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|Apple Faces Limited Ban On Products by justaqad(m): 10:17am On Jun 05, 2013|
Samsung Electronics Co. 005930.SE -0.19% won a significant legal victory against Apple AAPL -0.31% Inc. that threatens to halt the sale of some iPhones and iPads in the U.S.
The U.S. International Trade Commission on Tuesday ruled that Apple violated a Samsung patent covering technology used to send information over wireless networks.
Unless vetoed by President Barack Obama or blocked by an appeals court, the ruling would bar the importation of certain iPhones and iPads made to work on AT&T Inc.'s T +1.71% network. Among them are the iPhone 4, the iPhone 3GS, the iPad 3G, the iPad 2 3G and the iPad 3.
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The latest Apple products, including the iPhone 5 and the fourth-generation of the iPad, were unaffected.
Once close business partners, Samsung and Apple have become increasingly intense rivals, sparring over the market for smartphones around the globe, with much of the momentum accruing to Samsung in recent months.
The rivalry has spilled into the courts, where barrages of competing patent claims have been lobbed in both directions. Last year, Apple won a jury trial and $1 billion in damages against Samsung over iPhone patents. Tuesday's ruling, which Apple has vowed to take to a federal appeals court, raises the incentives for the two sides to reach a more comprehensive settlement. But so far, both sides offered no hint at a settlement.
The ruling also came on the day Mr. Obama took steps to rein in companies that buy and enforce patents rather than make their own products and services—firms known as patent trolls by their detractors. He is also trying to reduce the growing use of the ITC to settle patent disputes.
The ITC, which has jurisdiction over certain trade practices, is an appealing legal option for patent holders, particularly tech companies, because the trade body can issue orders banning the importation of products that infringe upon another company's patents. Legal observers say it is easier to win an import ban at the ITC than it is to win a federal court ruling that would block product sales.
The ITC's decision against Apple was largely unexpected, particularly because the initial review by a judge at the agency had found Apple's products weren't infringing Samsung's patents.
The patent itself is a highly technical one, described in patent documents as "an apparatus and method for encoding/decoding a transport format combination indicator (TFCI) in a CDMA mobile communication system."
"We are disappointed that the Commission has overturned an earlier ruling and we plan to appeal," said Kristin Huguet, an Apple spokeswoman. She said the decision "has no impact on the availability of Apple products in the United States."
Apple doesn't detail sales for each individual product in its quarterly reports, but it has said that the iPhone makes up more than half of its global revenue. Sales in America, where the ban would take place, represented less than a third of overall sales. And aside from the iPhone 4S, which Apple said is popular with customers, the company hasn't detailed sales of its older models.
Gene Munster, an analyst at Piper Jaffray, estimates that world-wide sales of the iPhone 4—which stands to be affected by the ITC order—brought Apple $3.4 billion in revenue in the quarter ended in March. That compares with his estimate of $14.9 billion for the newer iPhone 5, which isn't affected.
The iPhone 4 has been marketed as a low-cost option alongside newer models. AT&T offers it for as little as 99 cents with a new contract. An AT&T spokesman didn't return a request for comment.
Apple's Ms. Huguet added that "Samsung is using a strategy which has been rejected by courts and regulators around the world."
Adam Yates, a spokesman for Samsung, said the decision affirmed the company's patents. "We believe the ITC's Final Determination has confirmed Apple's history of free-riding on Samsung's technological innovations," he said.
The ITC ruled against a key Apple theory across its recent litigation, which seeks to limit plaintiffs from using a broad class of patents to win injunctions against sales of infringing products. Such patents are submitted to industry groups that are setting key technology standards, and are deemed as essential to create products in certain categories—such as creating handsets that can communicate using a particular generation of cellular networks.
Apple has argued that in return for becoming part of an industry standard, companies usually promise those groups to license use of their patented technology under fair and reasonable terms. Apple says Samsung isn't doing that.
But the ITC said Apple's argument wasn't valid, potentially hurting Apple's continuing efforts to change the way standards-based patents are used in legal cases.
Brian Love, an assistant professor of law at Santa Clara University School of Law, said it was unclear whether Apple could find a technical workaround for the ruling. He said that companies are sometimes "overzealous" about labeling patents as essential parts of technology standards.
Kevin Taylor, an intellectual property lawyer at Schnader Harrison Segal & Lewis LLP, said this is "a solid win for Samsung."
But he said whether it would set any precedent would depend on the outcome of any appeal in federal court. He said it wouldn't be unusual for a court to temporarily delay the ruling from going into effect, allowing Apple to continue selling its devices during the appeal, which could take months or longer.
But, Mr. Taylor said, if "upheld on appeal, Apple has a big problem."
Lyle Vander Schaaf, an intellectual property lawyer at Brinks Hofer Gilson & Lione, noted that it is rare for federal appeals courts to delay exclusion orders during appeals. And presidential vetoes are even more rare.
There hasn't been a veto "since the Carter administration," he said. "On first blush, this seems like a really impactful decision."
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