Apple Inc. (AAPL) may learn as early as today whether President Barack Obama and U.S. Trade Representative Michael Froman will intervene to let it keep selling all versions of its iPhone 4 and iPad 2 in the U.S.
Obama and Froman have until midnight Washington time on Aug. 4 to overturn an import ban imposed by the U.S. International Trade Commission, which found June 4 that some older Apple devices infringed a Samsung Electronics Co. (005930) patent for a way data is transmitted.
The import ban applies to the iPhone 4 and iPad 2 3G models designed for networks run by AT&T, T-Mobile US Inc. and two regional carriers in Texas and Alaska. Photographer: Chris Goodney/Bloomberg
No president has overturned an ITC import ban since Ronald Reagan did it in 1987, in a case involving Samsung. Cupertino, California-based Apple is counting on Obama’s increased interest in patent disputes to win another exception.
“I would hope that if he decides to wade in, that he would do so in a way that aims for more reasonable and coherent intellectual property policies to remove some of the gamesmanship,” said Charles Golvin, an analyst with Forrester Research. “That would be a lot more helpful than if it was seen as protecting a U.S. company versus a Korean one.”
If no action is taken by the deadline, Apple would have to stop selling the affected devices on its website and its stores, and wouldn’t be able to bring any new devices into the U.S. Phones and tablets already on store shelves for companies like AT&T Inc. or Best Buy Co. (BBY) could remain for sale.
The import ban applies to the iPhone 4 and iPad 2 3G models designed for networks run by AT&T, T-Mobile US Inc. and two regional carriers in Texas and Alaska.
IPhone 4 models sold for other networks weren’t impacted, nor were newer devices including the iPad mini and iPhone 5. Apple counts on older iPhone models, often given away with a two-year contract, to entice people it hopes will become loyal customers.
Ecosystem Enticement
“They rely on some of the older models to feed the ecosystem and get people into the wonderful world of Apple,” said Will Stofega, program director at researcher IDC in Framingham,Massachusetts.
Sales of older models helped Apple top analysts’ earnings projections in the fiscal third quarter. The company is expected to release updated versions of the iPhone and iPad later this year.
“The smartphone market at the high-end is largely saturated,” Golvin said. “Anyone who is well-heeled and wants one already has one. It’s the latecomers, for whom price is all-important, that are the ones who are still out there. Not having that product to sell to those customers would be a big impediment.”
Standard Patents
The Samsung patent is for a way data is transmitted over communications networks. It’s a feature in a widely used technological standard established by a number of companies.
Companies that get together to establish industry standards have the advantage of ensuring their inventions are included in that standard so everyone uses them. In turn, they pledge to license any relevant patents on “fair, reasonable and non-discriminatory” terms.
Obama’s administration in January sent the ITC proposed guidelines to consider before issuing import bans based on a finding that standard-essential patents were infringed.
It said that while patent owners have the right to exclude others from using their inventions, the public benefit of allowing that is limited when it comes to standards patents. The U.S. Federal Trade Commission filed a similar paper with the agency last year.
‘Unwilling Licensee’
Four senators wrote to Froman on July 30, asking him to “assess the substantial public interest considerations” regarding the use of standard-essential patents at the ITC. The senators were Democrats Amy Klobuchar of Minnesota and Barbara Boxer of California, and Republicans Mike Lee of Utah and James Risch of Idaho.
Apple and Microsoft Corp. have promised not to use any patents they have on industry standards to block competing products. Samsung and Google Inc. (GOOG), which owns Motorola Mobility and the Android operating system that’s the most popular platform for mobile phones, reserved the right to use them if the other side is considered an “unwilling licensee.”
Samsung, based in Suwon, South Korea, said Apple has refused to negotiate licensing terms, and overturning the trade agency’s finding of infringement would “create incentives for implementers to unreasonably refuse to negotiate.”
Samsung demanded 2.4 percent of Apple’s iPhone and iPad revenues, which would come to about $18 per phone -- a figure Apple called unreasonable.
Global Outlier
Companies won’t want to create new products that comply with industry standards if they fear a patent owner demanding high royalties, Apple argued in its filing with the trade representative. It said the ITC was an “outlier internationally and domestically” on the issue.
Samsung, which is under investigation by European regulators on allegations of patent misuse, agreed to not seek sales bans based on any of its standard-essential patents on that continent. It made no such promise in the U.S. and defended its position, saying Apple refused to a licensing deal on any terms.
Two U.S. judges have said Google’ Motorola Mobility unit can’t use standard-essential patents to seek bans of products.
One of those rulings, against Apple, is scheduled for arguments at the U.S. Court of Appeals for the Federal Circuit in Washington on Sept. 11. The other involves a Microsoft Corp. (MSFT)breach-of-contract complaint against Google that’s scheduled for trial in Seattle later this month.
Apple can ask that court to put the current order on hold until the underlying infringement finding is reviewed. While the Federal Circuit doesn’t often grant such requests, it might in this case because of the case coming up in September, said Rodney Sweetland, a patent lawyer with Duane Morris in Washington.
The Apple case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, and Samsung’s case is In the Matter of Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-794, both U.S. International Trade Commission (Washington).
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