Counterparties: Obama’s off-message patent police

June 5, 2013

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As if on cue, the US International Trade Commission (ITC) has stepped into the larger debate on patents. Yesterday, the very day that President Obama announced plans to tackle the growing ranks of patent trolls, the ITC ruled against Apple in its protracted patent dispute with Samsung.

The result, which could be vetoed by President Obama or overturned on appeal, is that Apple will be barred from bringing certain older products sold by AT&T into the country. These include: iPhone 4, iPhone 3GS, iPad 3G and iPad 2 3G. The timing was appropriate: one of the Obama administration’s seven legislative recommendations on patent reform was to make it harder for the ITC to issue bans on imports because of patent issues.

The ITC has been a popular destination for high-profile patent cases in the last few years. That’s because, Timothy Lee writes, it is more “patent-friendly than district courts”. Florian Mueller calls the decision a “major surprise” and suggests the ITC is betraying  its “original mission to protect domestic industry against unfair imports.”

Lee has more background on the ITC’s expanded role in the consumer electronic sector:

The ITC is officially part of the executive branch, but it plays a quasi-judicial role in enforcing the nation’s trade laws. If the ITC determines that an importer has engaged in “unfair trade practices,” it can issue an “exclusion order” banning its products from the market.

That law has been on the books since 1922, but more recently the phrase “unfair trade practices” has increasingly been construed to include patent infringement. And because modern consumer electronics products are manufactured overseas, virtually all of those products are vulnerable to ITC exclusion orders.

Part of the reason that this case was so surprising, says patent lawyer Christopher Carani, is that the patent in question is a FRAND patent, which means it involves technology that helps a device conform to industry standards for connecting devices. Carani thinks that there’s a good chance Obama might veto the ruling, rare occurrence though that is. One IP lawyer told the WSJ that a presidential patent veto hasn’t happened since the Carter administration.

Apple has said that until the ban goes into effect, it won’t affect the availability of devices in the US. If the ruling does hold up, however, Piper Jaffray’s Gene Munster says it could cost Apple $800 million.  – Shane Ferro and Ryan McCarthy

On to today’s links:

Ugh
Why the Farm Bill is welfare for the wealthy – Mark Bittman

McMansions
America’s new houses are bigger than ever – Catherine Rampell

JPMorgan
JPMorgan’s debacle of a deal with Alabama may end up costing it $1.6 billion – Bloomberg

Crisis Retro
Synthetic CDOs are back — in a trend story kind of way – WSJ

Ouch
Did the SEC have an informal policy of not going after investment managers like Bernie Madoff? – Matt Taibbi

Wonks
“The best economists are well aware of their ignorance” – Noah Smith
The economic value of killer surf waves – Fortune

The Fed
A Fed official discovered America’s income inequality problem by visiting a job fair – Shahien Nasiripour

Alpha
Bernie Madoff’s new investment tips: buy index funds – MarketWatch
Quant hedge funds missed out on the predictably irrational reaction to Bernanke’s comments – FT

And, of course, there are many more links at Counterparties.

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