Earlier this summer, the Obama administration dealt a blow to Standard-Essential Patent (SEP) holders by reversing an International Trade Commission (ITC) exclusion order granted in favor of an SEP holder. (To view the letter from Michael B.G. Froman, Ambassador, to Irving A. Williamson, Chairman of the International Trade Commission (Aug. 3, 2013) click here.) This action reversed a ruling in the ITC proceedings between Apple and Samsung that prohibited companies from importing Apple devices into the United States that infringed a SEP owned by Samsung. The Obama administration's decision reinforces a growing trend in favor of denying injunctive relief to SEP holders that agree to license SEPs on Fair, Reasonable, And Non-Discriminatory (FRAND) terms.
This action was the first time a president reversed an exclusion order since Ronald Reagan did so in 1987. In its communication reversing the ITC, the Obama administration stressed the danger of granting exclusion orders against products infringing SEPs since it could create a high risk of patent hold-up. Patent hold-ups occur when a party is forced into using SEP technology due to its widespread use, and the SEP holder wields the threat of an injunction to pressure parties into paying a higher royalty for the SEP than could have been demanded before the technology was declared standard-essential. What a licensee may try to cast as a "hold-up," the SEP owner may instead characterize as an unreasonable licensee refusing to negotiate or pay royalties on FRAND terms.
Recent decisions in federal courts may be viewed as part of the same trend. Certain relatively recent decisions have been raising the bar on obtaining injunctive relief for patent infringement, including eliminating the presumption of irreparable harm in favor of patent holders. See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 393-94 (2006). In addition, there have been a number of notable federal court decisions denying injunctive relief to parties that had agreed to license their SEPs on FRAND terms. See Microsoft Corp. v. Motorola, Inc., 2:10-cv-01823-JLR, at 12-15 (W.D. Wash. Nov. 29, 2012) (ruling that because Motorola agreed to license its SEPs on FRAND terms, it had no claim for an injunction since it had an adequate remedy at law and did not suffer irreparable harm); Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 914 (N.D. Ill. 2012) (denying Motorola injunctive relief against Apple for infringing an SEP that Motorola agreed to license on FRAND terms).
The ITC, however, is not bound by these federal court decisions and may issue injunctive relief in the form of an exclusion order, which prohibits parties from importing an infringing product into the United States. The ITC rarely denies exclusion orders, and ITC procedures give parties a second chance for injunctive relief after failing to receive such relief in federal court. Recent developments in the ITC confirm this reality, except for cases where the patent involved is an SEP that a party commits to license on FRAND terms.
While the Obama administration reversed the ITC's recent decision related to an SEP, it did not entirely preclude the remedy of an exclusion order against products that infringe SEPs. Instead, the administration urged the ITC to undergo a detailed factual finding and rigorous analysis on the possibility of patent hold-ups before issuing any exclusion order against products that infringe an SEP.
Despite these developments, the ITC remains a favorable forum for parties seeking injunctive relief. Shortly after the President's reversal, the ITC issued another exclusion order—this time for Apple and against Samsung products—even though a federal court previously denied Apple injunctive relief. Compare Apple, Inc. v. Samsung Elecs. Co., 11-CV-01846-LHK, at 21-23 (N.D. Cal. Dec. 17, 2012), with In the Matter of Certain Electronic Digital Media Devices and Components Thereof, Inv. No. 337-TA-796 (Aug. 9, 2013). The products at issue did not contain any SEPs, but the fact that the ITC issued Apple an exclusion order six days after the Obama administration reversed its exclusion order against Apple shows that the ITC is not shy about granting exclusion orders, even when injunctive relief is unavailable in federal court. The ITC therefore will continue to provide patent holders another tool to obtain injunctive relief for patent infringement, which in turn will provide them leverage for higher royalties. For patent users, the ITC exposes them to the possibility of higher royalties from patent hold-up that could have been avoided in federal court where injunctive relief might have been unavailable.