Failed Apple Ban Could Still Be a Win for Samsung

Photographer: SeongJoon Cho/Bloomberg

Mock models of Samsung Electronics Co. Galaxy S4 smartphones are displayed at the Samsung d'light store in Seoul. Close

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Photographer: SeongJoon Cho/Bloomberg

Mock models of Samsung Electronics Co. Galaxy S4 smartphones are displayed at the Samsung d'light store in Seoul.

One of the biggest beneficiaries of Samsung Electronics Co. (005930)’s failure to block U.S. imports of older Apple Inc. (AAPL) iPhones might very well be Samsung.

While Samsung lost that case, the ruling could help the Korean smartphone maker ward off a U.S. import ban on its own mobile phones in two other patent cases.

U.S. Trade Representative Michael Froman’s Aug. 3 decision on Apple found that a product ban wasn’t appropriate because the patent at the heart of the dispute was part of an industry standard and was supposed to be licensed at reasonable terms. Froman’s conclusion is expected to affect several pending cases at the U.S. International Trade Commission, including Ericsson AB and InterDigital Inc. (IDCC)’s claims against Samsung for infringing patented network standards technology.

“A huge swath of everybody’s patent portfolio has just been rendered impotent,” said Rodney Sweetland, a patent lawyer with Duane Morris in Washington. Standards patents “are dead on arrival” at the commission now, he said.

Other cases at the trade agency that could be swayed include InterDigital’s cases against Huawei Technologies Co. and LSI Corp. (LSI)’s against Realtek Semiconductor Corp. (2379)

It also means companies holding many patents used in mobile technology standards like Qualcomm Inc. (QCOM) could find it harder in licensing negotiations, Nick Rodelli, head of Legal Edge Research at the Center for Financial Research and Analysis in Rockville, Maryland, said in a note to clients.

Qualcomm, InterDigital

The intervention of President Barack Obama’s administration in issuing a reprieve for some models of the iPhone 4 and iPad 2 3G marked the first time the executive branch overturned a trade ban since 1987, when President Ronald Reagan did so for Samsung memory chips.

The Innovation Alliance, a Washington lobbying group whose members include Qualcomm and InterDigital, was critical of the Obama administration’s move.

“This marketplace has operated pretty successfully for a long time, since the 1980s, when the technologies we use today were first being developed,” said Brian Pomper, executive director of the Innovation Alliance.

Pomper blamed the “kerfuffle” over standards patents on companies that are newer to the mobile communications market and weren’t involved in some of the standards setting.

Qualcomm General Counsel Donald Rosenberg told a Senate Judiciary subcommittee July 30 that the standard-setting process “encourages all participants to choose cooperation over litigation.” Qualcomm, based in San Diego, is the world’s biggest maker of chips for mobile phones and gets a third of its revenue from licensing, according to data compiled by Bloomberg.

Both Sides

In the dispute between Ericsson, the world’s largest maker of wireless networking equipment, and Suwon, South Korea-based Samsung, each company has asserted that the other has infringed both patents that relate to industrywide standards and patents for unique features.

Froman said the administration wants to keep some patent owners from using the ITC to engage in “hold-up,” meaning they would demand high rates from a competitor under the threat of withholding use of industry standard technology. The commission doesn’t have the power to award damages, which can be sought in district court, he said.

William Merritt, chief executive officer of Wilmington, Delaware-based InterDigital, said in a blog posting that “a full factual record was developed in connection with these very issues” and said he was confident the company would win its cases. The ITC is scheduled to announce Aug. 9 whether it would review a judge’s findings that said Nokia Oyj (NOK1V), ZTE Corp. (000063) and Huawei didn’t infringe InterDigital patents. Samsung was named in a second InterDigital case at the agency.

Overturn Bans

The administration policy only affects cases at the ITC, because the president has the power to overturn any import bans imposed by the agency. It’s similar to positions taken by district courts in civil suits. Froman, whose decision cannot be challenged in court, said the overarching issue needs to be addressed by the U.S. Court of Appeals for the Federal Circuit, which handles all patent appeals.

The Federal Circuit will hear arguments in one case, involving Google Inc. (GOOG) against Cupertino, California-based Apple, in September. A federal judge in Chicago ruled that Google’s Motorola Mobility unit wasn’t entitled to block Apple products when it came to standard-essential patents. Likewise, a federal judge in Seattle barred Motorola Mobility from enforcing any sales ban on Microsoft Corp. (MSFT) products.

Apple, Microsoft

Even without the court rulings, Google is handcuffed in its ability to use Motorola Mobility’s standard-essential patents under a settlement with the U.S. Federal Trade Commission.

Companies cooperate in setting standards so products can work together, such as how images are compressed and transmitted. Since they get the advantage of ensuring their inventions are included in the standard, participating companies pledge to license any relevant patents on fair, reasonable and non-discriminatory terms.

Froman’s guidelines don’t apply to companies that didn’t take part in the standard-setting bodies, nor do they affect patents on non-essential features.

Apple’s patents against Samsung, which could be ruled on by the commission on Aug. 9, don’t relate to any standards, and Samsung can appeal the portion of the case it lost at the ITC, which related to touch screens and detecting phone numbers.

Apple and Microsoft have lobbied in the U.S. and Europe to limit the use of standard-essential patents in litigation. The Froman decision marks a victory for them in an issue splitting technology companies between what Jorge Contreras, an associate professor at American University in Washington called “the product-based companies versus the patent-based companies.”

Samsung may have been arguing the wrong side in the Apple case, given that it sells a variety of products, Contreras said.

“This is not the expected role for Samsung,” he said. “It found itself in this weird reverse role because that’s all it had against Apple.”

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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