Apple Counts on IPhone Being Too Cool for U.S. Import Ban

Photographer: Scott Eells/Bloomberg

An advertisement for the iPhone 4S is displayed at an Apple Inc. store in New York. Close

An advertisement for the iPhone 4S is displayed at an Apple Inc. store in New York.

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Photographer: Scott Eells/Bloomberg

An advertisement for the iPhone 4S is displayed at an Apple Inc. store in New York.

Apple Inc. (AAPL) is counting on the popularity of its devices and political pressure to thwart efforts by Google Inc. (GOOG)’s Motorola Mobility to block imports of the iPhone and iPad, two of the best-selling electronic devices in the U.S.

The U.S. International Trade Commission in Washington is scheduled to announce today whether iPhones and other Apple devices infringe Motorola Mobility patents and, if so, whether it will stop them from being imported into the U.S. from Asia.

As part of its review, the ITC is weighing whether to limit use of import bans in disputes over patents that relate to industrywide standards. Some members of Congress, the U.S. Federal Trade Commission and companies including Intel Corp. have urged such a step.

“I do not think, in the current legal and political climate, that there is any possibility that the iPhone will be excluded from importation,” said Rodney Sweetland, a patent lawyer with Duane Morris in Washington who specializes in ITC cases.

Motorola Mobility says Apple products infringe four patents, two of which relate to industry standards for 3G wireless and Wi-Fi technologies, and that Apple has rebuffed offers to license the standard-essential patents. The other two patents aren’t standard-essential, nor are the seven patents that are the subject of a new complaint Motorola Mobility filed Aug. 17.

Apple denies infringing the patents and contends they’re invalid. Even if the commission finds a patent violation, Apple says in filings that its devices shouldn’t be stopped at the U.S. border.

‘Neat’ Products

“The commission is under some political pressure not to keep ‘neat’ products out of the country,” said Scott Daniels of Westerman Hattori in Washington, who does ITC cases. “Normally, politics and Congress have very little impact on commission rulings. In the case of something so central to the economy, there could be an impact.”

A trade judge in April said Apple, which this week became the most valuable U.S. company in history, violated one patent that’s essential to 3G. The commission is reviewing his findings.

The iPhone’s $47.1 billion in sales and $20.4 billion in iPad sales together made up more than 62 percent of Cupertino, California-based Apple’s fiscal 2011 sales, according to data compiled by Bloomberg. The second standard-essential patent in Motorola Mobility’s complaint also would cover Mac computers, the iPod Touch and Apple TV.

Congressional Pressure

Members of Congress including House Judiciary Committee Chairman Lamar Smith, a Texas Republican, wrote the ITC in June saying the benefits of adopting standard technologies “may be undermined” if patent disputes threaten the ability to sell products in the U.S. The Senate Judiciary Committee held a July 11 hearing on the issue.

Patent owners whose technologies are adopted as industry standards, such as specifications that let wireless phones communicate with one another, agree to charge fair and reasonable licensing fees. In those kinds of cases, the FTC urged the trade commission to take other steps, such as pushing for mediation of royalty amounts, before considering a ban on imports.

Blocking imports based on infringement of a standard- essential patent “has the potential to cause substantial harm to U.S. competition, consumers and innovation,” the FTC wrote in a June 6 filing with the agency. It said companies could be coerced into unreasonable licensing fees in a practice known as a “patent holdup.”

Motorola Mobility says it fulfilled its obligation to make a reasonable royalty offer and Apple refuses to negotiate.

‘Unwilling Licensee’

“Apple and others -- without analyzing the facts of this case -- point to the problem of ‘hold up,’” Motorola Mobility told the commission in a July 16 filing. “But they ignore the counter problem of ‘hold out’ -- an unwilling licensee being rewarded for its intransigence in a manner that will deprive patent owners of value and create disincentives for innovative companies from participating in standards setting.”

The case represents one battle in a broader global legal war over patents, including more than a dozen complaints at the ITC over the past two years, as companies vie for increased shares of a smartphone market that grew 62 percent to $219 billion last year.

Apple, in one of the high-profile cases, is awaiting a California jury’s verdict in a separate dispute claiming that Samsung’s Android phones copied patented iPhone features.

Korean Ban

In South Korea today, the Seoul Central District Court ruled that Apple and Samsung infringed each other’s patents and told them both to stop selling some versions of their products in that country.

Google, based in Mountain View, California, is counting on Motorola Mobility’s long history with mobile phones -- and its trove of 17,000 patents -- to force Apple into a settlement of the ITC case that could also encompass handset makers using Google’s Android operating system, including Samsung Electronics Co. and HTC Corp. (2498)

Motorola Mobility approached Apple in 2007 about a patent license, demanding a royalty of 2.25 percent of the price of Apple products. Motorola Mobility has said that’s the standard offer it makes, and expects the figure to change during negotiations. Apple and Microsoft Corp., which has its own legal fights with Motorola Mobility, said the demand was unreasonable.

Presidential Review

President Barack Obama could review a commission decision and reject any import ban on public policy grounds. In the past, patent owners have lost efforts to block imports for health- related products, for devices that reduced gasoline consumption during the 1970s oil crisis, and when the government was in the midst of trade negotiations.

ITC Judge Thomas Pender, who presided over the trial, recommended that the agency issue an import ban on any product found to infringe the Motorola Mobility patents. He said Apple should pay the 2.25 percent royalty rate during the 60-day presidential review period.

‘Extreme Solution’

Qualcomm Inc., (QCOM) which makes and designs chips for mobile phones and gets more than one-third of its revenue from licensing, said the FTC’s suggestion for limiting import bans based on standard-essential patents is “an extreme solution in search of a problem.”

The commission could say that an import ban isn’t in the public interest, or delay imposing a ban to give Apple and Motorola Mobility time to resolve their differences or to have other courts hear their cases, said David Long, a patent lawyer with Dow Lohnes in Washington.

“Their challenge would be to create what relief they can if there is a violation,” Long said. “It’s up to Congress to establish whether standard-essential patents are welcome at the ITC, and Congress hasn’t done that.”

The case is In the Matter of Certain Wireless Communication Devices, Portable Music Data, Processing Data Devices, Computers and Components Thereof, 337-745, U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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