updated 07:23 pm EDT, Mon August 5, 2013
Bipartisan agreement that ITC overreached in SEP punishment
On the first trading day following the news that the Obama administration had overturned the ITC's unusual SEP-based sales injunction that would have affected AT&T-model iPhone 4 and iPad 2 (and older) devices, world financial markets made their opinion plain: over $1B in Samsung's market capitalization was wiped away, while Apple gained nearly $7 billion as its stock price to continues a recent resurgence. AAPL closed up almost five percent to $469.45 and continues to edge up in after-hours trading, while Samsung shed a percentage point.
The overturning of the ITC ban by the administration was seen as a good call to protect standards-essential patents (SEPs), without which most electronics industries would quickly grind to a halt. The worldwide perception (outside of Korea and perhaps Google headquarters) was that holding SEPs hostage to threats of legal action or undermining tactics like tying SEP licenses to non-SEP negotiations -- which the ITC ban would have implicitly endorsed -- would stifle innovation and make the already broken patent law system worse, with a new flood of patent holders rushing to court to gain what the administration called "undue leverage" in SEP negotiations.
SEPs are supposed to be agreed on using a guideline known as "Fair, Reasonable and Non-Discriminatory" (FRAND), meaning that licenses for standard-use technology (such as UTMS standards) are meant to be modest, capped at a certain level, affordable relative to the overall cost of the device and given out freely to all who negotiate in good faith. Most (but not all) of the current court contests between Apple, Google, Samsung and Microsoft (and others such as InterDigital) can be summed up as Apple and Microsoft opposing Google (including Google-owned Motorola Mobility) and Samsung's separate attempts to leverage SEPs they hold to gain rights to non-SEP licenses at lower prices, while simultaneously asking for high, non-FRAND royalties to SEPs and then accusing the other players of not "negotiating in good faith" when they refuse to take licenses with excessive royalty demands.
One factor behind the veto was likely to have been a persuasive dissent from the final ITC decision by Commissioner Dean Pinkert, who concluded that Samsung had failed to honor its FRAND pledges and consequently opposed the sales ban against Apple in the name of protecting the public interest that SEP holders shouldn't be able to tie FRAND license negotiations to non-SEP licensing proposals. He predicted that endorsing the practice would have disastrous effects on both the courts and the public.
Samsung has expressed disappointment in the Obama administration's decision, and yet may benefit from the precedent set by it as early as later this week, when the ITC is expected to rule on a different complaint -- this time brought by Apple against Samsung over four non-SEP patent infringements -- that is likely to result in a ban on some older Samsung products. The government of South Korea has already made clear that it expects a veto from the administration if such a ban is issued, despite the fact that the new complaint is entirely different than the SEP-based nature of the patent the ITC incorrectly issued a sales ban over.
Had the sales ban against Apple taken effect (as it was scheduled to today), it would have affected only one product still being sold as new by Apple: the AT&T version of the iPhone 4, which uses GSM technology composed of some SEPs owned by Samsung. While the iPhone 4 is the oldest model of iPhone still being sold by Apple, it remains a very popular "entry-level" model for new buyers -- and is widely considered to be the third or fourth best-selling individual smartphone model in the world, behind the iPhone 5 and 4S -- even beating newer flagship phones such as Samsung's Galaxy S4 or HTC's One in most markets.
Even Apple executives have expressed surprise at the enduring popularity of the iPhone 4, calling its sales among first-time smartphone buyers "very, very impressive" and that the company saw sales of the iPhone 4 accelerate "as we offered more affordable pricing in emerging and other markets." The iPhone 4 was even given partial credit for the better-than-expected sales of iPhones in the June quarter. It isn't known what will happen to the iPhone 4 once the next model of iPhone, the rumored "iPhone 5S," is introduced in the fall, but the conventional wisdom is that the iPhone 4S would move into the iPhone 4's "entry level" position, usually free with a two-year contract.
The ban that Samsung is potentially facing in a final decision scheduled for August 9 would affect almost entirely products it no longer sells, such as the Galaxy S II and original Galaxy Note, which have been found to be infringing on four non-SEP Apple design and technical patents. Ironically, the date is the same day that the federal courts will take up an Apple appeal that Judge Lucy Koh -- who presided over the original Apple-Samsung trial that resulted in a huge win for Apple -- was wrong in not banning infringing Samsung products in that trial.