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Apple Import Ban Explored by U.S. Agency in Samsung Case

March 13, 2013

Apple Import Ban Explored by U.S. Agency in Samsung Patent Case

Pedestrians walk in front of the Apple Inc. store, left, and a Samsung Electronics Co. advertisement in the Wangfujing area of Beijing. Photographer: Tomohiro Ohsumi/Bloomberg

A U.S. trade agency is considering how much consumers and the U.S. economy would be hurt should it ban imports of Apple Inc. (AAPL:US) iPhones and iPads over a patent held by its largest competitor, Samsung Electronics Co. (005930)

The U.S. International Trade Commission in Washington was scheduled to issue a final decision in Samsung’s patent- infringement case yesterday. Instead, it asked for comments on how a ban would affect the market for smartphones and tablet computers. The question pertains to one of four patents that Samsung asserted against Apple, for a way that phones transmit data. The agency said it would make its decision May 31.

The notice may indicate the commission is considering a finding that Apple violated the Samsung patent. The agency may be trying to fashion a compromise giving Apple time to work around or license the patent, or to deny an import ban because of the impact on consumers and the competitive market, said Rodney Sweetland, a lawyer with Duane Morris in Washington who specializes in ITC cases.

“Were they not thinking about a violation, they would not need to ask for further information of this nature,” Sweetland said in a telephone interview.

Samsung is the world’s largest maker of handsets and is a major supplier (AAPL:US) of components for the iPhone. Apple dominates in the U.S., with 45 percent of the smartphones sold in the fourth quarter compared to Samsung’s 27 percent, according to Neil Shah, an analyst with Boston-based Strategy Analytics.

Biggest Fight

Apple, which in 2007 energized the nascent smartphone market, contends that phones running on Google Inc. (GOOG:US)’s Android operating system copy the look and features that make the iPhone unique. Cupertino, California-based Apple has been embroiled in litigation over smartphones and tablet computers on four continents.

Its biggest fight is with Samsung, with each side accusing the other of violating patents. At stake is getting a greater position in the global market for mobile devices, an industry projected by researcher Yankee Group to double to $847 billion by 2016.

The trade commission asked for comments on what products are authorized by Suwon, South Korea-based Samsung to use the technology covered by the patent, and whether they are acceptable substitutes for the iPhone and iPad.

The products in the case related to third- and fourth- generation Apple products that work on AT&T Inc. (T:US)’s wireless network. The commission said it wants to know whether an order would cover devices that run on other networks, as well as the iPhone 5 and latest iPad version.

Licensing Terms

The ITC also wants to know about licensing terms for the patent that might be considered fair, and a history of negotiations between Apple and Samsung. The agency said interested parties must submit filings by April 3.

Adam Yates, a spokesman for Samsung, and Amy Bessette, a spokeswoman for Apple, both declined to comment.

The last time the ITC decided against issuing an import ban after finding a violation was in 1984, when it found that barring hospital beds designed for burn victims would harm patients who might not be able to get the equipment. In a patent case won by Apple against HTC Corp. (2498), the commission gave the Taiwanese handset maker time to design around the Apple invention.

Any import ban would have to be reviewed by President Barack Obama and the U.S. Trade Representative, who have the authority to reject an exclusion order on public policy grounds. The last time that happened, President Ronald Reagan in 1987 overturned an import ban on Samsung memory chips, Sweetland said.

Offer Rejected

Samsung contends Apple infringes four patents, including two concerning how phones transmit data. Those patents relate to standard technology used across the industry. Apple argued that, since Samsung helped establish the industry standard and agreed to license the patents on fair terms, it shouldn’t be allowed to use those patents to block competition.

In filings with the agency, Samsung said it offered to license its standard-essential patents to Apple at a rate of 2.4 percent of the handset price “but Apple rejected it without making a counteroffer or attempting to negotiate a better deal.”

U.S. Trade Judge James Gildea sided with Apple in September, saying it didn’t infringe the patents and that one, for a way to detect movement on a touch screen, was invalid. The fourth patent in the case is for a way to detect phone numbers in e-mails so they can be dialed or stored in the phone’s contact list.

Apple has its own case against Samsung at the trade agency that’s being considered by the commission. A final decision in that dispute is scheduled to be released Aug. 1.

Samsung’s case against Apple is In the Matter of Electronic Devices, Including Wireless Communication Devices, 337-794, and Apple’s case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, both U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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