Legal Issues

Apple Gets Its Day in Courts


Apple mobile devices

Photograph by Jerome Favre/Bloomberg

Apple mobile devices

Apple (AAPL) lawyers are in for quite a day Friday. There will be developments in three major legal disputes for the company, with potentially profound effects on its smartphone and e-books businesses. Here’s a rundown:

The International Trade Commission: The trade commission says it will issue a decision at 5 p.m. on Friday as to whether Samsung’s (005930:KS) mobile devices violate Apple patents. The decision will be the latest in a seemingly unending series of battles between the two companies over intellectual property. If the commission rules in Apple’s favor, Samsung could be prohibited from importing some of its products to the U.S.

The outcome will be interesting not just for its impact on Apple and Samsung. Over the weekend the Obama administration vetoed a recent commission ruling (PDF) that would have kept Apple from importing certain models of its iPhones, the first import ban of its kind since the Reagan administration. The commission said that because the patents in question were so-called standard essential patents, meaning they’re related to the basic functions of a device, Samsung was required to license them to Apple under reasonable terms. The administration argued that an import ban shouldn’t be the result of the companies failing to reach a licensing agreement.

The South Korean government interpreted the veto as protectionism. But patent experts cite the ITC as a major problem in the patent system because patent holders can seek import bans with a lower burden of proof than they’d face in a courtroom. The ITC’s role in patent disputes has also drawn the attention of the White House for some time. The administration has asked Congress to make it harder for companies to win import bans in front of the commission and to make sure that the ITC is hiring qualified judges.

Friday’s case is not an exact mirror of the ruling that the administration recently reversed, largely because the patents in question are not standard essential patents. Still, Obama’s response to the commission’s ruling will be interesting. If the commission bans some Samsung imports and the White House lets it stand, that would likely cause further conflict with South Korea. Another veto would signal an aggressive attempt to rein in the commission.

Federal Appeals Court: Apple will also be on the offensive against Samsung in a federal appeals case, in which it will argue that a judge should allow a permanent injunction against the Korean company for selling mobile devices that were found to violate Apple’s patents. Last year, a federal judge fined Samsung more than $1 billion; that fine has since been reduced by about 40 percent, and any restrictions that Samsung would face on selling the offending products have been suspended while the appeals process plays out.

Compared to the ITC case, this is an incremental step. A limited trial re-examining the damages in last year’s case has been set for later this year. A larger trial questioning whether Samsung had violated additional Apple patents will take place next spring.

It’s clear that Apple and Samsung will continue to fight this one out in various courtrooms for some time, and a decisive victory by either side seems somewhat unlikely. Still, every win for Apple could tip the scales further in its favor. This could secure the company a better negotiating position if Samsung and Apple ever decide to settle their differences. Courtroom successes could also deter other companies from using patent litigation as a competitive strategy.

E-Books Damages: While Apple is playing offense on patents, it is on the defensive regarding e-books. Last month a federal court ruled that Apple was at the center of a broad price-fixing conspiracy. In her ruling, Judge Denise Cote said that none of the individual aspects of the contracts Apple reached with book publishers were inappropriate on their own. Instead, it was the combination of everything that made the deal inappropriate.

The U.S. Department of Justice disagreed. In cooperation with 33 states, the department submitted a proposal to the court that would require Apple to get rid of all agency agreements—in which publishers set the prices and resellers take a commission—and then allow links to rival bookstores in its apps. Book publishers have objected to the proposal, saying it would punish them beyond the scope of the agreements they’ve already reached with the government. Apple also told the court that it had inappropriately excluded some evidence, and it said the ruling is likely to be overturned on appeal.

Apple has been asking for a stay in the case, while the Justice Department wants to push it forward. It is also arguing that the publishers’ objections to its proposal are proof that they are again conspiring to fix prices.

Brustein is a writer for Businessweek.com in New York.

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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $524.94 USD
    • 5.93
    • 1.13%
  • 005930:KS
    (Samsung Electronics Co Ltd)
    • $1378000.0 KRW
    • 8000.00
    • 0.58%
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