FRAND and policy: Obama vetoes ITC iPhone and iPad ban

Even for those of us who find smartphone patent litigation interesting, the sheer number of decisions and reversals across so many countries can be hard to track. The general impression one gains is that every major player is seeking to gain a stake in the profits of every other major player by winning patent litigation against them.You could almost be forgiven for wondering if – should they all get their way and create channels of profit-sharing connecting them all – they wouldn’t end up being a kind of de facto single entity who could then cancel their individual litigation budgets and instead put some more effort into innovation. Indeed some would argue that this kind of patent enforcement frenzy is a sign of a saturated market in which innovation has slowed and the players are forced to grow their profit not by expanding the customer base with attractive new features but by squabbling over the money already developed customers are spending.

So while it can be depressing to monitor, sometimes the smartphone litigation gangfight can throw up interesting policy decisions. This happened on Saturday, when President Obama decided to veto a ban imposed by the International Trade Commission (ITC, but not the Thunderbirds one). The ITC offers, among other things, a quick method to banning the distribution of products that you feel are infringing on your patents. Well, I say quick… it still takes a year or so, but that’s lightning fast compared to many patent litigations conducted in court. So the ITC can act quickly, but on the down side (a) they can’t award damages, only prevent sales and (b) even if you win, the President can still decide that, for ‘policy reasons’ the ban should not happen. This last risk is not generally considered to be huge however; indeed no President since Reagan has vetoed an ITC decision. So Samsung probably felt that when the ITC granted their request to prevent the sale of certain models of Apple’s iPhone 4 and certain iPads (models 1 and 2) they had a good chance of it happening. (Having said that, it is ironic that the last time a veto did happen, back in 1987, it was in Samsung’s favour, and covered the distribution of their 16 and 32 KB RAM chips).

Samsung’s patent covers technology necessary for implementing the CDMA¬†standard, which is used for making data connections to certain US mobile providers. As what is called a ‘Standards-essential Patent’ (SEP), the patent in question has to be licensed to competitors, and on what are known as FRAND (Fair, Reasonable and Non-discriminatory) terms. We have blogged about the interaction between FRAND and free and open source software before, and we discuss the issues in our briefing note ‘Open Standards and Open Source‘. When the owner of a SEP uses it to try to ban a competitor’s product, therefore, there will be some serious discussion of whether the owner has – as they must – already offered a licence to that competitor under fair and reasonable terms. What does fair and reasonable mean, in dollars? Unfortunately no-one knows. It’s one of those ‘litigate and see’ things. In this case, we know that Apple and Samsung have negotiated and failed to reach agreement. As Fortune magazine notes, while the details of this negotiation are largely private, a dissenting view attached to the ITC decision gives a small insight into that process, and implies that Samsung were perhaps attempting to close a so-called ‘tying’ deal. This works a lot like a satellite or cable TV package: the things you actually want are only available with a load of extras that you don’t necessarily want. Here Samsung may have been trying to force Apple to license additional patents in exchange for a workable deal on the CDMA essential patent.

This Presidential veto is interesting for a number of reasons. Its rarity makes it news, but also gives us an indication that the issues it addresses are considered very important to US trade policy. It would be possible to view this as self-interested and protectionist – after all Apple must be one of the US’ largest tax payers. However in practice Apple would just have to settle if the Presidential veto had not been applied, and it is not as though they could not afford to do so. So it seems more likely that the policy imperative here was more associated with the dispelling of doubt around whether FRAND is really a workable model. By vetoing the ITC ban, the President sends a clear message that trying to expand the boundaries of ‘fairness’ to include things that are really quite ‘unfair’ and indeed having endless arguments about what constitutes ‘fair’ is damaging to a healthy IT market.

From the point of view of the free and open source community though, it is also an interesting decision. As our briefing note linked above points out, implementing even open standards in FOSS can be non-trivial. When the UK Cabinet Office decided to define open standards¬†as those available on a royalty free basis (partly to encourage FOSS software provision to government), there was some grumbling among standards definition bodies (indeed I was present at an event in Brussels on FRAND just after the policy was announced, and when it was mentioned in the room it clearly irked more than a few attendees). However the veto shows that the current system of agreeing to be ‘fair’ then immediately disagreeing about what ‘fair’ means is terminally broken. In this context the Cabinet Office’s decision to provide something a bit more defined than just ‘fair’ seems well justified, whether it was decided upon with FOSS in mind or not.

One thought on “FRAND and policy: Obama vetoes ITC iPhone and iPad ban

  1. JohnW

    Actually, IIRC, there was no “negotiation”. Apple asked Samsung what it considered a “fair” licensing fee, Samsung responded and then Apple sued. IMHO, it looks like trying to game the court system so that those who do not contribute patents to an open standards body have an advantage over those who do. After all, if you cannot enforce FRAND patents then those holding proprietary patents — like Microsoft and Apple — will be the only ones making money.

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