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  (Source: Sodahead)
iPhone/iPad Ban is blocked by Obama's trade ambassador

Apple, Inc. (AAPL), the world's second largest smartphone maker and top tablet maker has scored bans on a number of South Korean rival Samsung Electronics Comp., Ltd.'s (KSC:005930) products over time, due to alleged copyright infringements.  Some of these bans have been overturned in the eleventh hour; others have not.

I. Samsung Almost Scores a Major Win

Samsung, the world's largest smartphone maker and second largest tablet maker, was on the verge of its first court win, scoring a ban on some Apple products.  But in the eleventh hour the ban was overturned by the administration of U.S. President Barack Hussein Obama (D) in a decision that was described as a "rare" display of executive power.

The ban had come from the U.S. International Trade Commission (ITC).  The ITC is not a standard federal court, but rather a trade court.  However, it has become an increasingly popular place to try to block competitors infringement-accused products, ever since the 2006 Supreme Court ruling in eBay v. MercExchange [PDF] made it harder to ban products while pursuing infringement claims in the federal court system.

On Tues., June 4, 2013 an ITC panel reversed an early decision and found that Apple was in infringement of a so-called "standards-essential" patent (SEP) owend by Samsung -- U.S. Patent No. 7,706,348.  The patent in question -- "Apparatus and method for encoding/decoding transport format combination indicator in CDMA mobile communication system" -- covered device side reception technologies using the 3G CDMA standard, which is used by Sprint Nextel Corp. (S) and Verizon Wireless (a joint venture between Vodafone Group Plc (LON:VOD), Verizon Communications Inc. (VZ)).
 
A court ruling threatened to ban older iPhone models (right). [Image Source: Reuters]

The decision did not effect new iPhones/iPads which used baseband chips from Qualcomm, Inc. (QCOM) (in other words, the iPad 4G, iPhone 4S, and iPhone 5).  Most of the older members of the iPad Line (iPad 3G, iPad 2 3G) and the iPhone line (iPhone 3G, iPhone 3GS, and iPhone 4), however were scheduled to be banned in 60 days (Sun. Aug. 4, 2013).

II. Obama Administration Vetoes Ban on iPads, iPhones

The executive branch (via the U.S. Trade Representative, a presidential appointee) has the privilege to review and reject these decisions anytime during the 60 day window prior to the ban, however, such rejections are historically extremely rare.

In this case however, a rejection did come, on (Sat.) Aug. 3, 2013 in the eleventh hour.

Obama pointin
Obama's trade appointee shot down a ban on iPhones and iPads, despite a preliminary finding of patent infringement by the ITC. [Image Source: Sodahead]

U.S. Trade Ambassador/Representative Michael B. G. Froman informs that after "extensive consultations" he and the President "decided to disapprove the USITC's determination to issue an exclusion order and cease and desist order in this investigation."

He says the ban would adversely impact the "competive conditions in the U.S. economy and effect U.S. consumers."  He also takes issue with Samsung's ability to purse bans with SEP patents, writing:

I would like to underscore that in any future cases involving SEPS that are subject to voluntary FRAND commitments, the Commission should be certain to (1) to examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive factual record related to these issues in the proceedings before the Administrative Law Judge and during the formal remedy phase of the investigation before the Commission, including information on the standards-essential nature of the patent at issue if contested by the patent holder and the presence or absence of patent hold-up or reverse hold-up.

The decision by the Obama administration does have basis in the long-standing debate over the value of SEPs (also known as patents licensed under fair, reasonable and non-discriminatory (FRAND) terms) versus general software patents, as it pertains to standards ethics and patent lawsuits in general.

Most agree that it's bad faith to promise to license a patent openly, and then turn around and use that patent to sue rivals.  In many jurisdictions laws -- including the U.S. -- laws or court precedents make it difficult or even illegal to seek bans/punitive damages using FRAND intellectual property (IP).

On the other hand companies like Google Inc.'s (GOOG) Motorola Mobility and Samsung complain that their SEP patents, which they obtained in a spirit of industry cooperation, have been devalued by a broken U.S. intellectual property system and an increasingly adverserial OEM atmosphere.  The value of non-SEP patents in the U.S. has been hyperinflated by rampant bans and infringement suits.  A non-SEP patent on something as trivial as a bounce animation may be 10,000 times more valuable in practice than a standards patent on an in-depth communications technology.

This value difference threatens to kill standards development and acts a terrible anticompetitive club for companies like Microsoft Corp. (MSFT) and Apple to use to beat their rivals.  But it is the law of the land right now.

III. Apple May be Cashing in on Donations, Close Relationship to Obama

But there also may have been a favoritism factor.  President Obama enjoys a close relationship with Apple and was good friends with its late CEO/co-founder Steven P. Jobs.  Mr. Jobs, not long before his death in Oct. 2011, personally helped President Obama overhaul his campagin strategy, pushing staffers to make greater use of social media channels like Facebook.com, Inc. (FB), Twitter, Google YouTube, and Tumblr.

Apple gave $308,000 USD to President Obama versus $28,000 to Mitt Romney, the Republican challenger [source].  Steve Jobs' widow, Laurene Powell Jobs personally donated $5,000 USD to the Obama campaign [source].  Current CEO Tim Cook donated $2,300 USD to the Obama campaign.

Obama dinner with Steve Jobs
President Obama sits next to late Apple CEO Steve Jobs at a White House dinner on Feb. 2011.  Mr. Jobs was a major donor/campaign advisor to the president. [Image Source: White House]

Donations aside, Mr. Jobs enjoyed a close relationship with the president -- he and Barack Obama met multiple times to discuss technology and the economy.

Apple cheered the administration's decision, telling All Things D, "We applaud the Administration for standing up for innovation in this landmark case. Samsung was wrong to abuse the patent system in this way."

Given Apple's financial/campaign ties to the White House, it should be interesting if the Obama administration practices favoritism, or if it treats Apple's upcoming ban of multiple Samsung products to a similar veto.

Samsung's older Galaxy Tab tablets and Nexus smartphones/tablets were found in initial and secondary ITC rulings to infringe on an Apple (non-SE) patent on the process of text selection in a GUI -- U.S. Patent No. 5,949,432 "Method and apparatus for providing translucent images on a computer display."


Nexus 7
Apple may be able to ban Samsung's Nexus and Galaxy Tab devices in August.

The administrative law judges (ALJs) in those rulings suggested a ban; a final ruling is due this month.  Thus a ban could be in place as soon Oct. 2013, if the final ITC ruling upholds the preliminary opinions.

A Samsung spokesperson opined to The Verge on the Obama administration rejection of its iPhone/iPad ban (almost) win:


We are disappointed that the U.S. Trade Representative has decided to set aside the exclusion order issued by the U.S. International Trade Commission (ITC). The ITC’s decision correctly recognized that Samsung has been negotiating in good faith and that Apple remains unwilling to take a license.

ITC bans work by blocking the shipment of imports, which Congress gave it authority to regulate.  In the past (e.g. the 1950s) such powers were relatively weak, but as the U.S. stopped manufacturing the goods it designs, moving most manufacturing to Mexico, China, India, Pakistan, Vietnam, Indonesia, and elsewhere in Southeast Asia/Latin America, such bans became a catastrophic blow.  Today an import ban typically equates to a sales ban when applied to a retail product, with a small latency period as already-imported retail chain stock is sold off.

Sources: President Obama's U.S. Trade Ambassador [PDF], Apple's statement via All Things D, Sasmung' statement via The Verge





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