Apple's loss is a loss for consumer and the industry

In a shocking decision, the International Trade Commission voted to ban import of old iPhones and iPads for infringing five claims of a Samsung W-CDMA patent. The band would impact the AT&T models of the iPhone 4, 3GS, 3 and iPad 3G and iPad 2 3G.

That Samsung sued (in retaliation for Apple’s earlier win) or won an infringement judgement is not what’s surprising. The surprise is that the ITC granted what amounts to injunctive relief for infringement of a standards-essential patent.

In telecom, standards-essential patents are different from any other type of patent. These are patents where a company (usually a handset or chip vendor) tells the standards setting organization (SSO) that they believe their patent is essential for implementing the patent.

Companies try to accumulate lots of these patents to force companies into cross-licensing (or royalty-bearing) agreements. Sometimes these patents are of dubious quality, as Rudi Bekkers & I showed in our 2009 study of W-CDMA patents.

However, in exchange for saying a patent is “essential,” the patent-holder promises to license their patents to all comers. As the main GSM (3GSM/W-CDMA) standardization notes the two declarations are inseparable:

declare your essential IPRs and to tell ETSI about your preparedness to grant irrevocable licenses on fair, reasonable and non-discriminatory [FRAND] terms and conditions pursuant to Clause 6 of the ETSI IPR Policy

That policy reads:

6.1 When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory terms and conditions under such IPR to at least the following extent:

• MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;
• sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;
• repair, use, or operate EQUIPMENT; and
• use METHODS.

The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate.

So for these patents, the only questions are a) whether or not a royalty is due and b) how much the price is. Once patent infringement is determined by a court, it’s a question of damages and not an injunction.

For this very reason, Samsung faces sanctions in Europe for similar efforts. The definitive site for telecom patent war news, FOSS Patents, reported in December 2012:

European Commission Vice President Joaquín Almunia already indicated that the adoption of a Statement of Objections (SO) against Samsung over its pursuit of injunctions against Apple based on standard-essential patents (SEPs) was imminent.
…
At close of business today [21 Dec] the Commission issued a press release announcing that Samsung has been served an SO, which is a preliminary ruling. This means we're past the stage of Samsung merely being suspected of abuse of a dominant market position (this theory is not based on Samsung's smartphone market share but on the leverage that SEPs give their owners), but that the Commission has preliminarily determined, after almost a year of formal investigations (which followed several months of preliminary ones), that Samsung has indeed committed abuse and should be sanctioned.

As blog author Florian Mueller has noted, Google has faced similar criticism for asserting the Motorola SEP that it bought.

The industry has noticed this case and the damaging impact of Samsung’s (apparently successful) legal arguments. Various industry groups filed briefs against an exclusion order. As Matt Rizzolo blogged on April 9:

We noted that several other parties also submitted responses, offering their views on how an exclusion order in this case might affect the public interest. These parties include:

• Cisco, Hewlett-Packard, and Micron Technology
• The Retail Industry Leaders’ Association
• The Business Software Alliance
• The Association for Competitive Technology

Each of these parties warns the ITC that allowing exclusion orders for FRAND-pledged standard-essential patents may have adverse effects on U.S. consumers and the U.S. economy, particularly future standards-setting activity.

This morning, Mueller noted that price is at the heart of the dispute:

Some will say Apple should have taken a license, but Samsung's initial 2.4% demand was far outside the FRAND ballpark (as a Dutch court said in a ruling), and it's not known what Samsung has demanded more recently (other than that Apple still considers it excessive).

And, as Rizzolo noted, the Cisco/HP/Micro filing proposed a mechanism for independently establishing a “reasonable” royalty.

The largest cellphone patent holder, Qualcomm, had earlier filed an opposition at ITC to Apple’s proposed interpretation of FRAND, but hastily withdrew the criticism of its major customer.

It’s not clear what the next step is. The ITC will seize the older (lower priced) models in 60 days, unless the president or a Federal court blocks that decision. Congress might reform the law, but given they can’t even resolve simple budgetary issues, they’re not going to pass a major piece of patent reform in two months.