[Infowarrior] - As ITC mulls Xbox, iPhone import bans, Senators target patent system

[Richard Forno]

As ITC mulls Xbox, iPhone import bans, Senators target patent system

Senators ask if injunctions based on standard-essential patents should be valid.

by Jon Brodkin - July 11 2012, 1:30pm EDT

http://arstechnica.com/tech-policy/2012/07/as-itc-mulls-xbox-iphone-import-bans-senators-target-patent-system/

The International Trade Commission is currently considering whether to ban imports of Microsoft's Xbox 360 game console and Apple's iPhone. With that in mind, the US Senate Judiciary Committee this morning asked if more can be done to prevent tech companies from blocking sales of rival products by asserting patents that are critical to industry standards.

Judiciary Committee Chairman Sen. Patrick Leahy (D-VT) called representatives of the Federal Trade Commission and Department of Justice to the hearing. Leahy said in an announcement that the goal is to "further explore the competitive impact of ITC exclusion orders and whether more needs to be done to ensure consumers are not the victims of the tech patent wars." His statement specifically mentions the Xbox and iPhone, and the hearing occurred as the ITC is deciding whether to stop imports of those products based on the assertion of standards-essential patents by the Google-owned Motorola Mobility.

Why the ITC itself didn't appear at the hearing—or whether legislation will be filed to prevent the ITC from issuing injunctions based on standard-essential patents—isn't clear. Leahy hasn't filed any legislation on the matter. Today's hearing was an early step toward seeing if Congress can and should weigh in officially on the matter.

While non-industry-standard patents have been used to get sales bans against products like Android devices, the senators' concern is mostly about patents tech companies pledged to standards-setting organizations and then use to block sales of competing products. When a patent is accepted into an industry standard, the holder of the patent is obligated to license its technology to rivals under fair, reasonable, and non-discriminatory terms (FRAND).

The trouble is that FRAND terms haven't really been defined properly. Litigants can ask for what some might call unreasonable amounts of money. Motorola has demanded Microsoft pay royalties of 2.25 percent of the retail price of each Xbox 360 for the use of WiFi and video streaming patents. This is instead of applying that percentage only to the portion of the device using the infringing technologies, or simply asking for a lower rate. As senators today noted, tech companies are basically forced to build products that comply with industry standards. They shouldn't have to face import bans when patent holders ask for unreasonable amounts of money, too.

Leahy said a company could develop products assuming it will be able to get a license to all the relevant patents, and then "get the door slammed in your face."

"When inventors and developers are willing to license their technologies to one another at reasonable rates, the cross-fertilization of ideas benefits us all," Leahy said. "But I am concerned that the recent trend of seeking exclusion orders from the International Trade Commission, rather than negotiating and seeking license fees, may have the opposite effect."

FTC Commissioner Edith Ramirez noted that standards make it possible for smartphones to be compatible with cellular networks, connect to WiFi, and stream video. That makes them valuable. "Patents that cover technology adapted into a standard can empower their owners to demand higher licensing rates than if their patents weren't accepted into a standard," she said. The FTC is investigating Google's Motorola unit over its use of standards-essential patents.

The Supreme Court's 2006 decision in eBay v. MercExchange limited the circumstances in which injunctions can be issued against products that infringe patents. However, Ramirez said this decision applies to federal courts, and not the International Trade Commission. This explains why companies like Motorola turn to the ITC. In fact, the ITC can't award damages, so going to the ITC is a means of getting exclusion orders to ban imports of a product.

Still, Ramirez said the ITC is already empowered to consider FRAND commitments as a mitigating factor in such cases under public interest clauses. DOJ Acting Assistant Attorney General Joseph Wayland told the Senate Committee he agreed the ITC can consider FRAND obligations under its existing authority.

Senators asked if companies that pledge patents to industry standards groups should have to waive their right to use those patents to get injunctions. After all, making FRAND commitments implies the acceptance of money as the appropriate remedy.

However, both Ramirez and Wayland said there may be circumstances in which injunctions are appropriate—for example, when a company refuses to pay any licensing fee or is outside US jurisdiction. Those are rare, though.

"We do think in most cases an exclusion order (in FRAND cases) would be inappropriate," Ramirez said.

While the patent wars have been busy for quite some time, Wayland said the DOJ is not concerned so much about the volume of patent cases but about the type—namely, those that seek injunctions.

"Blocking a particular cell phone application could cause consumer harm across millions and millions of people," Wayland said. "It's the type of the practice we're concerned about, and not just the volume."

The standards-setting bodies involved in blessing FRAND patents—such as the IEEE, ITU, and ISO—are private organizations, Ramirez noted. "There are thousands of SSOs [standards-setting organizations], and we do monitor what is happening," she said. While she didn't say how the value of standards-essential patents should be calculated, she argued that the FRAND licensing prices should be negotiated prior to a standard being approved.

Although the topic of the hearing was FRAND patents, Leahy said he wonders if lawmakers can also stop harassment by patent trolls, companies that don't make technology of their own but buy patents to assert in lawsuits. "People who invent should be compensated," Leahy said. "I don't have a lot of sympathy for people who buy patents."

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