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Apple gets reprieve, can continue IPhone 4 sales

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  • A salesperson at a mobile phone shop displays an Apple iPhone 4 to a customer in New Delhi.

    A salesperson at a mobile phone shop displays an Apple iPhone 4 to a customer in New Delhi.
    Associated Press/May 27, 2011

Bloomberg News

Apple Inc. can continue selling its iPhone 4 and iPad 2 3G in the U.S. after receiving a reprieve from an import ban won by Samsung Electronics Co. in a patent- infringement dispute.

U.S. Trade Representative Michael Froman today overturned the ban, imposed by the U.S. International Trade Commission on June 4 after it found that some older models of Apple devices infringed a patent for a way data are transmitted.

Froman said in a four-page ruling that after reviewing the commission's decision and considering public policy implications of an import ban, "I have decided to disapprove the USITC's determination to issue an exclusion order and cease and desist order in this investigation."

Apple had been ordered to stop importing versions of the Chinese-made iPhone 4 and iPad 2 3G designed for networks run by AT&T Inc., T-Mobile US Inc. and two regional carriers in Texas and Alaska. Cupertino, California-based Apple was counting on the Obama administration's increased interest in patent disputes to sway the president.

No president has overturned an ITC import ban since Ronald Reagan did it in 1987, in a case involving Samsung computer-memory chips.

The iPhone 4 models sold for other networks weren't impacted, nor were newer devices including the iPad mini and iPhone 5. The company is expected to release new iPhone and iPad models later this year.

Apple counts on older iPhone models, often given away with a two-year contract, to entice new customers. Sales of older iPhones helped Apple top analysts' earnings projections in the fiscal third quarter.

The company sold $78.7 billion worth of iPhones last fiscal year, making up half of the company's revenue. It doesn't break out sales by model.

The Samsung patent covers a way data are transmitted over communications networks. It's a feature in a widely used technological standard agreed on by the mobile-device industry.

Companies that work to establish standards have the advantage of knowing their inventions have to be used in all products in an industry. In turn, they pledge to license any relevant patents on fair and reasonable terms.

Obama's administration in January sent the ITC proposed guidelines to consider before ordering import bans based on infringement of standard-essential patents.

It said that while patent owners have the right to exclude others from using their inventions, the public benefit of allowing that is limited when it comes to standards patents. The U.S. Federal Trade Commission filed a similar paper with the agency last year.

Industry Standards

Apple and Microsoft Corp. have promised not to use any industry-standard patents they have to block competing products. Samsung and Google Inc., which owns Motorola Mobility and the Android operating system that's the most popular platform for mobile phones, reserved the right to use them if the other side is an "unwilling licensee."

Four U.S. senators wrote to Froman on July 30, asking him to "assess the substantial public interest considerations" of using standards patents at the ITC. The senators were Democrats Amy Klobuchar of Minnesota and Barbara Boxer of California, and Republicans Mike Lee of Utah and James Risch of Idaho.

Samsung demanded 2.4 percent of Apple's iPhone and iPad revenue, which would come to about $18 per phone, Apple argued in its filing with the trade representative. It accused Samsung of being unreasonable.

European Regulators

Samsung, which is under investigation by European regulators on allegations of patent misuse, agreed to not seek sales bans based on its standard-essential patents on that continent. It made no such promise in the U.S. and defended its position, saying Apple refused to pay on any terms.

"By any definition, Apple is an unwilling licensee of Samsung's declared essential patents," Samsung wrote in the filing.

Two federal judges have said Google's Motorola unit can't use standards patents to seek court bans of competitors' products. One of those rulings, against Apple, is scheduled for arguments before the U.S. Court of Appeals for the Federal Circuit on Sept. 11. The other involves a Microsoft breach-of- contract complaint against Google scheduled for trial in Seattle later this month.

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).

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