACTED] Instead, in a recent brief to the Commission, Apple publicly declared that “Apple should not have to pay any royalty at all” for a license including the ’348 patent. Apple’s Submission in Response to the Commission’s Request for Additional Written Submissions on Remedy and the Public Interest at 49 (April 3, 2013). By any definition, Apple is an unwilling licensee of Samsung’s declared essential patents.

The Commission found that concerns about the potential for patent holdup are not present here and that Apple utterly failed to prove an affirmative defense of patent misuse. Far from attempting to engage in hold-up, Samsung has licensed all comers, [REDACTED]

[REDACTED]
[REDACTED]

7

[REDACTED]

The facts of this investigation illustrate why there should not be a bright line rule that SEPs
are ineligible for protection at the ITC

As noted above, Samsung believes that SEPs should be eligible for an injunction or exclusion order only in those cases where the implementer, like Apple here, is unwilling to engage in licensing negotiations or neutral arbitration to arrive at a FRAND license. [REDACTED]

[REDACTED]

Other upcoming Section 337 investigations will provide a better opportunity for the ITC or
USTR to address the potential misuse of standard essential patents at the ITC

While policy grounds for disapproval of the remedial orders are not present here, there are currently several investigations involving SEPs, including complaints filed by InterDigital and Ericsson, working their way through the ITC. These investigations have far different facts regarding the patent holders’ compliance with their FRAND obligations and the willingness of implementers to license on FRAND terms. There will therefore be other, and more appropriate opportunities for the ITC and/or the USTR to weigh in on the potential abuse of SEPs at the ITC. Indeed, it may be appropriate for USTR to make a public statement here, as it did after the Broadcom/Qualcomm review, that although this is not the right case, it will continue to carefully scrutinize all LEOs based on infringement of SEPs for public interest implications.

____________
1 Depending on the baseband processor used in Apple’s products to connect to UMTS bands, future models of mobile devices could become subject to the LEO. This processor selection is completely in Apple’s control.

2 See Apple’s Submission in Response to the Commission’s Request for Additional Written Submissions on Remedy and the Public Interest at 13 (Apr. 3, 2013 [REDACTED]

3 See comScore, “Mobile Future in Focus 2013,” at 21(Feb. 2013) (listing 2012 smartphone market shares for HTC (10.2%) and Motorola (9.1%)).

4 See Peter Burroughs “Apple Said to Start iPhone Trade-in Program in Stores,” (June 6, 2013) (reporting on new Apple program to allow GSM iPhone 4 owners a free upgrade to iPhone 5), available at http://www.bloomberg.com/news/2013-06-06/ apple-said-to-start-trade-in-program-to-boost-new-models.html

5 See Apple’s Submission in Response to the Commission’s Request for Additional Written Submissions on Remedy and the Public Interest at 12 (Apr. 3, 2013).

6 Samsung respectfully submits that the TPSC should carefully consider (and not second guess) the Commission’s factual findings and that challenges to the Commission’s findings should be left to the appellate courts.

7 [REDACTED]

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