On August 3, 2013, the US Trade Representative announced that it was disapproving the exclusion order previously issued by the US International Trade Commission under Section 337 that would have barred the importation and sale of certain Apple products, including certain smart phones and tablet computers that allegedly infringed a US patent owned by Samsung Electronics Co., Ltd. and Samsung Telecommunications America Inc. (Samsung). It was only the sixth time in the history of Section 337 that the President/USTR has disapproved an ITC order, and the first time since 1987.

In the underlying investigation, Certain Electronic Devices, IncludingWireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA-794, the ITC, on June 4, 2013, issued an exclusion order that would have barred the importation of Apple’s products and a cease and desist order that prohibited Apple from engaging in certain activities, such as the sale of those products, in the United States.

Under Section 337, the President is required to engage in a policy evaluation of the Commission’s determinations to issue exclusion and cease and desist orders. The President may disapprove an order on policy grounds, approve an order, or take no action and allow the order to come into force upon the expiration of the 60-day presidential review period. This authority has been assigned to the US Trade Representative.

In a letter dated August 3, 2013, Michael Froman, the USTR, explained his reasons for the decision to disapprove the ITC’s determination. As stated by Mr. Froman, the legislative history of Section 337 identifies considerations relevant to the policy review of ITC determinations under Section 337, including “(1) public health and welfare; (2) competitive conditions in the U.S. economy; (3) production of competitive articles in the United States; (4) U.S. consumers; and (5) U.S. foreign relations, economic and political.”

The patent in this case was considered to be essential to practicing a standard. As cited by Mr. Froman, on January 8, 2013, the Department of Justice and United States Patent and Trademark Office issued a “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary FRAND Commitments.” Mr. Froman’s letter notes that the

Policy Statement expresses substantial concerns, which I strongly share, about the potential harms that can result from owners of standards-essential patents (“SEPs”) who have made a voluntary commitment to offer to license SEPs on terms that are fair, reasonable, and non-discriminatory (“FRAND”), gaining undue leverage and engaging in “patent hold-up”, i.e., asserting the patent to exclude an implementer of the standard from a market to obtain a higher price for use of the patent than what would have been possible before the standard was set, when alternative technologies could have been chosen. At the same time, technology implementers also can cause potential harm by, for example, engaging in “reverse hold-up” (“hold-out”), e.g., by constructive refusal to negotiate a FRAND license with the SEP owner or refusal to pay what has been determined to be a FRAND royalty.

Citing both the important role of Section 337 in protecting owners of intellectual property rights and the increasingly important role played by “voluntary consensus-based standards set by SDOs,” the USTR decided after “extensive consultations” with interested agencies and persons to disapprove the ITC’s orders. As stated by Mr. Froman, “[t]his decision is based on my review of the various policy considerations discussed above as they relate to the effect on competitive conditions in the U.S. economy and the effect on U.S. consumers.” No further explanation was provided as to how the facts in the case were actually weighed in reaching his conclusion. Whether Samsung had indeed offered a license to Apple on fair and non-discriminatory terms was an issue that was hotly debated during the underlying ITC investigation.

Looking to future cases involving SEPs, Mr. Froman called on the Commission to be certain

(1) to examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive factual record related to these issues in the proceedings before the Administrative Law Judge and during the formal remedy phase of the investigation before the Commission, including information on the standards-essential nature of the patent at issue if contested by the patent holder and the presence or absence of patent hold-up or reverse hold-up.

Mr. Froman asked the Commission to make “explicit findings on these issues to the maximum extent possible” and indicated that he would look for these elements in any future decisions involving FRAND-encumbered SEPs that are presented to USTR for policy review.

In concluding, Mr. Froman noted that his decision was not “an endorsement or a criticism of the Commission’s decision or analysis” and that his determination did not mean that Samsung was not entitled to a remedy, but could “continue to pursue its rights through the courts.”

As noted above, the USTR’s determination is significant in that no Section 337 order had been disapproved by the President/USTR since 1987. The decision will undoubtedly lead to greater scrutiny of ITC orders on public interest grounds, especially in cases involving patents related to the practice of a standard, both at the Commission level and on review to USTR.