[A2k] FT Inside Business-Obama veto leaves patents under a cloud: Owners of standard-essential patents lose a vital bargaining chip

Thiru Balasubramaniam thiru at keionline.org
Thu Aug 8 01:53:49 PDT 2013


INSIDE BUSINESS

August 7, 2013 6:19 pm

Obama veto leaves patents under a cloud

By Richard Waters

Owners of standard-essential patents lose a vital bargaining chip

President Barack Obama’s intervention in the legal wrangling between
Apple<http://markets.ft.com/tearsheets/performance.asp?s=us:AAPL> and
Samsung <http://markets.ft.com/tearsheets/performance.asp?s=kr:A005930> may
just have tipped the balance of advantage in the wider smartphone patent
wars. It is also likely to affect the emergence of new technology markets
in the future – though whether it will help or hinder them is not yet clear.

Those have been the tech industry’s first reactions to last weekend’s
rare presidential
action in favour of
Apple<http://www.ft.com/cms/s/0/7321bf0a-fc6b-11e2-95fc-00144feabdc0.html>.
An exclusion order issued by the US International Trade Commission looked
set to bar imports from Asia of some older models of the iPhone and iPad,
until Mr Obama stepped in and overruled it.

The case involved Samsung intellectual property that all smartphones rely
on to communicate over wireless networks – making it, in the jargon of the
industry, a standard-essential patent. Companies with patents such as this
have a special responsibility and shouldn’t use them to block rivals, the
Obama administration said. The message: owners of such patents just lost a
vital bargaining chip.

Three things are likely to flow from this.

The first is that the value of patent portfolios with a heavy element of
standard-essential IP in them will fall. The losers are companies like Qualcomm
<http://markets.ft.com/tearsheets/performance.asp?s=us:QCOM>and,
ironically, Google<http://markets.ft.com/tearsheets/performance.asp?s=us:GOOG>;
Motorola, which it acquired to get into the patent game, also owns
technology foundational to the wireless industry. Licensees may seek to
scrap old agreements if they think they could now negotiate lower licensing
fees.

The Obama administration’s defanging of the ITC was the latest in a series
of actions that have robbed patent holders of ways to force other companies
to pay up. Antitrust regulators on both sides of the Atlantic have been
leaning heavily on them to be freer in their licensing.

One reason the ITC has become such an important venue for patent cases is
that US district courts have been less willing to issue injunctions
blocking sales of infringing products. So it is ironic that Apple is about
to find itself arguing publicly for more stringent sales bans: on Friday, a
US appeals court will hear its argument for an injunction in a separate
case against Samsung, in which the South Korean company has already been
found to have infringed Apple’s IP.

The second result of the Obama veto is that the smartphone patent wars are
likely to drag on longer than they otherwise would have – though there is
also less danger that they will turn out to be disruptive for consumers.

A ban on some Apple sales in the US had been seen as a strong incentive to
get the rival smartphone makers back into their on-again, off-again
settlement negotiations. With the legal risk diminished, so too has the
pressure for a deal – though Samsung may feel the heat should another ITC
case due to conclude Friday be decided in Apple’s favour.

In future, any company negotiating a licence on standard-essential
technology has every incentive to drag out the process through the courts,
said one person familiar with the Samsung case. Even if they were to lose,
the worst result would be much the same licensing deal they would have
struck at the outset, plus legal fees.

For consumers, meanwhile, there is less risk of sales bans that result in
gadgets being taken off the shelves, or of big new licensing fees that add
to the cost of handsets. The Obama administration gave only the most
broad-brush explanation for exactly why it overturned the ITC ruling, but
if these are the short-term benefits it had in mind, it seems likely to be
successful.

The third outcome is harder to predict. It relates to the longer-term
changes in behaviour in the tech industry that will result from resetting
the rules around patent enforcement – in particular, what impact it will
have on the emergence of new technology markets.

If the balance has tipped away from companies that hold standard-essential
patents, some lawyers argue that they will be less inclined to submit their
IP for inclusion in standards. Keeping their “crown jewel” technologies to
themselves would give them much more bargaining power with rivals. But it
might also lead to more fragmentation and a lack of interoperability in new
technology markets, slowing wider adoption.

The counter-argument, backed strongly by companies like Apple and
Microsoft, is that breaking the power of the standard-essential patent
holders lowers the barriers to entry to important new technology markets
and allows disruptive outsiders to break in. Which of these outcomes will
result from adjusting the balance of power in patent enforcement is likely
to take years to become clear.

Richard Waters is the Financial Times’ West Coast managing editor



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