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Microsoft Sues U.S. Customs for Failed Google Phone Ban

Microsoft Corp. (MSFT) accused U.S. Customs officials of refusing to follow a trade agency’s order to block imports of phones made by Google Inc. (GOOG)’s Motorola Mobility unit in a lawsuit that seeks to alter how such cases are handled.

The U.S. International Trade Commission in Washington issued the import ban in May 2012 after deciding that Motorola Mobility devices infringed a Microsoft patent for a way mobile phones synchronize calendar events with other computers. Microsoft’s lawsuit, filed yesterday in Washington, says that order isn’t being enforced.

U.S. Customs and Border Protection, after having secret meetings with Google, continued to let the Motorola Mobility mobile phones enter the country even though Google has done nothing to remove the feature at the heart of the ITC case, Microsoft said in the complaint. The case illustrates what Lexmark International Inc. (LXK) and Lutron Electronics Co. in May called an “increasingly ineffective and unpredictable enforcement” of import bans imposed by the trade agency.

“Customs has a clear responsibility to carry out ITC decisions, which are reached after a full trial and rigorous legal review,” Microsoft Deputy General Counsel David Howard said in a statement. “Here Customs repeatedly ignored its obligation and did so based on secret discussions.”

Photographer: Simon Dawson/Bloomberg

The U.S. International Trade Commission in Washington issued the import ban in May 2012 after deciding that Google Inc.’s Motorola Mobility unit devices infringed a Microsoft Corp. patent for a way mobile phones synchronize calendar events with other computers. Close

The U.S. International Trade Commission in Washington issued the import ban in May 2012... Read More

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Photographer: Simon Dawson/Bloomberg

The U.S. International Trade Commission in Washington issued the import ban in May 2012 after deciding that Google Inc.’s Motorola Mobility unit devices infringed a Microsoft Corp. patent for a way mobile phones synchronize calendar events with other computers.

Motorola Mobility convinced the agency that the order didn’t apply to syncing through Google rather than Microsoft servers, and to give it a grace period to allow changes to take effect. Both of those requests had previously been rejected by the ITC, according to Redmond, Washington-based Microsoft.

Google Response

“U.S. Customs appropriately rejected Microsoft’s effort to broaden its patent claims to block Americans from using a wide range of legitimate calendar functions, like scheduling meetings, on their mobile phones,” Matt Kallman, a Google spokesman, said in an e-mailed statement. “We’re confident that the court will agree.”

Jenny Burke, a spokeswoman for Customs, said the agency doesn’t comment on pending litigation.

The complaint filed yesterday in Washington also named Homeland Security Secretary Janet Napolitano, who oversees the Customs agency. She announced yesterday she was stepping down to head the University of California system.

The ITC order is in effect until Microsoft’s patent expires in April 2018. An appeal in the case is scheduled to be heard Aug. 6 in Washington.

‘Secret Presentations’

Meetings between Mountain View, California-based Google and Customs were held in secret in April, with Microsoft not privy to their existence until after the June 24 Customs decision allowing the continued importation of the phones, according to Microsoft’s filings asking the court to halt the Motorola Mobility shipments.

“The only conclusion that can reasonably be drawn from CBP’s pattern of conduct is that CBP will not enforce the commission’s exclusion order absent a court order compelling it to do so,” Microsoft said in the filing. “CBP has repeatedly allowed Motorola to evade that order based on secret presentations that CBP has refused to share with Microsoft.”

The ITC’s job is to protect U.S. markets from unfair competition, including infringement of patents or theft of trade secrets. It’s become a key forum for disputes between smartphone manufacturers.

Once the import bans are ordered, it’s common for both patent owners and importers to lobby Customs and neither side is told what the other is saying for fear of exposing trade secrets, lawyers involved in ITC cases said in March.

Apple, Samsung

A ban on some older models of Apple Inc. (AAPL)’s iPhone is scheduled to take effect Aug. 5 unless it’s overturned by President Barack Obama or put on hold pending appeal. The models were found to infringe a Samsung Electronics Co. (005930) patent for a way data are transmitted. On Aug. 1, the agency is scheduled to announce whether it will order an import ban on some models of Samsung’s phones based on patent allegations filed by Apple.

The trade agency is compiling information on how well its orders are being enforced, and Obama last month called for a review of ITC and Customs procedures. In their joint letter to the ITC, Lexmark and Lutron said the “current problems with enforcement of orders requires immediate attention.”

Criticism of Customs comes in large part because an agency in charge of protecting the U.S. border from terrorists and unauthorized foreigners also has to analyze increasingly complex electronics and compare them to patents that are often written in jargon only specialists can understand.

‘Red Flags’

“They want to focus their efforts on terrorism, and the issues related to intellectual property is not their concern,” said patent lawyer Robert Stoll of Drinker Biddle & Reath LLP in Washington.

Past surveys had no “huge red flags” of the process in part because they often involved less complicated products, said former ITC Chairwoman Deanna Tanner Okun, who left the agency last year after 12 years and is now with Adduci Mastriani & Schaumberg in Washington. The commission has the authority now to take a greater role to address disputes about how the import bans are being enforced, she said.

“Both agencies are working with outdated policies and procedures that need to be changed to make the commission orders effective,” she said in an interview.

It’s not just patents that companies are complaining about with regard to Customs. The National Association of Manufacturers, in a July 2012 letter to the Senate Finance Committee, supported legislation that would boost customs enforcement of anti-dumping orders imposed by the ITC.

‘Duty Evasion’

“Industries have continued to see increases in unlawful duty evasion,” the manufacturers lobbying group wrote. “There are significant implications from continued duty evasion, including job losses.”

Corning Inc. (GLW)’s Corning Gilbert, a manufacturer of coaxial cables for televisions, was shut out of the U.S. market for more than a year after Customs officials decided it was subject to a broadly worded order won by a competing company. Corning Gilbert had not been named in the complaint, and sued. A U.S. trade judge ruled last year that Customs had failed to conduct a proper analysis before blocking the Corning Gilbert imports.

Apple had to file an enforcement action after Customs allowed Taoyuan, Taiwan-based HTC Corp. (2498) to continue shipments of some of its mobile phones that had been found to infringe the iPhone manufacturer’s patent for data-detection technology. The two companies settled their patent fights before that issue was heard.

The case is Microsoft Corp. v. Department of Homeland Security, 13-1063, U.S. District Court for the District of Columbia (Washington).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net; Michael Hytha at mhytha@bloomberg.net

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