Apple 2.0

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Will President Obama veto the Apple iPhone 4 import ban?

June 5, 2013: 9:53 AM ET

It came the same day the White House proposed reforming the very agency that issued it.

Screen Shot 2013-06-05 at 9.24.28 AM

The iPhone 4.

FORTUNE -- The ironies underlying the U.S. International Trade Commission's order Tuesday banning the import from China of certain older iPhones and iPads are stacked up like planes circling Dulles International waiting for a chance to land.

But before we list them, we need to make an important distinction between two kinds of patents:

  • Standards-essential patents (SEPs), that must be used to comply with a technical standard, such as a Wi-Fi protocol. Owners of these patents, in return for the benefit of being able to collect royalties on every device that adopts the standard, are required to license them under so-called FRAND (fair, reasonable and non-discrimanatory) terms.
  • Non-SEPs, sometimes called "innovation" or "differentiation" patents. These patents have not been adopted by a standards-setting body. They can represent many years of proprietary development work, and they don't have to be shared with competitors.

On to the ironies, as assembled by FOSS Patent's Florian Mueller:

  • Samsung's SEP assertions against Apple (AAPL) -- this was one of dozens -- have already prompted an antitrust inquiry by the European Commission, an investigation by the Department of Justice and an investigation by the Korean antitrust authority.
  • Last year the U.S. Senate and House held hearings on the issue and reached a bipartisan consensus that SEP patent holders should not be allowed to renege on their FRAND licensing pledges by seeking import bans from the ITC.
  • In Samsung v. Apple, Judge Lucy Koh denied Apple an injunction on Samsung devices despite a jury verdict identifying infringement of half a dozen non-standard-essential intellectual property rights.
  • The ITC's ruling came the same day a White House task force released its proposals for reforming the U.S. patent system. No. 5 on the President's list of legislative recommendations: "Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts."
  • As of Tuesday the only two countries that have granted Samsung an injunction against Apple products based on SEP patents are South Korea -- Samsung's home country -- and the U.S.

"The ITC could not have done more to show to Congress," writes Mueller, "that its granting of injunctive relief is far too permissive, a threat to the U.S. tech sector [and] irreconcilable with the ITC's original mission to protect domestic industry against unfair imports."

Apple has said it will appeal the ruling, which must be signed by President Obama within 60 days to go into effect. Under these circumstances, he will be under some pressure to veto it.

Meanwhile, the tech press is having a field day with yet another Apple-setback story. The Wall Street Journal described the ITC's ruling as a "huge legal victory" for Samsung. Apple's shares fell $1.41 Tuesday and opened down another $3.66 Wednesday.

UPDATE: Piper Jaffray's Gene Munster estimates that the import ban, if upheld, could cost Apple about $800 million, or 1% of its revenue for the next two quarters. Although it applies to AT&T's (T) versions of the iPhone 4, the iPhone 3GS, the iPad 3G, the iPad 2 3G and the iPad 3, the iPhone 4 is the only affected product with meaningful sales.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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