Samsung Odds Slim for Obama Veto of Apple-Won Phone Ban

Samsung Electronics Co. (005930) may not get the sort of presidential reprieve Apple Inc. (AAPL) won earlier this month from an order limiting U.S. imports of some smartphones and tablet computers.

Samsung can’t make the public-policy arguments Apple used to sway President Barack Obama’s administration, which vetoed an import ban ordered by the U.S. International Trade Commission on certain iPhone 4 and iPad 2 models, according to lawyers and analysts. That makes it more likely a separate ban ordered on some Samsung products Aug. 9 will take effect after a presidential review period ends in October.

Apple could show its case dovetailed with the administration’s expressed interest in limiting the power of patents underlying fundamental technology used across an industry. Samsung’s products were ordered banned Aug. 9 for infringing two Apple patents on features that differentiate one phone from another -- an issue between the two companies that doesn’t involve a widely-used standard.

“You have to look at it in that context -- even the president has been speaking about it,” said Jim Altman, a patent lawyer with Foster, Murphy, Altman & Nickel in Washington who specializes in ITC cases. To overturn the Samsung ban, “he’d have to go off on a whole different level of reasoning.”

Photographer: Brent Lewin/Bloomberg

Samsung Electronics Co.'s products were ordered banned Aug. 9 for infringing two Apple Inc. patents on features that differentiate one phone from another -- an issue between the two companies that doesn’t involve a widely-used standard. Close

Samsung Electronics Co.'s products were ordered banned Aug. 9 for infringing two Apple... Read More

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Photographer: Brent Lewin/Bloomberg

Samsung Electronics Co.'s products were ordered banned Aug. 9 for infringing two Apple Inc. patents on features that differentiate one phone from another -- an issue between the two companies that doesn’t involve a widely-used standard.

Samsung, the world’s largest smartphone maker, was ordered to stop selling phones and tablet devices that infringe Apple patents for multitouch technology and headphone jack detection.

Standards Patents

The commission said Samsung products including Continuum and Transform models infringe the headphone jack patent, while the Galaxy Tab 7.0 tablet computer and Galaxy S II -- the precursor to Samsung’s top-selling Galaxy S4 -- do not.

The Apple patents “go to additional features, they go to convenience, but they don’t go to the core function of how do I make a telephone call,” said Jeff Lewis of Patterson Belknap Webb & Tyler in New York.

The decision must be reviewed by U.S. Trade Representative Michael Froman, who is designated by the president to review ITC bans.

In his Aug. 3 letter stopping the import ban on certain older iPhones and iPads, Froman said he based his decision on Samsung’s ownership of standards patents being at the core of the case. Obama’s administration has expressed concerns that “potential harms” can result if patent holders use those as leverage against competitors, he said.

Froman repeated guidelines sent to the agency in January by the U.S. Justice Department and U.S. Patent and Trademark Office. He didn’t say whether he believed Samsung had misused its patents that relate to standards for how devices transmit data.

‘Core Function’

The administration could veto the Samsung import ban to push the two companies into ending their global litigation that’s lasted more than two years and cost hundreds of millions of dollars, said Jung Dong Joon, a patent lawyer with SU Intellectual Property.

“Obama may want to deliver his message that any import ban will only end up having damage to consumers and try to bring the two back to the negotiation table for a settlement,” Jung said.

The administration, by not blocking the Samsung ban, could open itself up to criticism that it was favoring an American company over a Korean one.

“The U.S. administration can’t just unconditionally use its power to veto the import ban on Apple’s products alone,” said Lee Sun Tae, an analyst at Seoul-based NH Investment & Securities. “Obama may issue the reprieve again for Samsung, and if not, it will only bring up even bigger international conflict.”

Customs’ Task

Samsung has said it’s worked around the two Apple patents and the commission, in its Aug. 9 decision, agreed that the design-around products it had seen were in the clear.

“Samsung will continue to launch many innovative products, and we have already taken measures to ensure that all of our products will continue to be available in the United States,” Adam Yates, a Samsung spokesman, said after the decision was announced.

That means if Obama and Froman choose not to get involved in Samsung’s case, the next fight will take place before U.S. Customs and Border Protection, the Homeland Security agency charged with enforcing import bans.

During arguments before a U.S. appeals court Aug. 9, Apple lawyer William Lee of WilmerHale in Boston said that, in some instances, Samsung has pulled model names from the market while selling essentially the same product under a different name.

‘Broken’ Process

Each company will present separate arguments to Customs officials -- Apple to get more products halted at the border and Samsung to ensure there’s no disruption in shipments. Neither will know what the other is saying.

“I don’t want to imply that Customs is perfect but I think, on balance, Customs has done a pretty good job,” Altman said. “They’re enforcing a lot of intellectual property rights in an agency whose main mission is homeland security and immigration.”

Microsoft Corp. (MSFT) filed a lawsuit last month accusing Customs of failing to enforce an import ban on certain phones made by Google Inc. (GOOG)’s Motorola Mobility unit.

“Mounting evidence indicates CBP’s process for implementing exclusion orders is broken,” Representative Howard Coble, a North Carolina Republican who heads the House subcommittee on courts, intellectual property and the Internet, wrote to Homeland Security Secretary Janet Napolitano on Aug. 2.

Obama on June 4 ordered a review of the procedures used by Customs and the ITC “to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient.”

The Apple case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, and Samsung’s case is In the Matter of Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-794, both U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Jungah Lee in Seoul at jlee1361@bloomberg.net.

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

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