By Roger Parloff, senior editor
FORTUNE -- This week we will see if President Barack Obama puts some muscle behind his recent professorial lectures on the need for patent reform.
Unless he acts, an order of the International Trade Commission will take effect on Monday, Aug. 5, that seems to fly in the face of the public interest as that concept has been defined in recent years by the U.S. Department of Justice's Antitrust Division, the U.S. Federal Trade Commission, the U.S. Patent and Trademark Office, the European Commission, at least three federal judges, and, indeed, the White House itself. Obama is empowered to stop it.
The ITC order would ban the importation and sale of certain models of Apple (AAPL) iPhone and iPads on the basis of their allegedly having violated a Samsung patent. Now, to be sure, the mere fact that it bans certain product models from the market is neither unusual nor troubling per se. The ITC does that all the time and, in fact, it's virtually the only thing the ITC can do upon finding patent infringement. Unlike a federal court, it has no power to order payment of money damages.
Nor is the impact of this particular ITC order particularly sweeping or disruptive in its commercial impact. On the contrary, the devices it would ban (the GSM versions of the iPhone 4 and iPad 2 3G) are nearing the ends of their product cycles anyway.
What makes this order noteworthy to tech companies and patent lawyers around the world is, rather, the particular kind of patent the ITC is enforcing here. It's a so-called standards essential patent, or SEP.
Here's why that matters. To ensure interoperability among technological devices made by different companies, standards making bodies -- like the European Telecommunications Standards Institute, or ETSI, which is the one pertinent to this particular dispute -- decide to solve certain technical challenges in certain ways. While they try to use the best engineering solution available, often the competing approaches are equally good, and the final decision is a bit arbitrary.
To have one's patented solution selected is obviously a great boon to the patent-holder -- a windfall, really -- since all manufacturers now have no choice but to license that rights-holder's patent if they want their products to be interoperable within the pertinent technological ecosystem. That much is unavoidable. But once the standard is set, there's a danger that a greedy rights holder can go on to seek a second windfall, too. Since he now has manufacturers over a barrel, he may be tempted to demand outrageous prices for licensing his SEPs, all out of proportion to what their worth would have been in the absence of their having been incorporated into an industry standard.
To prevent this latter sort of abuse, standards-setting organizations require that the holders of standards essential patents commit in writing to freely license their SEPs at a "fair, reasonable, and non-discriminatory rate" (FRAND). While there will inevitably be disputes over what that the precise FRAND licensing rate should be in any given instance, those disputes can be settled by courts or arbitration tribunals which issue awards for money damages. Retroactive monetary awards (with interest, of course) give the patent holder everything he was entitled to. Accordingly, there should rarely, if ever, be any need for the holder of an SEP to seek an injunction barring the importation or sale of a product -- the most devastating weapon in the patent-holder's arsenal. Injunctions limit competition and consumer choice.
That's why it was such a big deal when, on June 4, the ITC issued the import ban on those dated Apple devices we listed above. This ban was based on an SEP -- the first time the ITC has ever based an exclusion order on one of those. And that's why President Obama should exercise the White House's seldom-invoked power to overturn an ITC order. (President Ronald Reagan was the last to do so. In 1987 he lifted a ban on certain products then being made by, yes, Samsung.)
The same day the ITC issued its exclusion order against these Apple devices, the White House coincidentally issued a report on "Patent Assertion and U.S. Innovation." It denounced patent abuses that were hindering innovation rather than promoting it, and proposed some legislative reforms. While its focus was on curbing abuses by "patent assertion entities" -- pejoratively, patent trolls -- it also mentioned in passing the problem of major manufacturers seeking to impose import bans on competitors' products based on SEP infringements. The ITC's June 4 ban affords Obama a perfect opportunity to put his mandate where his mouth is.
Tellingly, Samsung's own brief to the U.S. Trade Representative -- the White House office that advises the President on how to rule on ITC orders -- is quite understated in its defense of the order it won before the ITC. Samsung is, after all, a frequent "respondent" (defendant, basically) before that body, and it is currently defending an attempt by Ericsson to block one of its own products from importation based on an SEP. (It is also a respondent in a different patent investigation, instigated by Apple, which the ITC is expected to rule upon Thursday, Aug. 1, although that case does not involve SEPs.)
In its brief to the USTR, Samsung actually endorses the view that import bans should not ordinarily issue based on SEPs. It argues only that the particular SEP-based injunction it won against Apple should be approved as a rare exception to the rule, due to Apple's alleged refusal to negotiate in good faith -- a claim Apple has denied.
But the nitty-gritty of this he-said-she-said snit between Apple and Samsung seems tailor-made for being hashed out in a federal district court in a suit for money damages, not in a proceeding before the ITC, which, by law, is empowered only to issue injunctive relief -- i.e., import bans and cease and desist orders against future sales. Samsung has already filed a parallel patent suit against Apple in U.S. District Court in Delaware over the same patent and same devices, so there is an alternative forum where those facts can be fully aired.
Some observers think the striking philosophical rift over SEP injunctions that we're seeing today between the ITC, on the one hand, and the Justice Department, PTO, FTC, federal judiciary, and White House on the other, might reduce to, consciously or unconsciously, a bit of a turf battle. Thanks in no small part to the global patent wars precipitated by the rise of smartphones, the ITC's patent docket ballooned from just 17 cases in calendar year 2000 to a peak of 69 cases in 2011. Last year the docket sank to 40 cases, however, while this year, as of mid-July, 26 cases had been filed. In the context of already ebbing influence, maybe the commission just isn't eager to cede a large chunk of potential future business.
The White House says Amazon's warehouses provide "high-wage" jobs. Not quite.
FORTUNE -- Amazon's announcement that it is planning to create thousands of new jobs in warehouses across the country is good news. Thousands more Americans will be working, paying taxes, and shopping. It will pull some families out of poverty and keep some others from falling into it.
But the very fact that the announcement is being heralded as a big MOREDan Mitchell, contributor - Jul 30, 2013 11:29 AM ET
The coalition between civil libertarians on the left and right appears to be stronger than many had thought. But it appears to be an alliance of convenience.
FORTUNE -- The close, bipartisan vote on Wednesday on a House bill to restrict the National Security Agency's program phone surveillance program revealed a radical evolution -- or devolution, depending on how you look at -- in how we approach the always-difficult tension between MOREDan Mitchell, contributor - Jul 25, 2013 4:02 PM ET
The final choice was a no-brainer. The inclusion of Apple's CEO was a surprise.
FORTUNE -- Having participated as a Time Magazine editor in my share of Person of the Year selections (I edited the David Ho cover and wrote at least one Steve Jobs "also ran" item), I knew how hard it was going to be for the magazine not to make Barack Obama -- winner of the Presidential election MOREPhilip Elmer-DeWitt - Dec 19, 2012 10:12 AM ET
Also: Pandora CEO argues some artists are making millions; Box hits 14 million-plus users.
Art.sy is mapping the world of art on the Web [THE NEW YORK TIMES]
For the Art Genome Project, Matthew Israel, 34, who holds a Ph.D. in art and archaeology from the Institute of Fine Arts at New York University, leads a team of a dozen art historians who decide what those codes are and how they should MOREJP Mangalindan, Writer - Oct 10, 2012 5:30 AM ET
An excerpt from his acceptance speech, offered in context and without comment
FORTUNE -- The Republican candidate for President mentioned Apple (AAPL) and Steve Jobs in his acceptance speech at the party's convention Thursday night. Here's what he had to say:
When I was 37, I helped start a small company. My partners and I had been working for a company that was in the business of helping other businesses.
So some of MOREPhilip Elmer-DeWitt - Aug 31, 2012 11:43 AM ET
The education of Jim Messina, according to Bloomberg Businessweek, started at Apple
FORTUNE -- In the current issue of Bloomberg Businessweek, Joshua Green tells the story of how Jim Messina, Barack Obama's campaign manager, got what Green describes as "the highest-wattage crash course in executive management ever undertaken," starting with Apple's (AAPL) Steve Jobs:
In two long, private conversations, Steve Jobs tore into Messina for all the White House was doing wrong MOREPhilip Elmer-DeWitt - Jun 15, 2012 7:20 AM ET
The Oracle of Omaha has a second rule: Don't buy companies you don't understand
FORTUNE -- Some 18,300 people -- more than attended Barack Obama's massive campaign kickoff Saturday -- showed up for Berkshire Hathaway's (BRK-A) annual shareholder's meeting in Omaha yesterday. And judging from the New York Times' live blog, it was a lot of fun. There were cartoons and comedic skits and celebrity appearances, including Bono, Bill Gates and Debbie ("Buffett Rule") Bosanek, MOREPhilip Elmer-DeWitt - May 6, 2012 11:34 AM ET
Fortune's curated selection of tech stories from the last 24 hours. Sign up to get the round-up delivered to you each and every day.
"We should support everyone who's willing to work; and every risk-taker and entrepreneur who aspires to become the next Steve Jobs." -- Barack Obama during his State of the Union address (TechCrunch)
* Apple (AAPL) surprised everyone by reporting huge numbers for its latest quarter. iPhone sales spiked 128%, iPad MOREJP Mangalindan, Writer - Jan 25, 2012 11:37 AM ET
The flood of revelations from the year's hottest biography began four days early
The best-laid plans of authors and publishers often go awry when the bookstores get their copies.
Walter Isaacson's Steve Jobs -- the most hotly anticipated biography in years, at least in some circles -- was supposed to have a dramatic worldwide laydown on Monday. But to the distress of Isaacson, Simon & Schuster and the dozens of publications that MOREPhilip Elmer-DeWitt - Oct 21, 2011 6:22 AM ET
|Five predictions for the World Wide Web that were way, way, way off|
|Why casino workers hate Obamacare|
|Netflix faster on Comcast, following deal|
|Social Security is the best deal|
|The Deep Web you don't know about|