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.