President Obama Vetoes U.S. International Trade Commission Exclusion Order of Apple Products

For the first time in 26 years, a U.S. president and his administration have exercised statutory authority to veto an exclusion order from the U.S. International Trade Commission (ITC).1 This development may herald the end of standards-essential patents (SEPs) at the ITC.

The case arose as part of the global feud between Apple and Samsung. In a final determination on June 4, 2013, the ITC issued the first-ever exclusion order against Apple products, including the iconic iPhone, albeit older models.2 Apple had contended that public interest factors3 militated against granting an exclusion order in the case, in significant part because the one remaining patent in the case had been declared standards essential by Samsung.

Prior to its final decision, the ITC requested public comments in the case. Given the controversial nature of seeking injunctive-style relief such as exclusion orders through SEP enforcement, the ITC received extensive commentary.4

In its decision imposing an exclusion order on Apple, five of six ITC Commissioners rejected Apple's SEP public interest arguments.5 The ITC's opinion found that the SEP defense failed, both on an absence of establishing a sufficient administrative record by Apple and as a matter of law. The opinion held that the ITC was bound by enumerated public interest factors, and that there was no per se rule on SEPs to the contrary. In a footnote to the majority's opinion, Commissioner Aranoff noted that "[t]he Commission is not a policy-making body and is not empowered to make [policy decisions on SEPs]. The President may, should he so choose, weigh the relative risks of hold-up and reverse hold-up in deciding whether to disapprove the remedy the Commission is issuing today."

Commissioner Pinkert dissented from the majority's opinion. He maintained that the ITC's public interest factors require rejection of an exclusion order where, as he found, the complainant had failed to make fair, reasonable and non-discriminatory (FRAND) licensing terms available. The ITC's decision then underwent presidential review.

The ITC's enabling statute for intellectual property investigations affords the president veto power over exclusion orders.6 It provides that, within 60 days of a final determination by the ITC's finding a violation, the president may disapprove of that determination for "policy reasons."7 The legislative authority suggests that such policy reasons include: 1) the public health and welfare; 2) competitive conditions in the U.S. economy; 3) production of competitive articles in the United States; 4) U.S. consumers; and 5) U.S. economic and political foreign relations. Federal Circuit authority, however, has held that the president's policy authority under this statute is plenary, and is not subject to any categorical limitation.8 The veto authority under the statute has been delegated to the U.S. Trade Representative (USTR).9

The USTR entertained briefing from the parties and was the subject of extensive public lobbying from diverse sources. The USTR vetoed the exclusion order for "policy considerations [ ] as they relate to the effect on competitive conditions in the U.S. economy and effect on U.S. consumers." In exercising its veto over the ITC's exclusion order, the USTR invoked a joint Policy Statement from the Department of Justice and U.S. Patent and Trademark Office.10 The Policy Statement provides that ITC exclusion orders should be imposed under SEPs only where a U.S. district court cannot obtain personal jurisdiction over a respondent—where a putative licensee refuses to pay what has been determined to be a FRAND royalty or refuses to negotiate to determine FRAND terms. The USTR's veto, thus, was consistent with the administration's express SEP policy.

While the USTR's action itself has no prospective binding effect on the ITC, as would a decision by the U.S. Court of Appeals for the Federal Circuit, the ITC is very likely to apply its guidance in future determinations. Should the ITC not do so, the USTR may act on its own, as it has in this case. Accordingly, absent extremely rare circumstances, SEPs should not be asserted at the ITC, unless there is a formal change in executive policy. Those complainants in pending investigations who have asserted SEPs may wish to consider withdrawing their complaints.

Notes

  1. http://www.ustr.gov/sites/default/files/08032013%20Letter_1.PDF.
  2. Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Processing Devices, and Tablet Computers, Inv. No. 337-TA-794, Notice of the Commission's Final Determination Finding a Violation of Section 337; Issuance of a Limited Exclusion Order and a Cease-and-Desist Order; Termination of the Investigation (June 4, 2013).
  3. There is an exception for Section 337 remedies where the ITC, after considering the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States and U.S. consumers, finds that infringing articles should not be excluded. 19 U.S.C. §§ 1337(d)(1) (exclusion orders) and 1337(f) (cease-and-desist orders). They are known as "public interest factors."
  4. See, e.g., Association for Competitive Technology (ACT), Business Software Alliance (BSA), HP, Intel and Sprint (opposed to exclusion orders for SEPs); Innovation Alliance, Ericsson and Motorola (not opposed).
  5. Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Processing Devices, and Tablet Computers, Inv. No. 337-TA-794, Comm'n Opinion (July 5, 2013).
  6. 19 U.S.C. § 1337(j)(2).
  7. S. Rep. No. 93-1298, 93d Cong. 2d Sess. 199 (1974).
  8. Duracell, Inc. v. Int'l Trade Comm'n, 778 F.2d 1578 (Fed. Cir. 1985).
  9. Executive Order 11,846 ("Administration of Trade Agreements Program").
  10. U.S. Department of Justice and U.S. Patent and Trademark Office Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments (January 8, 2013): http://www.justice.gov/atr/public/guidelines/290994.pdf.