Ambassador Michael Froman – the U.S. trade representative – and the Obama administration created much buzz last week by overturning a June decision from the U.S. International Trade Commission (ITC) that would have prevented Apple from importing the iPhone 4 and certain iPads into the United States. The executive decision brings to a swirling head numerous troubling issues in the cross-governmental-branch battle instigated by Samsung and Apple in their ongoing strategic legal battle for mobile device market supremacy in the U.S.
Have Apple, Samsung, the ITC and the executive branch finally pried the lid off Pandora’s Box or have they tactfully attempted to close it?
What is the ITC and why is Samsung v. Apple There?
The ITC is a “quasi-judicial” agency of the federal government tasked by Congress with numerous responsibilities and granted various powers to enforce and advise upon international trade issues affecting U.S. markets. Among its responsibilities, the ITC is tasked under its “Section 337″ (19 USC §1337) for protecting U.S. markets from harm brought about by imports of goods that, among other fouls, infringe U.S. intellectual property rights, including patents.
In recent years, numerous patent holders have chosen to bring cases of alleged patent infringement to the ITC seeking issuance of an “exclusion order” relating to the accused imports. If granted, an exclusion order instructs U.S. Customs to seize the identified goods at the U.S. border and preclude them from entering the country. In effect this achieves the same outcome as a complete victory in more typical patent litigation. However, such an outcome through patent litigation typically involves several years of litigation, millions of dollars in legal fees, extended, costly discovery and – since the 2006 case of eBay v. Mercexchange – hard-to-come-by injunctive relief granted by the court.
Litigants view the ITC as a faster, less expensive means of achieving this powerful position, with the added bonus that exclusion orders are enforced by the federal government as opposed to enforcement of a judicially issued injunction, which if granted in the first place and then violated, requires the party to return to court to seek enforcement.
Clearly Samsung felt an ITC action was the better strategic choice in its attempt to assert its U.S. patents to block Apple’s sales in the U.S. But Samsung had to know, even in victory, that an executive override was a possible result. Did Samsung calculate and assume the risk?
Executive Override Power of ITC Orders
Under 19 USC §1337, ITC exclusion orders are subject to review and “disapproval” by the executive branch. After issuance of the order, the President or his delegate (currently the U.S. Trade Representative) has sixty days to override the order, generally based on public policy concerns of harm to a domestic industry. However, such disapproval is exceedingly rare. In the history of the ITC, the executive branch had disapproved of only five exclusion orders prior to this weekend’s disapproval and had not done so since 1987.
- Presidential Determination of April 22, 1978, 43 Fed. Reg. 177898 (April 22, 1978) (disapproval of Inv. No. 337-TA-20);
- Presidential Disapproval of Determination of the U.S. International Trade Commission in Investigation No. 337-TA-82, 46 Fed. Reg. 32361-01 (June 22, 1981);
- Determination of the U.S. International Trade Commission in Investigation No. 337-TA-99, Certain Molded-In Sandwich Panel Inserts and Methods for Their Installation, 47 Fed. Reg. 29919-02 (July 9, 1982);
- Determination of the President Regarding Certain Alkaline Batteries, 50 Fed. Reg. 1655-01 (Jan. 11, 1985) (disapproval of Inv. No. 337-TA-165);
- Presidential Disapproval of a Section 337 Determination, 52 Fed. Reg. 46011-02 (Dec. 3, 1987) (disapproval of Inv. No. 337-TA-242).
Did Samsung simply see the benefits of quick resolution, government enforcement and exceedingly rare Presidential override as a risk worth taking? It certainly seems that way. But one further fact, identified or not, has to sting Samsung greatly – executive disapproval of a Section 337 exclusion order is not appealable. After a complete victory at the ITC, Samsung has lost its case.
Why Did the Obama Administration Step In?
Did the Obama administration simply bow to corporate lobby pressures from Cupertino or is something more calculated at the heart of this rare exercise of executive oversight? As a basis for his disapproval, Ambassador Froman cited exertion of “undue influence” from patent rights. At first blush this is counter to the exercise of patent rights and free markets. After all, a patent is not just a legal, government-approved limited monopoly for the patented invention; it’s one that originates in the text of the Constitution itself. The purpose of patents is to exert the influence that comes as a reward for inventiveness in order to benefit the inventor and encourage further invention. Critics will urge us to quickly accept that this is a protectionist action of an executive branch under the undue influence of big business financial power. But a larger scheme may be in motion here.
In recent months the Obama administration has been very vocal about patent reform. From patent trolls to forum shopping, the administration has expressed several standpoints on the patent litigation landscape that are largely, agreeably beneficial regardless of political bent, financial position, etc. The latter of these – forum shopping – may be at play.
Statistics overwhelmingly show, regardless of corporate domicile or factual nexus, the filing of patent actions in federal district courts in the District of Delaware based on its speed and patent expertise, and the Eastern District of Texas based on its staggering willingness to rule for patent plaintiffs. Patent plaintiffs have also shown a major trend toward patent enforcement through the ITC for the reasons discussed above. But along with increased speed and reduced expense, this act of forum shopping into the ITC also stems from avoidance of the heightened burden required for acquisition of injuctive relief in judicial patent actions after the Supreme Court’s 2006 holding in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).
As quoted in Ambassador Froman’s disapproval letter, the legislative history of Section 337 guides the President to consider the effect of an exclusion order on “competitive conditions in the U.S. economy.” The Obama administration has simply seized upon the Samsung v. Apple case, not so much for its particular merits, but more as a good vehicle for tamping down heightened litigation risk for companies contributing to the U.S. economy. By disapproving the Apple exclusion order, the Obama administration waters down incentive for litigants to forum shop into the ITC where they may seek the equivalent of injunctive relief without meeting the 4-point burden for injunctions extended to patent cases under eBay. As a corollary, the rejection of the exclusion order reduces the costs of managing litigation risk for potential defendants as they will be less likely to face conflicting bodies of rules depending upon the forum in which they are accused.
Evidence of this goal is apparent in the disapproval letter itself, in which Ambassador Froman summarizes:
My decision to disapprove this determination does not mean that the patent owner in this case is not entitled to a remedy. On the contrary, the patent owner may continue to pursue its rights through the courts.
The message, though obscured by the commotion of feverish discussion around it, could not be more clear. The Obama administration has fired the first shot – and a loud one – in its battle for patent litigation reform and it is aimed squarely at quelling litigation forum shopping.