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USTR Signals More Consideration Needed Before Banning Certain IPR Infringing Imports

Tuesday, August 06, 2013
Sandler, Travis & Rosenberg Trade Report

The Obama administration has taken the rare step of overturning an International Trade Commission decision to ban imports of patent infringing goods. The administration also counseled the ITC to conduct more detailed reviews in considering any such restrictions in the future.

In investigation 337-TA-794 of certain electronic devices, including wireless communications devices, portable music and data processing devices, and tablet computers, the ITC determined that the importation of Apple’s iPhone 3, 3GS and 4 smartphones and iPad 3G and iPad 2 3G tablets are violating a patent owned by Samsung. The ITC therefore issued a limited exclusion order prohibiting Apple from importing infringing products as well as a cease and desist order prohibiting the sale and distribution of such products within the U.S.

As part of its investigation, the ITC requested input on how such remedies might affect the public interest, given the large number of affected products that are currently in use, and how the remedies might be tailored to avoid harm to the public interest. While those considerations appear not to have altered the remedies the ITC ultimately ordered, U.S. Trade Representative Mike Froman indicated in an Aug. 3 letter to the ITC that they were the primary basis for his decision to overturn them, the first such action in more than 25 years. He specifically cited the negative impact that an import ban would have on competitive conditions in the U.S. economy and on U.S. consumers.

Froman explained that technical standards have come to play an increasingly important role in the U.S. economy and that “important policy considerations arise in the enforcement of” patents that have been incorporated into such standards (like the one owned by Samsung) because they are “fundamental to the interoperability of many of the products on which consumers have come to rely,” including those at issue in this case. While patent infringement relief such as the issuance of exclusion orders is an important facet of promoting innovation and economic progress, he said, consideration must also be given to the harms that could result if owners of such standards-essential patents (SEPs) who have made a voluntary commitment to offer to license them on terms that are fair, reasonable and non-discriminatory (FRAND) engage in “patent hold-up;” e.g., threatening to pursue restrictions to prevent competitors from using an SEP. On the other hand, technology implementers (like Apple) can cause potential harm by engaging in “reverse hold-up;” e.g., refusal to negotiate a FRAND license with the SEP owner or to pay what has been determined to be a FRAND royalty. A January 2013 federal policy statement advises that to mitigate against such practices, ITC exclusion orders based on FRAND-encumbered SEPs should only be available in limited circumstances.

Froman concluded by advising the ITC to ensure that it examines public interest issues “thoroughly and carefully on its own initiative” in future such cases, both at the outset and when determining whether to impose a particular remedy. Froman also called on the ITC to make sure the parties to future cases “develop a comprehensive factual record related to these issues” so it can determine whether a patent is an SEP and whether the parties are engaging in patent hold-up or reverse hold-up. Froman said that the ITC should “make explicit findings on these issues to the maximum extent possible” and that USTR will look for these elements in any similar cases that may be presented for policy review in the future.

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