When the International Trade Commission (ITC) issues an exclusion order, it does not ordinarily make news. The agency routinely issues such orders prohibiting the import or sale in the U.S. of items that infringe U.S. patents.
On June 4, however, the ITC issued an exclusion order against five popular models of Apple iPhones and iPads that infringed a patent owned by Samsung.
The decision was controversial and precedent-setting because it concerned a standard-essential patent (SEP), an unusual—but increasingly important—type of patent.
Such patents cover technology included in industry standards, such as Wi-Fi or Bluetooth. These standards are vital for the tech sector, enabling the interoperability of different devices made by different manufacturers.
Owners of SEPs are in unique positions. By having their technology included in a standard, they receive a huge benefit. They get to license their patents widely—to all the companies that use the standard. To ensure that SEP owners do not abuse their position and demand exorbitant license fees, standard-setting organizations almost always require that SEP owners commit to licensing their SEPs to everyone on terms that are fair, reasonable and nondiscriminatory (FRAND).
Samsung had made a FRAND commitment on the SEP at issue in this case. Apple argued that because of this commitment, Samsung should not be able to get any form of injunctive relief, including an exclusion order. One of the country’s most prominent jurists, Judge Richard Posner, supported this position. Several federal agencies warned against granting exclusion orders for FRAND-encumbered patents.
Nevertheless, the ITC held that owners of FRAND-encumbered patents can, at least in some circumstances, obtain exclusion orders. The ramifications of this decision will be felt nationwide by businesses and consumers that make or use tech products.
“This legal question has a huge public impact. This could affect many popular products in the future,” says Jonas Anderson, professor at American University’s Washington College of Law.
The ITC’s ruling puts the agency at odds with a court decision handed down last year, Apple, Inc. v. Motorola, Inc. That case involved an SEP owned by Motorola. Judge Posner (sitting as a district court judge) noted that in order to obtain an injunction, a litigant had to show that damages are not an adequate remedy. The owner of a FRAND-encumbered SEP cannot make such a showing because the owner had already agreed to license the patent on reasonable terms. The patentee had agreed to be satisfied with a reasonable royalty. Any injunctive-type relief thus would be inappropriate, Judge Posner held.
The ITC has taken a very different position. In its June 4 decision, In re certain electronic devices, the agency concluded that the owners of FRAND-encumbered SEPs can get exclusion orders against infringing products.
The ITC, however, did not declare that owners of FRAND-encumbered SEPs could always get exclusion orders against infringers. The ruling was more fact specific. In this case, Samsung had offered to license its SEP to Apple. The requested royalty, apparently 2 percent of Apple’s profits on the covered devices, was unreasonably high, according to some observers. But Apple never made a counteroffer. It simply refused to negotiate. As a result, the ITC concluded, “Apple failed to prove an affirmative defense based on Samsung’s [alleged breach of] FRAND declarations.”
The ITC’s decision may not stand. Apple is appealing the ruling to the Federal Circuit. Moreover, the president has 60 days after an ITC ruling to reject an exclusion order.
Compliance in Question
For the moment, at least, the ITC remains a particularly attractive forum for SEP owners that wish to enforce their patents. Whereas the courts have made no similar statement, and Judge Posner has expressed hostility to granting injunctive relief, the Apple exclusion order indicates the ITC is willing to do so if an SEP owner put a reasonable licensing offer on the table or if the other side refused to negotiate.
It is less clear whether exclusion orders are available in other circumstances. “That’s the million dollar question,” says Matthew Woods, a partner in Robins, Kaplan, Miller & Ciresi. But if an infringer succeeds in proving that the patentee didn’t satisfy its FRAND commitments, the ITC would probably not issue an exclusion order, Woods states.
As a result, when an SEP owner and an alleged infringer go before the ITC, the parties will spend much time and resources arguing over whether the patentee complied with FRAND. “Litigants will have to spend a lot of precious time in discovery developing a record on FRAND,” Woods says.
To create a favorable record, owners of FRAND patents and potential licensees should “negotiate [licenses] in good faith,” says David Schwartz, professor at Chicago-Kent College of Law. At minimum, the owner of a FRAND-encumbered patent should “give the impression that it engaged in negotiations over patent licensing. It takes the argument off the table that the patentee didn’t negotiate,” Anderson says.
Update: As this story went to press on Aug. 3, the U.S. Trade Representative, Ambassador Michael Froman, wrote the ITC on behalf of President Obama to disapprove of the exclusion order the ITC issued in the Samsung/Apple matter on policy grounds, the first such veto since 1987. Froman noted that in some circumstances, exclusion orders may still be appropriate in cases involving FRAND-encumbered SEPs, but he directed the ITC in future cases to more thoroughly examine the public interest issues a remedy presents and to have parties present more thorough information on the relevant standards or hold-ups. Samsung “may continue to pursue its rights through the courts,” the letter concluded. At press time it was unclear what the ITC’s and Samsung’s next steps would be.