Little Impact Seen on Wireless Carriers From Patent-Related Import Bans

The White House has until early October to decide whether to veto a U.S. International Trade Commission exclusion order that would ban the import of certain Samsung mobile devices because they violated two Apple patents: U.S. Patent Nos. 7,479,949 and 7,912,501 (CD Aug 15 p10). The exclusion order against Samsung is the latest episode in a yearslong series of legal battles at the ITC and federal courts between the top smartphone manufacturers as each seeks to gain market share. Patent attorneys and industry experts told us court-ordered sales bans typically have only a limited effect on the wireless carriers that have deals with the manufacturers to provide mobile devices to their subscribers.

The ITC’s exclusion order against Samsung, if it withstands presidential review, won’t have a major effect on the carriers because most of the devices at issue are older models, said Recon Analytics analyst Roger Entner, who has clients in the wireless industry. The ITC’s injunction against Samsung did not specify which products would be banned, but Apple has claimed the devices that infringe the two infringed patents include the Samsung Galaxy S 4G, the Galaxy Tab and Galaxy Tab 10.1.

A particular sales ban would be unlikely to have a uniform impact on all carriers, said Benjamin Levi, a McKool Smith attorney who has argued patent cases before federal courts and the ITC. “The impact would depend on the specific relationship between a manufacturer and each carrier,” he said. “Every relationship is different.” The ITC exclusion order against Apple that U.S. Trade Representative Michael Froman vetoed earlier this month (CD Aug 8 p4) would have banned only the import of AT&T models of the iPhone 3GS, iPhone 4, iPad 3G and iPad 2 3G.

The ITC’s exclusion order against Apple had the potential to be more of a public relations problem for Apple than anything else, because the company has long portrayed itself as “an innovator that was being ripped off” by other manufacturers, said Peter Toren, an IP attorney with Weisbrod Matteis who has argued patent cases before federal courts. A sales ban on older models can still be a problem if a carrier offers an older-model device as part of a discount or incentive program, said William Stofega, IDC program director-mobile phones. Exclusion orders and injunctions involving new devices present their own set of problems for carriers, Stofega said. The release of a new mobile device involves a great deal of promotional planning, including advertising -- and some parts of a promotion are difficult to change if a court issues an injunction, Stofega said. “It can screw up everything, basically,” he said. An injunction also can cut into the amount of time a carrier gets to be the “exclusive” carrier to offer a device; exclusives typically carry a time limit, Stofega said.

ITC exclusion orders on smartphones are likely to have a “pretty limited impact on the carriers,” Toren said. Most ITC exclusion orders related to smartphones have involved older models, he said. “As long as the exclusion orders continue to involve older models rather than devices with higher demand like the iPhone 5, I think they're going to have a fairly limited impact,” Toren said. ITC exclusion orders also prohibit only the import of infringing products, not the carriers’ ability to market inventory already in the U.S., he said. “Carriers could have an inventory of the infringing phones that could last a month, two months, six months,” which they would be free to sell, Toren said. The carriers also theoretically could sell refurbished versions of the infringing devices, as long as they were obtained from within the U.S., Entner said.

Federal court injunctions “could potentially have a more significant impact on carriers” because they tend to involve newer devices that are in higher demand, Toren said. But such bans have become more difficult to issue following the Supreme Court’s 2006 ruling in eBay v. MercExchange that required federal courts to use the four factors it traditionally uses to determine if an injunction is appropriate, he said. There have been “very few cases” where a federal court has issued a permanent injunction since eBay v. MercExchange, he said. Toren noted that U.S. District Judge Lucy Koh declined to issue a permanent injunction barring the sale of 26 Samsung mobile devices that a San Jose jury found last year violated six Apple patents, even as she upheld $640 million of an original $1.05 billion award for damages; a three-judge panel from the Court of Appeals for the Federal Circuit is considering whether to overrule that decision (CD Aug 12 p10).

The same three-judge panel ruled Friday that Apple and Samsung do not have to reveal confidential information about their businesses in relation to that patent lawsuit. Koh had abused her “discretion in refusing to seal the confidential information at issue,” said Circuit Judge Sharon Prost in the panel’s opinion. “We recognize the importance of protecting the public’s interest in judicial proceedings and of facilitating its understanding of those proceedings. That interest, however, does not extend to mere curiosity about the parties’ confidential information where that information is not central to a decision on the merits” (http://1.usa.gov/13WtmPt).

The ITC remains a popular venue for smartphone manufacturers to seek sales bans because the ITC reaches decisions faster than the federal court, “making it easier to hurt your competitor,” Stofega said. The White House has set its sights on making the ITC a less attractive venue for patent litigation, issuing legislative recommendations in June that included a request that Congress require the ITC to use the four-factor test used in eBay v. MercExchange when it decides whether to issue an exclusion order (CD June 5 p12). Such legislation would help address the issue, but “it’s not something that going to happen overnight,” Stofega said.