In a bold move, U.S. Trade Representative Froman exercised the rarely used Presidential veto power delegated to his office to overturn an import ban of older Apple iPhones dictated in June by the US International Trade Commission, known as the ITC. It was the right thing to do. The first reaction of many people will be that this action was political: the US government will be accused of overreaching to support Apple, a US company, at the expense of Korean consumer electronics giant Samsung. In truth, the ITC ban on older iPhones would have cost Apple very little, if anything, and similarly, Samsung’s only win was limited to the political value of having the ITC decide in its favor. Mr. Froman’s veto was not about Apple and Samsung.
The ITC decision to impose a ban on the import of certain older iPhones was issued early June (2013), on the basis of Apple’s infringement of a Standard Essential Patent (SEP) without consequential licensing of the patent. When an SEP is involved, the Standards Developing Organization, or SDO (in cinema, this is SMPTE and ISO), normally requires a legally binding pledge from the patent holder to engage in fair, reasonable, and non-discriminatory (FRAND) licensing terms. It was not a unanimous decision, however, with the sole dissenting opinion coming from Commissioner Pinkert. In the redacted Public Version of the ITC’s findings, Commissioner Pinkert discussed his findings regarding Samsung and Apple, but more importantly, asserted that it was not proper of Samsung to require Apple to license non-standards-essential patents. Samsung’s actual licensing requirements were redacted from the Public Version of the ITC’s findings. However, Commissioner Pinkert made it clear that more was going on than a straight forward FRAND license by referring to the tying of non-standards essential patents in Samsung’s requirement. This did not convince him that Samsung had made a sincere effort to present Apple with FRAND terms, and earned his dissent.
In the patent enforcement world, the ITC’s majority decision to rule on Samsung’s behalf and mandate a ban on certain imports raised no end of concern over the doors that it was opening. The decision would allow any holder of an SEP to tie its non-standards essential patents to the SEP licensing deal, raising the cost of the overall license. Worse, it could threaten pursuit of an import ban by the ITC if the un-reasonable terms were not agreed. In fact, the U.S. Department of Justice and the the U.S. Patent Office issued a statement in January underscoring the opportunity for abuse in such negotiations by threatening a ban on imports to obtain unreasonable license terms. The U.S. Trade Representative’s veto is in favor of implementers, who need reassurance that the development of innovative products that require the use of SEPs will not result in unreasonable licensing terms imposed on them under threat of import bans.
Other than Samsung, the only group that has vocally sided with the ITC’s majority is called the Innovation Alliance, a group of companies, including Qualcomm, that generate a major share of their revenue through the licensing of SEPs. It appears they rather liked the idea of threatening ITC exclusion orders to get more lucrative terms. But the Innovation Alliance has yet to present a convincing argument as to why such practices would be fair and in the best interests of the public. Notably, a non-partisan group of Senators sent a letter to Froman only days prior, that skirted the suggestion of a particular action, but was clearly in support of a veto.
Not specifically stated in Commissioner Pinkert’s dissent opinion is the abuse that unreasonable licensing terms can impose on competition. Under threat of an ITC exclusion order, a company such as Samsung could require that a licensee such as Apple in turn license Samsung with Apple’s non-SEPs. What this means is that a company that uses patents to protect its innovations could be forced to license these same innovations to its competitor, simply because the competitor holds an SEP that must be licensed. The possibilities are endless, and in flagrant violation of anti-trust law.
Apple would likely have overturned the ITC ruling on appeal. But Froman’s involvement has made it clear that the U.S. Trade Representative would rather see less litigation, and more innovation. It is a worthy goal.
What does this have to do with cinema? Digital cinema is…well…digital. It’s as much at risk of utilizing technologies that infringe patents as mobile phones – if not today, then tomorrow. Digital cinema was developed with a conscious attempt to avoid SEPs. But there are no guarantees that this will continue into the future, or even that the past attempt to be free of SEPs was entirely successful.
In writing this, I gratefully acknowledge the work of Florian Mueller, whose proficient and detailed analysis on FOSS Patents (Free and Open-Source Software) blog is sunshine to those attempting to understand the complex world of patent litigation.