United States Trade Representative Issues Rare Disapproval of U.S. International Trade Commission's Order Excluding Apple Products Based on Infringement of Samsung Standards-Essential Patent


In a rare move, on August 3, 2013, the United States Trade Representative of the Executive Office of the President (USTR) issued a letter disapproving the United States International Trade Commission's (ITC's) determination in Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers ("Electronic Devices"), Inv. No. 337-TA-794, to exclude the Apple iPhone 3G, iPhone 3GS, iPhone 4, iPad 3G, and iPad 2 3G operating on the AT&T wireless network.1 According to Apple, the ITC's decision had marked the first exclusion order based on infringement of a standards-essential patent (SEP). For the first time since 1987, and only the sixth time ever, the USTR disapproved the determination to exclude certain products found to infringe a patent in violation of Section 337 of the Tariff Act of 1930, as amended.

On June 4, 2013, the ITC determined that Apple violated Section 337 by its importation of certain smartphones and tablet computers that it found to infringe a patent owned by Samsung Electronics Co., Ltd. and Samsung Telecommunications America Inc. The ITC issued a permanent limited exclusion order prohibiting the unlicensed importation of the infringing devices and a cease and desist order preventing Apple from engaging in certain activities, including the sale of the products in the United States. According to Apple, the decision marked the first time the ITC had issued an exclusion order based on infringement of an SEP. In its determination to issue this relief, the ITC found that the issuance of the remedial orders would not harm competitive conditions in the U.S. economy or U.S. consumers. The ITC also rejected arguments that Samsung breached any obligation to offer a license to the SEP on terms that are fair, reasonable, and non-discriminatory (FRAND). The ITC specifically found that "the record does not support a conclusion that Samsung breached any such obligation with respect to Apple."2

In its submission to the USTR, Apple argued that the exclusion order established a dangerous policy precedent out of line with "agencies and tribunals around the world," which Apple argued have declined to issue or entertain injunctive relief for asserted FRAND-encumbered patents on the basis of the potential for "hold up." Samsung countered that while it supports the concerns over injunctions for infringement of SEPs, the investigation presented the inverse problem, known as "reverse hold up," with Apple purportedly refusing to even engage in negotiations for a FRAND license.

Pursuant to Section 337, the President may disapprove the ITC's remedial orders during a 60-day presidential review period following the ITC's determination, in which case the orders will not go into effect. The President may disapprove an order on policy grounds, which may consider "(1) 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. foreign relations, economic and political." The President assigned this authority to the USTR through a presidential memorandum issued in 2005.3

Historically, the President has exercised this authority to disapprove ITC remedial orders in only five instances, and not since 1987.4 In three of these disapprovals, the ITC modified its orders based on concerns over the breadth of the remedy.5 In another disapproval, the President set aside an exclusion order based on predatory pricing because a pending anti-dumping case involved the same facts and could result in different remedies.6 The remaining disapproval rejected the exclusion of gray market goods because the President was in the process of reviewing gray market policy.7

In the Electronic Devices dispute between Samsung and Apple, the USTR disapproved the ITC's determinations to issue an exclusion order and cease and desist orders based on its review of various policy considerations as they relate to the effect on competitive conditions in the U.S. economy and the effect on U.S. consumers. The USTR cited the policy statement issued on January 8, 2013, by the Department of Justice and United States Patent and Trademark Office entitled "Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary FRAND Commitments," which expressed concerns, shared by the USTR, about potential harms that can result from the assertion of SEPs by patent owners who have made a voluntary commitment to offer to license SEPs on FRAND terms.8 The USTR noted, however, that potential harm can also result from a respondent's refusal to negotiate a FRAND license or refusal to pay FRAND royalties. The USTR noted that whether the public interest counsels against a particular exclusion order depends on the specific circumstances at issue. While noting that it is beyond the scope of its policy review to revisit the ITC's legal analysis or its findings based on the record, the USTR nevertheless concluded that "[a]fter extensive consultations with agencies of the Trade Policy Staff Committee and the Trade Policy Review Group, as well as other interested agencies and persons, I have decided to disapprove the USITC's determination to issue an exclusion order and cease and desist order in this investigation."

As to future cases involving SEPs, the USTR noted that "the [ITC] should be certain to (1) to [sic] examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive factual record related to these issues in the proceedings before the Administrative Law Judge and during the formal remedy phase of the investigation before the Commission, including information on the standards-essential nature of the patent at issue if contested by the patent holder and the presence or absence of patent hold-up or reverse hold-up. In addition, the Commission should make explicit findings on these issues to the maximum extent possible."

Notably, the USTR's letter—in line with the statements by the Department of Justice, Federal Trade Commission, U.S. Patent and Trademark Office, and ITC—does not suggest a per se disapproval of an injunctive remedy from the ITC for all SEPs subject to FRAND obligations. Rather, the letter notes that every case must be analyzed under the specific circumstances at issue. The letter acknowledges that such a remedy might still be appropriate in some circumstances, such as where a putative licensee is unable or refuses9 to take a FRAND license or is outside the jurisdiction of a court that could award damages. The USTR has called for the ITC to carefully examine the public interest factors early, to have the parties develop a comprehensive record on these issues before the administrative law judge, and to make explicit findings. The USTR has indicated that it will continue to look to the development of appellate jurisprudence on this issue in the courts and to the administration's continuing efforts to consider the appropriate remedies for infringement of SEPs and to encourage the development of strong, innovative standards.

The USTR's letter does not preclude patent owners from seeking to assert SEPs at the ITC. As a result of the disapproval, however, the ITC will likely more often request the development of a public interest record before the administrative law judges and request a recommended determination on the public interest where SEPs are asserted. The ITC also will likely pay particular attention in future investigations to the issues raised in the disapproval letter.

1 Executive Office of the President, The United States Trade Representative, Letter to the Honorable Irving A. Williamson, available at http://www.ustr.gov/sites/default/files/08032013%20Letter_1.PDF.

2 Electronic Devices, Comm'n Op. at 112 (Jul. 5, 2013).

3 Memorandum for the United States Trade Representative: Assignment of Certain Functions Under Section 337 of the Tariff Act of 1930, 70 Fed. Reg. 43,251.

4 Certain Welded Stainless Steel Pipe and Tube, Inv. No. 337-TA-29 (Feb. 1978); Certain Headboxes and Papermaking Machine Forming Sections for the Continuous Production of Paper, and Components Thereof, Inv. No. 337-TA-82, USITC Pub. No. 1197 (Nov. 1981); Certain Molded-In Sandwich Panel Inserts and Methods for their Installation, Inv. No. 337-TA-99 (May 1982), USITC Pub. No. 1246 (May 1982); Certain Alkaline Batteries, Inv. No. 337-TA-165, USITC Pub. No. 1616 (Nov. 1984), aff'd Duracell Inc. v. U.S. Int'l Trade Comm'n, 778 F.2d 1578 (Fed. Cir. 1985); Certain Dynamic Random Access Memories, Inv. No. 337-TA-242, USITC Pub. No. 2034 (Nov. 1987).

5 Molded in Sandwich Panel Inserts, Presidential Disapproval, 47 Fed. Reg. 19,485 (Jun. 28, 1981) (disapproving cease and desist orders as being less favorable and discriminatory on the purchase and use of imported products and as possibly not being in compliance with U.S. international obligations; resulting in modified order removing three specific cease and desist orders) aff'd Young Engineers Inc. v. U.S. Int'l Trade Comm'n, 721 F.2d 1305 (Fed. Cir. 1983); Dynamic Random Access Memory, Presidential Disapproval, 52 Fed. Reg. 46,011 (limited exclusion order disapproved because effect would extend beyond the respondent's products, resulting in modification of the exclusion order to limit the exclusion of downstream products to those manufactured by a respondent); Headboxes, Presidential Disapproval, 46 Fed. Reg. 32361-01 (Jun. 22, 1981) (disapproving general exclusion order where industry manufacturer and importers were few, resulting in issuance of a limited exclusion order, which was later reversed and remanded).

6 Welded Stainless Steel Pipe, Presidential Disapproval, 47 Fed. Reg. 17,789-90 (1978).

7 Batteries, Presidential Disapproval, 50 Fed. Reg. 1655 (1985).

8 U.S. Department of Justice and U.S. Patent and Trademark Office, Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary FRAND Commitments (2013), available at http://www.justice.gov/atr/public/guidelines/290994.pdf.

9 The letter cites the DOJ/USPTO policy statement's clarification that a refusal to negotiate "could take the form of a constructive refusal to negotiate, such as by insisting on terms clearly outside the bounds of what could reasonably be considered to be FRAND terms in an attempt to evade the putative licensee's obligation to fairly compensate the patent holder."

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