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Obama Administration Surprises By Overturning Apple ITC Ruling (AAPL)

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Obama Administration Surprises By Overturning Apple ITC Ruling AAPL

On Saturday, the Obama Administration did what most people familiar with the case believed it wouldn’t: It reversed the ruling of the ITC to ban the sale and import of older model Apple (NASDAQ: AAPL) iPhones and iPads in the United States.

On June 4 of this year, the International Trade Commission ruled that Apple had violated the Tariff Act of 1930 by importing products that infringed on patents owned by Samsung (OTC: SSDIY). The ITC issued an executive order banning AT&T (NYSE: T) versions of the iPhone 4, iPhone 3GS, iPad 3G, and iPad 2 3G from being sold in or imported to the United States.

But, in the eyes of U.S. Trade Representative Michael Froman (representing the Obama Administration), there was more to the story. The infringed patents are known as standards-essential patents. In this case, it was related to a patent that allowed devices to, “transmit multiple services simultaneously through 3G wireless technology.”

Because this patent is standards-essential, technology companies, in this case apple, must have access to it in order to build products. Without it, there may have not been iPhones and iPads that ran on 3G technology, and that according to the Obama Administration, isn’t in the public’s best interest.

Froman’s four-page letter doesn’t attempt to take sides in the case but it does take issue with how some companies attempt to leverage standards-essential patents to gain competitive edge. In the letter, he said,

“The Policy Statement express substantial concerns, which I strongly share, about the potential harms that can result from owners of standards-essential patens (“SEPs”) who have made a voluntary commitment to offer to license SEPs on terms that are fair, reasonable, and non-discriminatory (“FRAND”) gaining undue leverage and engaging in “patent hold-up”, i.e., asserting the patent to exclude an implementer of the standard…”

Related: White House Has Until Friday to Overturn the Apple ITC Ruling

He later says that the commission should consider, as part of their decision, the effects on the public marketplace, which was the basis of the administration’s overturning of the ruling in this case.

An Apple spokesperson said that Samsung was “wrong to abuse the patent system in this way,” and applauds the administration for its decision. Samsung said, “The ITC decision correctly recognized that Samsung has been negotiating in good faith and that Apple remains unwilling to take a license,” according to the Washington Post.

What does this mean for Apple? First, the devices in question were older model products but the iPhone 4 was still carrying some revenue weight. Still, the ban was more of a PR problem than a financial issue. Apple clearly won on that front.

Second, the overturning of the ruling doesn’t mean that Apple won’t have to pay damages. As Froman’s letter stated, “My decision to disapprove this determination does not mean that the patent owner in this case isn’t entitled to a remedy. On the contrary, the patent owner may continue to pursue its rights through the courts.”

Disclosure: At the time of this writing, Tim Parker was long Apple

 

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