As has been widely reported in the press, in the ongoing battle between Apple and Samsung, the Office of the U.S. Trade Representative, acting on behalf of the president, engaged in a policy evaluation of the June 4 orders issued by the U.S. International Trade Commission that would have prohibited Apple Inc. from importing and selling certain of Apple’s iPhone and iPad devices in the United States. This evaluation is required by Section 337 of the Tariff Act of 1930. As a result of the evaluation, on August 3, the USTR disapproved the exclusion and cease-and-desist orders in In the Matter of Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Investigation No. 337-TA-794.
In recent years there has been an increased use of the ITC as a forum for litigating patents, largely in view of its authority to issue such exclusionary and cease-and-desist orders against domestic entities found to have engaged in unfair methods or acts. Historically, presidential disapprovals have been a rarity — there have been only five since 1978 — and the most common bases for disapprovals have been damage to the affected industry; that the ITC order is contrary to a statutory interpretation of the executive branch; and a negative effect of the ban on the United States’ trade relations. Unlike previous presidential disapprovals, the recent rejection of the ITC ban on Apple’s importing and sales activity was based on policy considerations related to remedies for standards-essential patents subject to voluntary fair, reasonable and nondiscriminatory commitments.
Standard-setting organizations (SSOs) are industry groups that agree to adopt a technology as a standard for an industry with the goal of allowing compatibility between products made by different manufacturers within that industry. If a patented technology is adopted as part of the standard, and the patented technology is required to implement the standard, the underlying patent is called a standards-essential patent (SEP).
If the standard including the patented technology becomes widely used in an industry, there is a risk that the SEP holder will be in a position to engage in patent holdup by asserting the patent to exclude a competitor from a market or obtain a higher price for its use than would have been possible before the standard was set. This type of patent holdup can provide the SEP a significant commercial advantage over its competition. In order to prevent or mitigate such effects, most SSOs request that their members make reasonable efforts to identify and disclose any patents that might be essential to practice the standard. The SSOs may also request that members agree to license these essential patents on fair, reasonable and nondiscriminatory (FRAND) terms.
Because SSOs generally do not determine whether a particular patent is essential to a standard, discrepancies arise over the scope of a patent owner’s duty to disclose essential patents. Further, typical SSO policies mandating license of these essential patents on FRAND terms provide little guidance for royalty determination. These factors have led to an increasing number of failed licensing negotiations, which have further resulted in an increased number of actions, either before the ITC, a federal district court or both, seeking damages or injunctive relief.
The ITC has become a preferred forum to hear complaints against the import of goods that allegedly infringe U.S. patents, trademarks or copyrights or otherwise constitute an unfair method of competition. If the ITC finds a Section 337 violation and issues an order imposing relief, a 60-day presidential review period follows. During this review period, the president has the power to disapprove the order on policy grounds.
In the USTR’s disapproval of the ITC order against Apple, the USTR cited as the basis for its decision a policy statement (discussed below) issued by the U.S. Department of Justice Antitrust Division and the U.S. Patent and Trademark Office (USPTO) regarding remedies for SEPs subject to voluntary FRAND commitments.
Policy Statement on SEPs
On January 8, the DOJ and USPTO issued a policy statement on remedies for SEPs subject to voluntary FRAND commitments to provide their perspective on whether injunctive relief in judicial proceedings or exclusion orders in ITC investigations are proper when a patentholder seeking such a remedy asserts SEPs that are encumbered by a FRAND licensing commitment.
In the policy statement, the DOJ and USPTO recognize that there are risks related to the standard-setting process: “When a standard incorporates patented technology owned by a participant in the standard-setting process, and the standard becomes established, it may be prohibitively difficult and expensive to switch to a different technology within the established standard or to a different standard entirely.” While further recognizing that the owner of that patented technology may gain market power and potentially take advantage of it by engaging in patent hold-up, they argue that in some circumstances the remedy of an injunction or an exclusion order may be inconsistent with the public interest.
According to the DOJ and the USPTO, this concern is particularly acute in cases where an exclusion order based on a FRAND-encumbered patent appears to be incompatible with the terms of a patentholder’s existing FRAND licensing commitment to an SSO.
The policy statement reminded that an exclusion order may still be an appropriate remedy in some circumstances, such as those where the putative licensee is unable or refuses to take a FRAND license and is acting outside the scope of the patentholder’s commitment to license on FRAND terms, or when a putative licensee is not subject to the jurisdiction of a court that could award damages. This list is not an exhaustive one, but it identifies relevant factors when determining whether public interest considerations should prevent the issuance of an exclusion order.
However, the DOJ and USPTO also believe that, depending on the facts of individual cases, the public interest may preclude the issuance of an exclusion order in cases where the infringer is acting within the scope of the patentholder’s FRAND commitment and is able, and has not refused, to license on FRAND terms. The DOJ and USPTO urged the ITC to consider whether a patentholder has acknowledged voluntarily through a commitment to license its patents on FRAND terms that monetary damages, rather than injunctive or exclusionary relief, is the appropriate remedy for infringement.
A mere six days after the USTR vetoed the ITC ban on the importing of the Apple products, the ITC in a different proceeding, In the Matter of Certain Electronic Digital Media Devices and Components Thereof, Investigation No. 337-TA-796, imposed a ban on Samsung products that were found to infringe certain Apple patents, including a patent related to the finger-swipe motion used on many touch-screen devices. As noted above, in the first ITC decision, Apple products were initially banned from the U.S. market for infringing Samsung’s SEPs subject to FRAND commitments. However, in the second ITC decision, the commission found that Samsung infringed Apple’s patents, which are not considered SEPs and for which Apple did not have obligations to license. Because Samsung was found to infringe Apple’s non-SEPs, it is unclear on what grounds, if any, the USTR might intervene to veto this decision. A decision on the policy review by the Obama administration is expected in October.
Mark D. Simpson is a partner in Saul Ewing’s intellectual property and technology practice. He represents U.S. and overseas-based clients, with extensive representation of clients in European and Asian countries. Technologically, his focus is in the electrical, electromechanical, computer software and hardware, telephony and medical devices arts.
Rajesh Nair is a member of the firm’s intellectual property and technology, life sciences and patent practice groups. His practice focuses on intellectual property matters involving scientific and technological inventions and, in particular, patent matters in areas related to chemistry and chemical engineering.