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Some mobile patents lose bite as competitive weapon

The veto of an import ban on older models of the iPhone is likely to deter some companies from bringing patent infringement cases in the competitive smartphone category. However, opinions are split on whether this will hinder or spur innovation.

A United States trade representative in the Obama administration recently overturned an international trade ruling ? the first such veto in more than 25 years ? that would have seen older models of the iPhone banned from being imported into the country. How patents are granted and enforced in the U.S. has been a focus of the Obama administration, which has promised reforms intended to better control the number of patent-related lawsuits and address how the ITC handles such cases.

?This is a big blow to companies who want to wage patent wars with standards-essential patents [SEP], and Samsung and Motorola both have attempted this type of litigation,? said Carl Howe, vice president of research and data sciences at Yankee Group, Boston.

?Nokia and Apple settled some similar infringement issues because Nokia played by the rules and settled with Apple licensing Nokia's SEPs,? he said.

?So SEPs are turning out to be less potent competitive weapons than some owners thought they should be, and that shouldn't surprise anyone because that's the whole point of SEP and FRAND licensing - to avoid them being used competitively.?

In the increasingly competitive smartphone industry, companies are frequently winding up in a court room as either plaintiff or defendant, and often both, in an attempt to extract lucrative licensing fees for technology or, when that does not happen, to block a company?s product sales.

Fair and reasonable terms
The initial ruling to institute an injunction came from the U.S. International Trade Commission in response to an ongoing legal battle between Samsung and Apple over patent rights related to each company?s mobile devices.

In the case that led to the recent veto, the ITC agreed that Apple violated one of Samsung?s patents involving the use of 3G mobile data links in its older model iPhones and iPads.

The ITC was not swayed by Apple?s claim that Samsung failed to license the patent on fair, reasonable and non-discriminatory terms, and Apple had 60 days to pursue an appeal before the ban would have gone into affect this week.

The veto certainly addresses how the ITC handles such cases.

In the past, there have been complaints by some of the big players in the industry that ITC is too quick to bring injunctions and that this could inhibit innovation in the market.

However, others have argued that sales bans are important for protecting the value of patents.

At issue in the veto and more broadly are so-called standard essential patents that cover some of the most basic functionality in a smartphone, such as connecting to a wireless network.

Companies are expected to license these products on fair, reasonable and non-discriminatory terms to others.

?The infringement was of a standards-essential patent (SEP) covered by a fair, reasonable, and non-discriminatory licensing (FRAND) terms, but that Samsung had not made available on those terms,? Mr. Howe said.

?The government properly decided that that didn't justify a trade ban against Apple, the claimed infringer, because it didn't have access to the patent under the terms under which it was granted,? he said.

?The veto doesn't imply that Apple is innocent of infringement, but rather that the punishment didn't fit the offense, and that's mostly because the ITC really only has one type of infringement remedy, the import ban."

Mobile innovation
Proprietary patents that a company develops itself will continue to be an important area for patent litigation.

For example, there are two upcoming trials between Apple and Samsung over proprietary patents.

?The outcomes of those will likely have bigger effects on the businesses of those two companies,? Mr. Howe said.

It is not clear how the veto will affect innovation in the mobile industry.

Some see the weakening of standard essential patents as leading to less investment in technical innovation by companies.

The potential risk is that companies will have less incentive to participate in standard-setting bodies and to invest in the development of technical standards because this veto undermines the value of these patents.

Previously, companies such as Samsung, Nokia and others invested heavily in standard-essential patents because it gave them a jump on patents that might end up being widely used and which they could license.

?This is a very significant event in the patent world as it relates to most types of standard essential patents,? said C. Graham Gerst, partner at Global IP Law Group LLC, Chicago. ?It really weakens what strategic leverage SEP provided previously.

?We know that the old system works,? he said. ?The risk that we face, and only time will tell, is that now parties may have less incentive to participate in standard-setting bodies because they know that if they get any patents on those standards, their patents will be much weaker than if they did not participate.

?And they also may invest less in the development of new technologies for that reason because there is less incentive to be a leader in the standard-setting body now.?

However, others feel that the result could be greater innovation.

?I think it will help,? Mr. Howe said. ?The issue at stake here is whether a SEP patent grants the patent owner the right to ban competing products, even if the competing product company wants to license those patents.

?The ITC said yes, but the U.S. government and our Federal Trade Commission felt otherwise,? he said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York