Obama should veto the ITC iPhone, iPad ban

We have less than a week before an order from the International Trade Commission takes effect, banning the sale of iPhone 4 and iPad 2 in the United States. President Obama can veto the order, but he has to do so this week, before the August 5 ban begins.

The ITC is banning the Apple devices because of a patent suit brought, and won, by Samsung. Unlike federal courts that can levy hefty fines against companies that infringe patents, the ITC basically has one weapon at its disposal—bans on importation and sales.

In theory, I have no issue with products that infringe on patents being banned, but this case is different—it’s more than just a simple patent. Samsung won the case using a standards essential patent, an industry-type patent that I believe shouldn’t be recognized as the basis for a sales or importation ban.

Fortune Senior Editor, Roger Parloff, does a good job of explaining the standards essential patent:

To ensure interoperability among technological devices made by different companies, standards making bodies — like the European Telecommunications Standards Institute, or ETSI, which is the one pertinent to this particular dispute — decide to solve certain technical challenges in certain ways. While they try to use the best engineering solution available, often the competing approaches are equally good, and the final decision is a bit arbitrary.

To have one’s patented solution selected is obviously a great boon to the patent-holder — a windfall, really — since all manufacturers now have no choice but to license that rights-holder’s patent if they want their products to be interoperable within the pertinent technological ecosystem. That much is unavoidable. But once the standard is set, there’s a danger that a greedy rights holder can go on to seek a second windfall, too. Since he now has manufacturers over a barrel, he may be tempted to demand outrageous prices for licensing his SEPs, all out of proportion to what their worth would have been in the absence of their having been incorporated into an industry standard.

There should also be clear guidelines moving forward on when the President should veto an ITC exclusionary ruling. Here’s a good list from Randal Milch, executive vice president of public policy and general counsel of Verizon Communications:

  • When the patent holder isn’t practicing the technology itself. Courts have routinely found shutdown relief inappropriate for non-practicing entities. Patent trolls shouldn’t be permitted to exclude products from our shores.

  • When the patent holder has already agreed to license the patent on reasonable terms as part of standards setting. If the patent holder has previously agreed that a reasonable licensing fee is all it needs to be made whole, it shouldn’t get shutdown relief at the ITC.

  • When the infringing piece of the product isn’t that important to the overall product, and doesn’t drive consumer demand for the product at issue. There are more than 250,000 patents relevant to today’s smartphones. It makes no sense that exclusion could occur for infringement of the most minor patent.

There’s a lot of talk that Obama shouldn’t veto the ban because a president hasn’t stepped in to veto an ITC decision since 1987. However, it’s also important to recognize that this is the first time the ITC has issued a ban based on a standards essential patent.

Apple and Samsung will continue to argue if the other is negotiating in good faith over the patents, but that’s not an issue for the ITC when the fight includes standards essential patents. There has to be a different remedy for that.

At this point, it seems clear that President Obama has to do the right thing and veto the ban.

  • wow.. now we want the president to step in on Apple’s side? can’t win in court, guess it’s time to cry to Obama

    • Wow, Jason. That’s a well-researched, well-expressed opinion. You have certainly won me over.

    • Sebastian Paul

      Samsung would have asked for an import ban if they hadn’t been caught with their hand in the cookie jar with the Galaxy S.


      And one has to keep in mind that this is a standard essential patent, can’t build a smartphone without using the technology described in this patent – and iirc, Apple’s suppliers already paid the licensing fee for the chip.

      Samsung on the other hand copied the iPhone, instead of designing their own device, like Nokia, HTC or Sony Ericsson did at that time.

    • Apple shareholder

      Samsung tries to charge Apple 10X the royalty rate for a standard essentiol patent, you moron.

    • Moeskido

      Tl; dr much, little Jason?

  • Sam Davis

    He’ll do what he did to Keystone XL. Screw it up.

  • David Erie
  • I understand the principle, but realistically, why bother? Both the iPhone 4 and iPad 2 are likely to be discontinued in a few months. No point in importing more when it’s time to start clearing out inventory.

    • Agreed. Isn’t that kind of the point of this rumored low cost iPhone. Kill the old short screens (4 & 4S) and get everyone on a 4″ screen sooner than later.

      In terms of iPad 2, that might be a bigger issue. A lot of tech media didn’t get why Apple kept the iPad 2 around and not the unofficially named iPad 3 when the unofficially named iPad 4 was released. A lot of businesses were using iPad 2 as POS systems or kiosks and didn’t need the high priced retina screen of the iPad 3. Not sure if Apple has it in them to abandon the iPad 2 just yet due to it being “Good Enough” for POS and kiosk installations.

      • RE: iPad 2, I agree about the need for a low-cost iPad, but 1) iPad mini is cheaper and 2) who said the iPad 2 would not be refreshed? I believe their current split between non-Retina and Retina, as they also do with Macbooks, is working nicely and should continue (at least until RD costs come down).

        • I am a bit confused. Didn’t you state “I understand the principle, but realistically, why bother? Both the iPhone 4 and iPad 2 are likely to be discontinued in a few months”. To me discontinued means that the product will no longer be manufactured.

          I think the iPad mini is too small for POS and kiosk use. With that said Apple is a consumer electronics company that has never really made decisions based on their “business” customers.

          • By “refreshed” I mean replaced by a new version of the same line, an updated, non-Retina display iPad. Basically, the split would be the iPad and iPad with Retina Display, which is how it is now anyway.

    • Moeskido

      It sets a precedent, as with anything patent-related.

    • It’s all about principle. If this is allowed to stand, the fallout could be devastating. SEPs are essential to mobile communications and if Samsung is granted this victory is full violation of the nature of SEPs, it will be all out patent thermonuclear war.

  • Guest

    He should ban Samsung and ITC imports. Period.

    • I don’t think declaring war on the economy of South Korea is the answer.

      • Apple Shareholder

        Why not? Samsung declared war on Apple.

        • Guest edited his post after i commented. It originally stated that The President should ban all South Korean imports.

        • Err…vice versa.

  • Iuri Fiedoruk

    Here is the problem with your idea, ITC found that Samsung DID offer to licence the patent under FRAND, but Apple tought it should pay nothing to Samsung:

    The Commission analyzed the history of negotiations between Apple and Samsung (this portion is heavily redacted) to see if Apple showed that Samsung failed to negotiate “in good faith,” and found that Apple failed to do so. Notably, the Commission dismissed Apple’s arguments that (1) Samsung’s initial offer was so high as to show bad faith, and (2) Samsung’s attempts to get a cross-license to Apple’s non-SEPs violated its FRAND commitments.

    • drx1

      You seem to have this backwards Iuri.

  • Shre_Jax

    The issue I am seeing here is that this article and many of the comments here seem to be ignoring is the ITC’s reasoning for the ban. That Apple did not follow standard negotiating procedures and was effecting a reverse holdup. Frand/Rand patents don’t have a fixed licencing price, that price is determined through individual negotiations with each company that wants to use patented technology.

    Was Samsung’s opening price high, absolutely, but anyone who has ever been party to price negotiations should know that is how opening prices go. The owner of the commodity/technology will ask for the sun, the moon, the stars and all of the heavens. The customer then comes back with a equally ridiculous offer along the lines of “Three jelly beans, a stick of gum and this pencil nub I found in my pocket.” after a good amount of back and forth a reasonable price is settled on.

    In this case the ITC found that instead of coming back with a counter offer, Apple just simply closed all negotiations and continued to use the technology anyway. Furthermore on at least one occasion Apple has said that while it would be open to a court order setting the price but if the price was not what Apple wanted it would not accept the order.

    President Obama said he would veto any injunction to try to put a stop to patent tolls. In this case it is hard to say that Samsung is acting as a patent troll since they have showed willingness to negotiate a price in place of an injunction. The injunction was placed on Apple because it refused to negotiate.

    The only remaining argument then is that Apple is covered under the agreement that Samsung made with the manufacture that supplied the parts to Apple. Samsung obviously disagrees and the ITC seems to agree with them that Apple needs to licence the technology as well.

    • drx1

      SEP patents are licensed on a fair and non discriminatory manner… Samsung did not do this.

      Maybe Samsung should have started with something that was in the ballpark of reasonable?

  • stevenjklein

    Some people are going to think my point is silly, but…

    I actually happen to agree with Jim’s point, but I don’t think it’s appropriate for a Canadian to be telling us how to run our country.

    Now before you decide that I’m being picky or overly sensitive, consider how the folks in Canada (or any other country) would react when Americans presume to tell them how to run things in their neck of the woods?

    • (takes two steps way from steven)

    • BaltimoreDave

      Your point is silly. Your over sensitive,

      He isn’t “telling” he is expressing an opinion. There is a difference. You “tell” your kids to go to bed. A court can tell you to pay a fine. A man in Canada who thinks the POTUS should veto something isn’t telling us to do anything.

      I think Canada should stop digger for oil in tar sands. Thinking and saying that isn’t telling them to do anything. But by saying it i might learn that a lot of Canadians agree with me.

      You clearly are having trouble with this whole global discourse thing