U.S. Agency Advised to Limit Patent-Based Import Bans

Banning imports of products based on their use of patents in industry standards may not be in the public interest, President Barack Obama’s administration said in a policy paper today.

The paper, released by the Justice Department and U.S. Patent and Trademark Office, says that, in some instances, patent owners shouldn’t be allowed to block sales or imports of products based on the use of standards that help products from different manufacturers work together. The U.S. Federal Trade Commission, which reached a consent agreement with Google Inc. (GOOG) last week restricting its use of standard-essential patents, has taken a similar position.

The paper puts added pressure on the U.S. International Trade Commission, which is considering the issue as part of a request by Samsung Electronics Co. (005930) to halt imports of Apple Inc. (AAPL) products made in Asia. A final decision is expected Feb. 6.

The ITC’s approach “will be important to the continued vitality of the voluntary consensus standards-setting process and thus to competitive conditions and consumers in the United States,” the two agencies wrote, without citing specific cases.

The agencies, in a joint policy paper, said that, while patent owners have the right to exclude others from using their inventions, the public benefit of allowing that is limited when it comes to so-called standard-essential patents.

The Washington-based trade commission is investigating other complaints filed by owners of standard-essential patents, including one by Google’s Motorola Mobility unit against Microsoft Corp. (MSFT), an InterDigital Inc. (IDCC) case against Huawei Technologies Co. and one filed by Ericsson AB (ERIC) against Samsung.

Setting Standards

Companies participate in groups to establish technical specifications that can be used across platforms for things like how video images are transmitted or what type of plug is used for phone chargers. Those who establish the standards pledge to license any relevant patents on fair, reasonable and non- discriminatory terms, or FRAND.

Apple and Microsoft, which are involved in patent fights with Motorola Mobility, have said they would never seek to block use of their patented inventions when it applies to such industry standards. Google and Samsung maintain they have the right to seek such orders in instances where a licensing agreement can’t be reached.

The FTC agreement with Google limits the ability of the Mountain View, California-based company to ban competitors’ products unless it first takes steps to reach licensing agreements. It does allow Google to seek such orders in response to patent suits filed against it by competitors.

‘Two Wrongs’

“Google should not be permitted to abandon its FRAND commitment just because another firm is suing for an injunction on a standard-essential patent,” David Heiner, Microsoft’s deputy general counsel, said in a statement. “Two wrongs don’t make a right.”

Niki Fenwick, a spokeswoman for Google, said the company had no comment. Officials with Samsung and Apple didn’t immediately return messages seeking comment.

The Justice Department and patent office laid out guidelines that should be met before an exclusion order is granted by the trade commission. The agencies said the standard also should apply in district court lawsuits. Judges in Seattle and Chicago have already said Motorola Mobility isn’t entitled to orders halting U.S. sales of products based on the use of standard-essential patents.

Trade Practices

The ITC’s job is to protect U.S. markets against unfair trade practices. It must consider the impact of import bans on the competitive conditions in the U.S. When a company accused of infringing a patent hasn’t refused to license the standard- essential patents, “the public interest may preclude the issuance of an exclusion order,” the two agencies said.

In some instances, the commission could delay the effective date of an import ban to give licensing negotiations between the parties another chance, they said.

Still, they said, the decision “should be made against the backdrop of promoting both appropriate compensation to patent holders and strong incentives for innovators to participate in standard-setting activities.”

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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