When the White House issues a decree on the Saturday after Congress has departed for its August break and the decision involves major corporations, hefty financial consequences, and angry trading partners, you know it’s a big deal.
The Aug. 3 reprieve President Obama granted Apple (AAPL) in its long-running patent dispute with Samsung (005930:KS) had an immediate upshot: The U.S. International Trade Commission can’t block certain iPhone 4 and iPad 2 models from entering the country. Brisk sales of such older, cheaper devices will continue.
The president’s intervention, the first of its kind since 1987, diminishes the ITC’s role as a patent arbiter and changes the rules of such conflicts—in a good way. At the heart of the case is Samsung’s so-called standard-essential patent for a technology that lets mobile phones, whoever makes them, communicate with wireless networks and other phones when sending data. Samsung says Apple is infringing that patent. In return, Apple claims Samsung is violating an industry practice calling on owners of standard-essential patents to license the technologies on reasonable terms.
The ITC has a narrow remit when confronted with such complexity. It rules on whether imports violate U.S.-granted patents—a task for which it’s ill-equipped, especially in high tech. Its standard of proof is lower than that of U.S. courts, and its only remedy is an import ban. It can’t award financial damages. It can’t weigh the commercial, social, and economic costs of blocking products U.S. consumers want. It can’t even consider the benefits of staying its hand when a disputed patent covers an industry standard.
That’s why the ITC has become patent litigants’ favorite venue: The mere threat of an import ban often induces settlements. Increasingly, companies are flinging lawsuits against each other instead of innovating or negotiating. The Samsung-Apple dispute is just one of dozens between the two companies in a war of one-upmanship playing out on four continents.
So the presidential veto announced by Michael Froman, the newly confirmed U.S. trade representative, makes sense, even if it complicates Froman’s job as he takes over negotiations for trade deals with Europe and Asia and seeks stronger protections for U.S. intellectual property. China, India, Russia, and other emerging markets, which often fail to protect U.S. property rights, will complain the U.S. is failing to live up to the demands it makes of them.
Obama’s decision points in the right direction. Require low-cost licensing of technologies once they become the industry favorite—a status that patent holders often lobby standard-setting bodies to award. Holders of patents that cover more specialized features can be granted more leeway in setting royalties. Finally, avoid blocking the sale of products that infringe patents, except perhaps when a technology user simply refuses to negotiate a license.
The White House veto was a noteworthy strike against the patent warriors, even if Obama unnecessarily chose a slow summer weekend to announce it.