Samsung Electronics Co. (005930) wants the same favor from President Barack Obama that he gave U.S.-based Apple Inc. (AAPL) -- the right to keep importing smartphones and tablets found to infringe the other’s patents.
Unless the White House overturns an import ban against Samsung for infringing two Apple patents, the world’s biggest maker of smartphones will see certain older models locked out of the U.S. at midnight Oct. 8 Washington time.
The administration’s been in this position before. On Aug. 3, it overturned an import ban won by Samsung against older versions of Apple’s iPhone 4 and iPad 2 3G. The two companies are the biggest players in the $279.9 billion global smartphone market, according to data compiled by Bloomberg. Suwon, South Korea-based Samsung says blocking one competitor’s products while letting another’s remain on the U.S. market could be seen as pro-American bias.
“It’s frustrating for Samsung -- they won a big victory against Apple or so they thought,” said Jim Altman, of Foster, Murphy, Altman & Nickel in Washington, who represents Asian companies at the U.S. International Trade Commission, which issued the import ban. “The president gets rid of it. And then Apple wins a victory and the president says ‘tough cookies’?”
Samsung, which reported record third-quarter profit based on sales of its smartphones Oct. 4, has said any ban will involve a small number of handsets. It sold 32 percent of all smartphones worldwide in the second quarter, compared with 13 percent for Apple, according to data compiled by Bloomberg.
‘Favoritism, Protectionism’
“The world is watching how Samsung is treated by the United States in this ‘smartphone war,’” Samsung wrote Aug. 28 to Obama’s designee to review the case, U.S. Trade Representative Michael Froman. “The administration has a significant interest in avoiding the perception of favoritism and protectionism toward U.S. companies.”
Froman said in an interview with Bloomberg Television yesterday in Bali, Indonesia, that he hasn’t decided yet whether to issue Samsung a reprieve. He said he has made “absolutely clear” to the company and the South Korean government that decisions have “nothing, zero, to do with the nationality of the parties involved.” The decisions are made based on “policy judgments” over patents and “the appropriate use of exclusion orders in these cases,” he said.
Foreign companies are often concerned the U.S. legal system favors American companies, Altman said.
“I’ve never seen any evidence of xenophobia or ‘Get the foreigners’ or ‘Protect the Americans,’” Altman said of patent disputes at the commission.
Obama has the power to overturn import bans issued by the ITC on public policy grounds. The administration’s decision can’t be appealed, while companies can take the underlying patent-infringement finding to an appeals court.
Functionality Versus Features
Jung Dong Joon, a patent lawyer with SU Intellectual Property in Seoul, says it’s unlikely Samsung will succeed.
“There’s a little chance that the U.S. government will veto this time amid the government shutdown there now,” Jung said. “Samsung may have to take comfort from the fact that those that will be banned are old products.”
The cases against Apple and Samsung are different.
In rejecting an import ban on the iPhone models, Froman cited the Obama administration’s stated interest in limiting use of industry standards patents to block competitors. The Samsung patent involves a standard for transmitting data over networks.
In the Samsung case, the Apple patents are for features that the Cupertino, California-based company says differentiate the iPhone from other smartphones -- multitouch technology and headphone-jack detection. Samsung must persuade the White House that other public policy concerns are just as important.
Complex Devices
Samsung’s other arguments focus on two key issues -- an import ban shouldn’t be imposed when it involves one or two features of complex devices, and the ITC’s broad wording could lead to non-infringing products being halted at the border.
“Courts, scholars and industry participants agree that granting injunctive relief over an entire product based on the infringement of one or a few of these features disproportionately rewards the patentee at the expense of U.S. consumers,” Samsung told the trade representative.
The U.S. Court of Appeals for the Federal Circuit in Washington, which hears all patent appeals, is considering the standard for blocking sales of multifunction products after a jury finds a few features infringe patents. The ITC, which protects U.S. markets from unfair trade practices, doesn’t always follow the same rules as courts.
A federal judge in California allowed Samsung smartphones to remain on the market in 2012 after deciding the Apple patents at trial -- different from what the trade agency considered -- didn’t cover features that drove sales.
Design Around
Apple says it keeps and entices new customers by contrasting the look and ease of the iPhone, so it needs to stop competitors from copying those ideas. It told the appeals court that Samsung’s position is inconsistent -- it says the features are unimportant and yet wants to continue using them.
Since the Apple patents involved in the import ban cover features and not standards, Samsung was able to successfully design around those inventions, the ITC found. Those phones should be allowed to enter the U.S. unimpeded.
“The volume of products actually affected by the commission’s orders is perhaps small,” Samsung wrote.
Samsung reported operating profit rose to about 10.1 trillion won ($9.4 billion) in the three months ended September, citing demand in China, India and the Middle East for low-cost Galaxy smartphones. The company, which also makes washing machines, computer chips and televisions, didn’t provide a breakdown of division earnings.
‘Little Impact’
In addition to being Apple’s biggest competitor, Samsung also is one of Apple’s largest component suppliers. Eventually, the companies will have to reach an agreement.
“The market changes really fast while the patent fight takes longer, which is why any litigation fight has little impact on the market,” said Jeong Woo Sung, a patent lawyer at Lim@Jeong Patent Law Firm in Seoul. “Samsung may feel a bit ashamed, but Samsung should more actively seek an exit plan to end the dispute for its business with Apple in the long run.”
The Apple case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, and Samsung’s case is In the Matter of Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-794, both U.S. International Trade Commission (Washington).
To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Jungah Lee in Seoul at jlee1361@bloomberg.net
To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net
A man walks past an advertisement for Samsung Electronics Co. Galaxy Note 3 smartphone and Galaxy Gear smartwatch at the company's flagship store in Seoul. Photographer: SeongJoon Cho/Bloomberg
Samsung Banners
Krisztian Bocsi/Bloomberg
The Samsung Electronics Co. Ltd logo sits on banners flying outside the venue ahead of the opening of the IFA consumer electronics show in Berlin. Samsung, which reported record third-quarter profit based on sales of its smartphones Oct. 4, has said any ban will involve a small number of handsets.
The Samsung Electronics Co. Ltd logo sits on banners flying outside the venue ahead of the opening of the IFA consumer electronics show in Berlin. Samsung, which reported record third-quarter profit based on sales of its smartphones Oct. 4, has said any ban will involve a small number of handsets. Photographer: Krisztian Bocsi/Bloomberg
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