Samsung had already appealed [PDF] the portion of the ITC Opinion that denied it relief against Apple regarding the mainly non-FRAND patents the ITC ruled Apple did not infringe, and in connection with that appeal, we find the complete public version of the ITC Opinion [PDF] that the President just overruled attached as an exhibit. It's long, 162 pages because there is an appendix bundled in that same PDF, but I want to show you a few excerpts from the opinion that I hope will demonstrate to you, as they do me, that Apple's pardon was not based on Apple being the good guy in this picture. The ITC found otherwise on the facts in the record. In fact, the ITC specifically states in the opinion that Apple failed to prove that Samsung had violated any FRAND obligation.
The pardon, therefore, couldn't have been due to concern about patent hold-up, as was stated [PDF], since the ITC specifically found that Samsung had negotiated with Apple in good faith, had already licensed the '348 patent to over 30 companies, and that it was, in fact, Apple that illustrated the danger of reverse hold-up. Further, the opinion stated, Apple not only failed to prove that Samsung violated any FRAND obligation, it failed to establish even what they are. Further, Apple conceded in its ITC briefing that FRAND patent holders are not barred from seeking injunctions, and in fact since Apple argued to the ITC that the '348 patent was not really essential, this would mean that Samsung had no FRAND obligations, due to the wording of the ETSI terms.
So, it was a bit like the papal special dispensations of history, where the law said X, but you are let off the hook from having to keep it. That makes Apple's reported public response particularly offensive, when it said, "Samsung was wrong to abuse the patent system in this way." Samsung didn't abuse the patent system. It was, as you will see, exactly the opposite, according to the ITC Opinion. And while the President can do whatever he wishes regarding public policy, the ITC followed the statute, since it has no policy powers. In short, one unavoidably must conclude that if Samsung had been the US company and Apple the Korean one, there would have been no pardon. That's the bottom line, I'm afraid. As Jamie Love tweeted, "What Froman and USTR will now have to explain is why India and other countries can't also consider public interest in patent cases." As I'll show you, one of the things the ITC considered was public comments warning that changing the terms for FRAND patent owners would make sweeping changes to trade laws, and Korea has already registered its concerns. I'm all for reforming the patent system, as you know, but if you want to reform it, how about making it *more* fair, not less? Playing favorites based on country of origin doesn't aim for that noble goal. It's indisputable that this has harmed Samsung, and since the ITC, which examined the facts in detail, found it was the innocent party in this picture, what can be the justification for Apple's comment?
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Update, Update 2
Samsung argued to the ITC that the problem of reverse hold-up was that infringers can thwart patent owners from remedies that are meaningful simply by stating that they don't think the offer was FRAND. What is reverse hold-up? The opinion explained:
Apple also criticizes Samsung for tying some of its license offers to the settlement of litigation. We find Apple's argument to be somewhat hypocritical. The following sentence from Apple's submission to the Commission on April 10, 2013, indicates that Apple has no intention of paying Samsung any royalties until after the conclusion of litigation:That is, of course, what the presidential pardon effectuated, purportedly based on the danger of FRAND patent hold-up. The actual danger of hold-up, the ITC found on the record, was theoretical, not actual, and while it might occur in the wild somewhere someday, Samsung wasn't guilty of it:If the Commission were to determine that the '348 patent is valid, infringed, and enforceable -- and it should not for all the reasons the ALJ found and Apple previously briefed -- and if that judgment were affirmed on appeal, Apple would stand ready to pay FRAND royalties.Resp. Apple Inc.'s Reply Submission at 20 (April 10, 2013) (public version April 12, 2013).
Apple's position illustrates the potential problem of so-called reverse patent hold-up, a concern identified in many of the public comments received by the Commission.20 In reverse patent hold-up, an implementer utilizes declared-essential technology without compensation to the patent owner under the guise that the patent's owner's offers to license were not fair or reasonable. The patent owner is therefore forced to defend its rights through expensive litigation. In the meantime, the patent owner is deprived of the exclusionary remedy that should normally flow when a party refuses to pay for the use of a patented invention….
Samsung can hardly be accused of patent hold-up when it has licensed its declared-essential patents -- including the '348 and '644 patents -- to more than 30 companies.
20 Commissioner Aranoff does not join this paragraph.
Apple and some public commenters have also argued that issuing a remedy for a patent owner that has breached its FRAND obligation would result in patent hold-up, undermine SSOs, and thereby harm competitive conditions in the U.S. economy and U.S. consumers. Whatever the merits of such arguments, they are inapt to the facts of this investigation. As we have determined above, Apple has not proved that Samsung violated a FRAND obligation, and Samsung has widely licensed the '348 patent. We need not decide here whether some future investigation showing evidence of patent hold-up or of harm to SSOs would require a different analysis.23Apple conceded, by the way, to the ITC that the standard body ETSI, which is the body that the Samsung '348 patent was donated to and comes within its terms, does not bar seeking injunctions: "Apple's own briefing admits the ETSI IPR Policy does not expressly forbid injunctions." In fact, the order states that one Apple witness testified that there have been several attempts to introduce such language into the ETSI IPR Policy, prohibiting patent owners from seeking injunctive relief for FRAND patents, but all such attempts have failed. That's on page 47 of the order, page 50 of the PDF. And Qualcomm, in its public comments -- and all of the public comments submitted are summarized by the ITC beginning on page A17, page 139 of the PDF -- explained that ETSI members "have consistently rejected attempts to curtail the ability of FRAND declarants to seek injunctive relief." So the order concludes, based on the record, that it couldn't accept Apple's argument that the infringement of a declared-essential patent can't be a violation of section 337.
23 Commissioner Aranoff observes that, as summarized herein, many commenters assert that issuing an exclusion order (or any form of injunctive relief) based on infringement of a FRAND encumbered patent enhances the patentee's ability to engage in hold-up, which in turn would make patent owners reluctant to participate in SSOs, ultimately reducing interoperability, innovation, and consumer choice. Other commenters argue the opposite: that denying owners of FRAND encumbered patents access to injunctive remedies gives implementers the incentive to engage in so-called reverse hold-up, with similarly adverse effects on SSOs, interoperability, innovation, and consumer choice. With very limited exceptions, none of the parties or commenters submitted any evidence that either result has actually occurred in the market. See, 1442:16 (Walker). Absent empirical evidence of actual harm to consumers or innovation, what remains are policy arguments that the risk of hold-up occurring is sufficiently great to warrant denying an exclusion order to Samsung in this investigation. The Commission is not a policy-making body and is not empowered to make that decision. The parties are free to raise these arguments to the President during the 60-day review period. 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.
But what if the Seattle judge, Judge Robart, in the Microsoft v. Motorola case, is right, and disputes about FRAND patents are and should be analyzed as a contract case? Apple still can't prevail, the ITC stated, because "Apple has not identified the basic elements necessary to prove a contract: the parties, the offer, the acceptance, the consideration, and definite terms." Like agreeing that injunctions are forbidden, for example. But that never happened.
Worse, the ITC found, Apple never identified "what the specific obligations may be that flow from Samsung's FRAND declarations" and before you can prove a breach, a party has to "prove what the obligation is." File that under Duh. If it's a contract, there have to be spelled out what each side is obligated under the contract to do and not do. Here, that never was demonstrated. And neither courts nor regulatory bodies can just guess:
Even if the Commission were inclined to sua sponte attempt to interpret Samsung's FRAND declarations (which it is not), we would not be able to reach any definitive conclusion about Samsung's obligations based on the record of this investigation. Samsung's declarations to ETSI state that '[t]he construction, validity and performance of this DECLARATION shall be governed by the laws of France."…That choice of law provision should be honored….The parties agree, however, that at the hearing in this investigation Apple presented no evidence of how "the laws of France" would view Samsung's obligations with respect to declared-essential patents in this forum. Without such evidence, the Commission cannot determine what Samsung's legal obligations may be and whether those obligations have been breached.10Here's how the Innovation Alliance, in its public comment, argued that to deny injunctions based on FRAND would make sweeping changes to US trade laws, as described by the ITC Opinion:
10 In Order No. 47, the ALJ determined that under French law, price is a necessary term for the formation of a contract and that Samsung's FRAND declaration did not grant Apple a constructive license to the '348 and '644 patents. See id. at 37. By failing to petition for review of the order in its petition for review of the final ID, Apple waived any challenge to the ALJ's conclusions.
Innovation Alliance is a coalition of companies that seek to "protect the integrity of the U.S. patent system." Innovation Alliance argues that to deny exclusion orders based on infringement of standard-essential patents would make "sweeping changes" to U.S. trade laws based on "the mere possibility of potential harm, and without any actual evidence of harm to U.S. consumers." Innovation Alliance notes that critics of exclusionary remedies for infringement of standard-essential patents, including the FTC, base their arguments on the potential problem of so-called "patent hold-up." Innovation Alliance cites at least eight sources, including scholarly publications, that find little evidence that patent hold-up is actually a problem. Innovation Alliance notes that litigation involving declared-essential patents is not necessarily evidence of patent hold-up.
Innovation Alliance also asserts that barring the availability of exclusion orders for infringement of standard-essential patents will have negative consequences. An implementer of standardized technology will have little motivation to bargain in good faith with patentees because litigation can defer payment of royalties. Further, participants in SSOs would have fewer patent rights than non-participants, which would result in fewer innovators participating in SSOs.
Qualcomm pointed out that ETSI only imposes obligations to offer a FRAND license "to the extent that the IPR(s) are or become, and remain ESSENTIAL" to practice the standard. So if Samsung's patent is not essential to the 3G standard, Samsung has no FRAND obligations at all. And so, as Qualcomm argued in its public comment, because Apple argued to the ITC that Samsung's asserted patents are not essential, Qualcomm contended that Apple's claim that Samsung has breached its FRAND obligations rings hollow. That's on page 134 of the PDF, A12 of the document. Not only that, but changing the rules after the fact of donation in effect penalizes patent owners for making FRAND commitments, which inevitably reduce participation in standards bodies, and the effect of that will be harm to consumers from the resultant proliferation of non-complementary technologies.
In short, a policy decision was made, but without question, Samsung got the wrong end of the stick through no fault of its own, without deserving to be called names by Apple, which apparently learned nothing from the UK incident, where it was sanctioned by the court, forced to correct the record on its website after falsely accusing Samsung there.
Update: Matt Rizzolo of The Essential Patent Blog analyzes the letter differently, with the result that he wonders if there could be a way for Samsung to still seek an injunction at the ITC. Here's some context, first, on his thinking:
The letter clearly states that exclusion orders may be available as a remedy for FRAND-encumbered SEPs in some circumstances, so this does not appear to represent a complete bar on SEP cases at the ITC. The letter concludes with a statement that the decision is “not … a criticism of the Commission’s decision or analysis” (although there plainly seems to be something he disagrees with). He also notes that while that while Apple and Samsung vigorously dispute the FRAND-related facts of this case, “it is beyond the scope of this policy review to revisit the Commission’s analysis or its findings based on its record.” Nevertheless, Ambassador Froman states that he decided to disapprove of the remedy issued by the ITC based upon his review of the various FRAND-related policy considerations as they relate to the effect on competitive conditions in the U.S. economy and the effect on U.S. consumers. The question many are asking is, what could the ITC (and/or Samsung) have done differently to avoid this disapproval?Rizzolo acknowledges that the ITC did ask for exactly that from the parties. However, after all that briefing, the Commission still wrote that there was still one issue in dispute -- whether or not the patent at issue was in fact standard-essential. "This is one issue where the USTR now seems to be requiring a particular finding regarding essentiality or non-essentiality," Rizzolo writes.
The penultimate paragraph appears to provide some guidance for the Commission in evaluating FRAND issues in current and future cases. Here, the USTR calls for the ITC to:The USTR notes that the Commission should endeavor to “make explicit findings on these issues to the maximum extent possible,” and that he will look for these elements in future policy reviews of decisions made in FRAND-encumbered SEP cases. And it seems that the USTR is placing the burden squarely on the ITC itself to bring up these issues sua sponte, even if the parties haven’t fully addressed them for whatever reason. In the future, we may see more public interest fact-finding in FRAND-related Section 337 proceedings delegated to the ALJs, so that a more robust record can be developed.
- Examine thoroughly and on its own initiative (emphasis added) the public interest issues presented at the outset of its proceeding and when determining whether a particular remedy is in the public interest; and
- Seek proactively to have the parties develop a comprehensive factual record related to these issues in the proceedings before the ALJ and during the formal remedy phase of the investigation, 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 (i.e., licensee “hold-out”).
Maybe, Rizzolo argues, the issue is simply that there was insufficient detail, because the COmmission certainly did address the issues to some extent:
But note that the Commission (beginning at p. 52 of its opinion) also considered in the alternative the merits of Apple’s FRAND defense — assuming (1) that the patent at issue was essential to the standard, (2) the FRAND obligation applied, and (3) that the FRAND obligation was legally enforceable. In doing this alternative analysis, the ITC analyzed the history of the Samsung-Apple negotiations, finding that Apple did not prove that Samsung failed to negotiate in good faith for a FRAND license. As to the issues of patent hold-up and reverse hold-up, the Commission found (on pp. 62-63) that Apple may have been engaged in reverse hold-up, while it noted (on p. 66) that “Samsung can hardly be accused of patent hold-up when it has licensed its declared-essential patents…to more than 30 companies.”And if it is possible the Commission didn't address all the issues sufficiently to satisfy, it raises an intriguing question:
It seems at least arguable that the Commission in the -794 case did address the issues cited by Ambassador Froman, at least to some extent. But perhaps the ITC’s analysis was not thorough, comprehensive, and explicit enough, and its assignment of the burden of proof on FRAND issues to Apple seems to have not been well-received by the USTR (although assigning the FRAND burden to the accused infringer was long the practice of the ITC and continues to be the case in district courts).
This in and of itself raises an interesting question — could Samsung now ask the Commission to make further, more detailed findings of fact relating to the FRAND issues in the -794 case, in an attempt to satisfy the standards set forth in Ambassador Froman’s disapproval letter? It may not be out of the question — the disapproval only relates to the exclusionary relief already issued by the ITC, and doesn’t categorically bar any future potential relief. In prior cases involving Presidential disapproval of ITC exclusion orders, the ITC has in fact issued modified exclusion orders after the inital exclusionary relief was vetoed.Personally, I think the letter's issues were pretextual, not substantive, which is why they don't really match the facts, almost as if the Commission's opinion wasn't even read carefully because the decision was already written in the stars. If I'm right, then Samsung trying another shot will simply result in more pretextual "reasons" why it can't prevail, but Rizzolo is a patent lawyer and I'm not, so what do I know in comparison? So, there it is, a possible way for Samsung to move forward.
Update 2: Michael Philips in The New Yorker, in an article titled Obama’s Apple Rescue, adds to the pro-Apple myth-building about this somehow being Samsung's fault, by writing:
But Samsung overplayed its hand. During the I.T.C. process, Apple argued that Samsung would only issue a license for the ’348 patent in exchange for a license to Apple’s nonessential patents—the patents covering the technologies that make the iPhone special and different from, say, Samsung’s phones. This demand, to essentially tie the licensing of Samsung’s standard-essential patent to Apple’s nonessential ones, earned Samsung a blistering dissent from one commissioner of the I.T.C.That is absolutely not the case. Samsung didn't overplay, according to the ITC, which in its opinion stated that Samsung did nothing wrong by doing so, that it was standard and reasonable to seek a cross-license:
Apple also criticizes Samsung's attempt to negotiate a cross-license of both parties' mobile telephone patent portfolios. We cannot say that Samsung's offers in this regard are unreasonable. The record contains evidence of more than 30 Samsung licenses that cover the '348 and '644 patents. See RX-173C, RX-178C, RX-188, RX-189C, RX-191C, RX-193C to -209C, RX-421C, RX-423C. All of those licenses include a cross-license to the licensee's portfolio. That evidence supports a conclusion a portfolio cross-license offer is typical in the industry and reasonable.Some folks want to pretend that Samsung did something to justify the presidential pardon, but what it did was be a non-US company trying to get a fair shake in a US context.
Apple has offered no evidence to suggest that such portfolio cross-licenses are atypical in the industry. 19 In fact, Apple's own witness on ETSI policies affirmed that ETSI anticipates cross-licensing may be part of the process of negotiating a FRAND license between two parties. See Tr. at 1443 (Walker). Additionally, the negotiating history recounted above shows that Apple has made cross-license offers to Samsung.
We also note that commentators have stated that an offer to cross-license both parties' patents may be consistent with a FRAND obligation, for example:The obligation to make a FRAND offer does not prevent the standard-essential patent owner from entering into an alternative licensing arrangement, such as a portfolio cross license, with an implementer ofthe standard. It will often make sense for private parties to enter into a deal that reflects their specific circumstances.Lemley, Mark A. and Shapiro, Carl, A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents Stanford Public Law Working Paper No. 2243026, 5-6, 17 (March 30, 2013), available at http://ssrn.com/abstract=2243026. That approach appears consistent with the expectations of ETSI, as has been explained on the record in this investigation. See Tr. at 1443 (Walker). Moreover, the ETSI declarations Sarnsung executed specifically contemplate that a FRAND license will invoive "terms and conditions," not just a royalty rate. See RX-723.
[A] FRAND offer to a party that owns standard-essential patents can be made conditional on the would-be licensee itself making a reciprocal FRAND offer.
19 The Commission notes that none ofthe licenses submitted in this investigation are to a single declared-essential patent, rather they are all pmtfolio cross-licenses, in some instanaces covering [[ ]] . See RX-173C, RX-1 78C, RX-188, RX-189C, RX-191C, RX- 193C to 209C, RX-421C, RX-423C. In addition, [[ ]], the record supports a conclusion that a common industry practice is to use the end-user device as a royalty base. Id.