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White House Disapproves ITC Exclusion Order Against Apple Iphone

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White House Disapproves ITC Exclusion Order Against Apple Iphone August 5, 2013 White House Disapproves ITC Exclusion Order Against Apple iPhone U.S. Trade Representative Finds Exclusion Order Violates Administration’s Policy in Favor of Licensing Standard-Essential Patents on FRAND Terms SUMMARY On August 3, 2013, the U.S. Trade Representative (“USTR”) issued a determination disapproving – vetoing – an ITC exclusion order that would have prohibited Apple from importing certain mobile devices that the ITC had determined infringed a standards-essential patent owned by Samsung. The USTR found that enforcement of the exclusion order would not be in the public interest, where the ban could give the patentee “undue leverage” and would violate the Obama Administration’s policy in favor of licensing standard-essential patents (“SEPs”) on fair, reasonable and non-discriminatory (“FRAND”) terms. This is the first time the White House has rejected an ITC exclusion order since 1987. BACKGROUND On June, 4, 2013, the United States International Trade Commission (“ITC”) ruled that certain Apple Inc. (“Apple”) mobile devices (iPhone 3GS, iPhone 4, iPad 2 and iPad 2 3G) infringed a U.S. patent owned by Samsung Electronics Co., Ltd. and Samsung Telecommunications America Inc. (“Samsung”) that is essential to a 3G wireless standard. Samsung had previously committed to license the patent on FRAND terms. Shortly after finding infringement, the ITC issued an exclusion order prohibiting the unlicensed importation of infringing devices, as well as Apple’s sale of the devices in the United States. In issuing those orders, the ITC determined that they were in the public interest. The ITC issued its exclusion order despite a January 8, 2013 joint policy statement from the U.S. Department of Justice and the U.S. Patent and New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney www.sullcrom.com Trademark Office (“DOJ/PTO Policy Statement”) expressing concerns about the potential detrimental economic effects of exclusion and cease-and-desist orders for FRAND-encumbered SEPs. In particular, the DOJ/PTO Policy Statement discussed the potential for “patent hold-up,” in which a standard-essential patent is asserted against an implementer of the standard so that the patent owner can obtain a higher price for use of the patent than would have been possible before the standard was set. Under federal law, the President is required to engage in a policy evaluation of an ITC exclusion order, and either approve, disprove or take no action on the order within 60 days of issuance. This authority has been delegated to the USTR. THE USTR’S DECISION On August 3, 2013, the USTR, Ambassador Michael Froman, issued a determination disapproving the ITC’s exclusion and cease-and-desist orders directed to Apple. The USTR did not revisit the facts of Samsung’s infringement case. Instead, he based his decision on policy considerations relating to the potential economic effects of exclusion orders based on FRAND-encumbered SEPs on competitive conditions in the U.S. economy and on U.S. consumers. The USTR relied heavily on the concerns raised in the DOJ/PTO Policy Statement. He “strongly share[d]” the concerns it expressed about the potential harms that can result from owners of SEPs who have made a voluntary commitment to offer licenses on FRAND terms but who may attempt to “gain[] undue leverage” and engage in “patent hold-up.” At the same time, he noted that “technology implementers” (i.e., accused infringers) “also can cause potential harm” by, for example, refusing to negotiate a FRAND license with the SEP owner or refusing to pay what has been determined to be a FRAND royalty. He agreed with the DOJ/PTO Policy Statement that “whether public interest considerations counsel against a particular exclusion order depends on the specific circumstances at issue.” In this case, the USTR noted that voluntary, consensus-based standards have come to play an increasingly important role in the U.S. economy, and that “[l]icensing SEPs on FRAND terms is an important element of the Administration’s policy of effective protection and enforcement of intellectual property rights.” This policy requires that exclusionary relief from the ITC based on FRAND-encumbered SEPs be available based “only on the relevant factors described” in the DOJ/PTO Policy Statement. Accordingly, the USTR disapproved the exclusion order, but noted that Samsung remains able to pursue its remedies in the courts. In a footnote, the USTR provides examples where the relevant factors set out in the DOJ/PTO Policy Statement might weigh in favor of an exclusion order: Where the accused infringer (i) is unable or unwilling to negotiate or take a FRAND license, (ii) is acting outside the scope of the patentee’s FRAND commitment, or (iii) is not subject to the jurisdiction of a court that could award damages. The USTR also specified that the ITC, in considering FRAND-encumbered SEPs, must in the future (i) consider public -2- White House Disapproves ITC Exclusion Order Against Apple iPhone August 5, 2013 interest issues carefully, (ii) have the parties develop a comprehensive factual record about the relevant public policy issues, including information on the standards-essential nature of the patent at issue, and the presence or absence of patent hold-up or reverse hold-up, and (iii) make explicit findings on these public policy issues to the maximum extent possible, in each case both during the proceedings and at the formal remedy phase. IMPLICATIONS The USTR’s decision comes in the wake of several recent decisions that may make it more difficult to obtain injunctive relief for SEPs in federal courts. While the USTR decision does not itself eclipse the possibility of an ITC exclusion order for FRAND-encumbered SEPs, it will likely make it more difficult for owners of such patents to obtain exclusion or cease-and-desist orders based on infringement findings by the ITC. Because such orders constitute the only remedy available in the ITC, owners of FRAND- encumbered SEPs may well limit use of the ITC as a forum for their patent infringement claims, except where the accused infringer is unwilling or unable to accept a license on FRAND terms. * * * Copyright © Sullivan & Cromwell LLP 2013 -3- White House Disapproves ITC Exclusion Order Against Apple iPhone August 5, 2013 ABOUT SULLIVAN & CROMWELL LLP Sullivan & Cromwell LLP is a global law firm that advises on major domestic and cross-border M&A, finance, corporate and real estate transactions, significant litigation and corporate investigations, and complex restructuring, regulatory, tax and estate planning matters. Founded in 1879, Sullivan & Cromwell LLP has more than 800 lawyers on four continents, with four offices in the United States, including its headquarters in New York, three offices in Europe, two in Australia and three in Asia. CONTACTING SULLIVAN & CROMWELL LLP This publication is provided by Sullivan & Cromwell LLP as a service to clients and colleagues. The information contained in this publication should not be construed as legal advice. Questions regarding the matters discussed in this publication may be directed to any of our lawyers listed below, or to any other Sullivan & Cromwell LLP lawyer with whom you have consulted in the past on similar matters. If you have not received this publication directly from us, you may obtain a copy of any past or future related publications from John Castro (+1-212-558-4417; [email protected]) in our New York office. CONTACTS Washington, D.C. Joseph J. Matelis +1-202-956-7610 [email protected] Daryl A. Libow +1-202-956-7650 [email protected] New York Garrard R. Beeney +1-212-558-3737 [email protected] Marc De Leeuw +1-212-558-4219 [email protected] John Evangelakos +1-212-558-4260 [email protected] Adam R. Brebner +1-212-558-3011 [email protected] Stephen J. Elliott +1-212-558-7446 [email protected] James T. Williams +1-212-558-3130 [email protected] Palo Alto Nader A. Mousavi +1-650-461-5660 [email protected] -4- White House Disapproves ITC Exclusion Order Against Apple iPhone August 5, 2013 SC1:3478035.1 .
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