US Overrules iPhone Sales Ban

Samsung said it was “disappointed” at a move by the Obama administration over the weekend to overrule an import ban on some Apple iPhone and iPad products into the US, an embargo imposed in June by the US International Trade Commission (ITC).

Apple, meanwhile, applauded the Obama administration for “standing up for innovation”.

Samsung shares drop

In early trading on Monday, Samsung’s shares dropped 0.6 percent in value to 1,278,000 won (£747), reducing the company’s overall market capitalisation by more than $1bn (£650m).

The ITC had decided that certain Chinese-manufactured iPhone and iPad models violated a patent held by Samsung, for technology which supports running multiple services simultaneously over 3G. The ban was never enforced, however, since the Obama administration had 60 days to have its say on the matter.

In a statement explaining the Obama administration’s decision not to uphold the ban, US Trade Representative Michael Froman cited concerns that the patented technology is essential to firms selling 3G devices. Standard-essential patents must be licensed under “fair reasonable and non- discriminatory” terms, or else their holders gain “undue leverage” over their competitors, Froman said.

Technology makers are obliged to license standard-essential patents under FRAND terms in order for their technology to be accepted as part of a standard. US courts have ruled that standard-essential patents cannot be used as the basis for import bans, but the ITC follows a different legal standard.

Froman stated that the decision was made after “extensive consultations” and was based on a “review of the various policy considerations … as they relate to the effect on competitive conditions in the US economy and the effect on US consumers”.

He remarked that Samsung is free to continue to seek redress against Apple. “My decision to disapprove this determination does not mean that the patent owner in this case is not entitled to a remedy,” Froman wrote. “On the contrary, the patent owner may continue to pursue its rights through the courts.”

Older models affected

The ITC ruling affected models of the iPhone 3GS, iPhone 4, iPad 3G and iPad 2 3G equipped with a modem for AT&T’s network in the US. The trade body found that these devices infringed a Samsung patent related to the devices’ simultaneous transmission of multiple services via 3G. The iPhone 4, launched in 2010, and the iPad 2, launched in 2011, are still sold by Apple, while the older models are no longer sold.

The ITC’s decision had been seen as a “major surprise” by some industry observers, given that FRAND patent violations are usually punished by a fine rather than a sales block.

Samsung argued the ITC had been correct in its ruling. “The ITC’s decision correctly recognised that Samsung has been negotiating in good faith and that Apple remains unwilling to take a licence,” the company stated.

At the same time, Samsung revealed on Monday that it has already appealed the ITC’s original ruling, arguing that Apple infringed four patents rather than the one patent recognised by the ITC. The appeal was filed on 28 July at a US federal appeals court, according to Samsung – the other three patents had been ruled out in the earlier decision.

The patent war between Apple and Samsung is a two-way street: on Friday the ITC is due to decide on apple’s request that it ban the import of certain of Samsung’s Galaxy mobile products due to their alleged violation of Apple patents. The products in question include older models of Galaxy smartphones and tablets including the Galaxy S, Galaxy S II and Galaxy Tab 10.1, while newer products including the Galaxy S III and the Galaxy S4 are not under consideration.

Standard-essential

Patent consultant Florian Mueller noted that the upcoming ITC decision on Samsung products is different from its decision on Apple products in that the patents allegedly violated by Samsung are to do with the design of the devices, and are not standard-essential patents, meaning they are not subject to FRAND conditions. Such patents can be worked around, unlike those essential to standards, and therefore their violation is subject to more serious redress, Mueller said.

“The preliminary ruling already said that designaround products presented by Samsung… are in the clear and don’t infringe,” Mueller wrote in a blog post. “An import ban wouldn’t prevent Samsung from competing in the US market. It would just have to steer clear of any infringements identified, and it already has everything in place for doing so. By contrast, the ban that Samsung was pursuing against Apple over a FRAND-pledged patent would have required changes to the nationwide infrastructure of the AT&T network and to the networks of some smaller carriers.”

He observed that while Samsung may not have been awarded a sales ban on Apple, it is still pursuing monetary damages against Apple over the infringement of the patents involved in the ITC’s June ruling.

As of the second quarter, Samsung remains by far the world’s biggest smartphone maker, outselling Apple by a wide margin, although Apple’s iPhone business is more profitable than Samsung’s.

Damages hearing

Apple and Samsung are due to go to court in November to determine how much Samsung must pay Apple in damages for patent infringements. Samsung was originally ordered to pay $1.04 billion by the US District Court for the District Court of California last August, however this amount was cut substantially by Judge Lucy Koh in March.

Koh said that the jury had incorrectly determined the amount of compensation to be awarded to Apple for infringements in 14 Samsung devices, including the Samsung Galaxy S III, and ordered a new trial to determine the damages.

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