Blog Post

Obama stops the iPhone ban — but fails to fix the agency responsible for it

In one of its easiest decision to date, the Obama Administration used its veto power to prevent an iPhone(s aapl) shortage. From a political perspective, the decision was a no-brainer — but it’s a pity the White House didn’t go further and use the occasion to check the power of an agency that shouldn’t be trying to ban iPhones in the first place.

In case  you missed it, President Obama issued a last minute reprieve this weekend to halt an import ban on older versions of the iPhone and iPad, which were found to infringe a patent held by Korean rival Samsung. The import ban was imposed by the International Trade Commission, a little known federal agency that was created during the Great Depression and that oversees Customs Agents; more recently, it has bizarrely become a major front in the smartphone patent wars.

In the ordinary course of things, the ITC shouldn’t be meddling with patents in the first place. In recent years, however, lawyers have discovered the ITC as a way to hack America’s dysfunctional patent system — they’ve found that cases before the agency proceed at a faster clip than the court system and, even better for patent plaintiffs, the ITC has only one power: the nuclear option of a complete import ban.

It might make sense for the ITC to impose such a ban to stop counterfeit goods dumped into the United States by a shady foreign company. But in this case, the agency contrived to ban an American business (you may have heard of Apple) from selling products in America.

The ITC should never have tried this in the first place, and the Obama Administration should have taken action to ensure that it doesn’t try something so stupid again. Instead, the Administration issued a mushy letter saying the ITC should try harder next time in cases that involve a sub-species of patents known as FRAND patents (which encompass standards-essential technology that parties must license to each other).

This is a missed opportunity given that the White House could have used the announcement to boot the ITC from the patent game altogether. Companies would then have to take the fight where it belongs: before the courts. As a trade lawyer told the Wall Street Journal, Obama’s order to the ITC will only make the patent mess more complicated:

Indeed, the veto creates considerable uncertainty. Raymond Van Dyke, a lawyer who has argued cases before the ITC, said “the Obama administration’s overruling of the commission may well be a harbinger of things to come, or it may be an outlier, a once-in-a-few decades event.”

Instead of using its veto to create uncertainty, the White House could have issued some guidelines telling the ITC to butt out of patent cases. That’s what a lawyer for Verizon(s vz) recently recommended. In an op-ed, the lawyer said the President should tell the agency to stay away from not just FRAND patent cases but any situation where the infringing component isn’t that important to the overall product (which will almost always be the case with smartphones, which are covered by over 250,000 patents).

Instead, Obama’s whiffle ball response means the patent meat grinder will drag on, both in courts and at the International Trade Commission. Neither consumers nor productive companies like Apple are served by this situation. Instead, as the Wall Street Journal noted in a caustic editorial last week, there are only two winners:

As it stands, the only people who benefit from the ITC status quo are the lawyers clocking billable hours and the bureaucrats who can feel important by ruling over some corner of the economy.

Enough is enough. It’s time for the Obama Administration to show some leadership and drive the ITC out of the patent game.

11 Responses to “Obama stops the iPhone ban — but fails to fix the agency responsible for it”

  1. triangle8

    Your analysis fails to incorporate the fact that Obama himself went to law school and is in the pocket of lawyers, just like most of Congress. He’s not going to bite the hand that feeds him. Why do you think there has never been tort reform?

  2. oletros

    “But in this case, the agency contrived to ban an American business (you may have heard of Apple) from selling products in America.”

    By the way, if the ITC grants an injunction for Samsung products in the case Apple against Samsung, will you write an opinion piece like this?

  3. ViewRoyal

    Either way, this decision would have very little economic affect on Apple, since the iPad 2 and iPhone 4 (the older models that would have been banned) were going to be discontinued for sale next month anyway.

    The real importance of this decision is that although Samsung has been penalized heavily in other jurisdictions for using the same tactics (using SEPs as bargaining chips in cases where Samsung was found guilty of infringing other company’s, primarily Apple, patents and intellectual property), the USITC did not do this.

    By correcting this judgemental error, Samsung has been shown that they have no support in continuing to withhold SEPs, or using them as ransom.

  4. Contrary to popular belief, and the apparent beliefs of President Obama himself, for the most part the President of the United States doesn’t have the power to change laws. What you’re suggesting would almost certainly require an act of Congress which would then need to be signed by the President to become effective (or a veto override by Congress).

    • Kary, you’re correct that getting the ITC out of the patent game altogether would require an Act of Congress. The Obama Administration can achieve near the same result, however, by issuing guidelines to say it will exercise its veto power anytime the ITC is used for silly patent ends

      • That would be a clear abuse of executive power, IMHO. Unfortunately the executive branch constantly tries to claim powers it doesn’t have, and Congress is far too slow in slapping it down, even when the opposite party is in power.