A Blog by Jonathan Low


Aug 5, 2013

Home Field Advantage: The Implications of Obama Vetoing the ITC Ruling Against Apple

In sports, when a referee appears to be making more calls in favor of the home team than the visiting opponent, it's called home field advantage, or sometimes, home cooking.

When President Obama issued the first veto in 26 years of an International Trade Commission ruling, in this case, overturning the ITC's finding in favor of Samsung over Apple, the sports analogy seemed appropriate.

The President's action was an act of blatant favoritism for an iconic American company whose reputation as a font of innovation has suffered of late.The ITC ruling suppported Samsung's claim that Apple had violated some of its patents and, in effect, suggested that in the all-too-crucial mobile and tablet markets, might be a copycat rather than a leader.

The immediate result was that Samsung lost a cool $1 billion in market value, suggesting that this relatively new-found intellectual property obsession is being followed closely by the capital markets. The decision smacked of blatant favoritism and might well undercut US calls for stronger global intellectual property protections. But President Obama's decision also supports.recent US judicial findings increasingly skeptical of the rights of patent holders over those of entrepreneurs and other innovators. The courts appear to believe that the patent lobby has repeatedly overstepped its bounds, to the detriment of innovation as a stimulant of economic growth.

The ruling may cause companies to reduce their reliance on patents - adjudicated through the ITC - as an obstruction to protect market share or competitive advantage rather than as a source of new development. But whatever the ultimate impact, by stepping in and blowing the whistle (might as well wallow in the sports analogies at this point), the US has signaled that national self-interest remains a significant factor in determining outcomes. JL

James Politi and Richard Waters report in the Financial Times:

President Barack Obama’s move to overturn a looming import ban on older iPhone and iPad models – favouring Apple over Samsung in a long-running legal battle – risks undermining the US administration’s aggressive push for stricter intellectual property regimes around the world.

The office of the US trade representative announced the decision on Saturday, reversing a ruling by the International Trade Commission, a government agency which in June had found that Apple had infringed a Samsung technology patent.
Michael Froman, USTR, said the veto by the White House – the first of its kind by a president since 1987 – came after a review of “the effect on competitive conditions in the US economy and their effect on US consumers”.
The decision – which allows Apple to keep selling cheaper versions of the iPhone 4 and iPad 2 in the US – is striking because it comes as the US has embarked on a big push to tighten rules on patents in global trade negotiations.
“I think it’s likely the decision will be used as an excuse by other countries that don’t want strong patent enforcement,” said Bill Reinsch, president of the National Foreign Trade Council, a business lobby group that champions trade liberalisation. “The circumstances are different – in particular, the US has employed an extensive legal process, and Samsung can continue to pursue the matter in court – but other countries are likely to ignore the differences,” Mr Reinsch said.
The US is pushing for tougher intellectual property rules in regional trade talks with 11 other Pacific Rim countries known as the Trans Pacific Partnership, but also in bilateral discussions with large emerging market nations including China and India where US business has complained about lax protection of IP rights.
Some of the leading US technology companies are worried that Washington’s support of Apple could hurt their own interests around the world. It would be seen in China and elsewhere as an excuse to disregard US intellectual property rules, warned Horacio Gutierrez, chief patent attorney at Microsoft, who was speaking in the run-up to this weekend’s decision.
Ron Cass, a former vice-chairman of the ITC, said that overturning the agency’s ruling would “come to be seen as a mistake – it undermines protection for intellectual property.”
The action would only have been justified if the technology was key to national security or the country’s communications infrastructure, he said. “The least justifiable time to intervene is when you have two commercial players who are direct competitors fighting over standard consumer products.”
In response, a US official on Sunday pointed to a section of Mr Froman’s statement on Saturday. “The administration is committed to promoting innovation and economic progress, including through providing adequate and effective protection and enforcement of intellectual property rights,” Mr Froman wrote.
Some intellectual property experts in Washington said they did not believe the Apple import ban veto by Mr Obama would have a big impact. “Given how egregious IP theft is in many other nations and how central it is to their industrial strategies, I don’t believe that the administration’s action will have significant negative effects on our efforts to get these nations to respect intellectual property rights,” said Rob Atkinson, president of the Information Technology and Innovation Foundation.
But critics of the Obama administration’s approach to intellectual property in trade negotiations say the White House’s case has grown weaker and lacks consistency.
“If open technology standards benefiting the public interest are the rule for smart phones, why not for life-saving pharmaceuticals? Why not for other innovations that would improve the lives of billions of people around the world?,” asks Adam Hersh, an economist at the left-leaning Center for American Progress.
“The decision shows the untenability of stringent IPRs to which so many US trading partners have objected on social welfare grounds. The onus is now on [Mr] Froman to explain why this is good for American consumers, but not for the rest of the world,” Mr Hersh added.
Meanwhile, some in Washington were concerned about the message the Apple decision sent on foreign investment.
“US and international patent laws play a critical role in global competition. However, it is crucial to ensure that the president’s prerogative is used when the merits of the case warrant, and not to simply advantage a US company over a foreign competitor,” said Nancy McLernon, president of the Organization for International Investment, which represents US subsidiaries of foreign companies, including Samsung.
The Obama administration’s move to side with Apple comes little more than two months after the smartphone giant faced heavy scrutiny on Capitol Hill over its tax structure – in particular its use of subsidiaries in Ireland to minimise its global tax bill. But the attacks on Apple were largely confined to the Senate subcommittee that investigated the tech group, and the White House refrained from criticism of a company that is seen as a beacon of US innovation.


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