Import bans over patents cause 'substantial harm,' FTC says

Trade agency suggests limiting the use of bans to block imports based on patents that are part of industry standards.

Google's efforts to block imports of Microsoft's Xbox and Apple's iPhone could cause "substantial harm" to consumers, competition, and innovation, the Federal Trade Commission said in a letter today.

The letter -- addressed to the U.S. International Trade Commission, a federal agency with the power to enforce bans on products shipping to the U.S. -- suggested companies should be limited in their ability to block competitors' imports based on patents that are built into industry standards.

"Simply put, we are concerned that a patentee can make a RAND [reasonable and nondiscriminatory] commitment as par of the standard setting process, and then seek an exclusion order for infringement of the RAND-encumbered SEP [standard essential patent] as a way of securing royalties that may be inconsistent with that RAND commitment," the trade agency said in its letter.

"Hold-up and the threat of hold-up can deter innovation by increasing costs and uncertainty for other industry participants, including those engaged in inventive activity. It can also distort investment and harm consumers by breaking the connection between the value of an invention and its reward -- a connection that is the cornerstone of the patent system," the agency said.

Technology companies in recent years have increasingly turned to the ITC to settle their disputes. Companies can pursue an ITC case in parallel with civil lawsuits, and the threat of an embargo on products typically forces companies to settle more quickly.

While the letter did not mention Google by name, the FTC said its recommendations were in response to an ITC request for comment on patent-infringement cases against Apple and Microsoft involving Motorola Mobility, which Google recently purchased.

Microsoft accuses Motorola of unfairly seeking excessive royalty payments for patents used in several of the software giant's products, including the Xbox game console. An ITC judge recommended last month that the Xbox 360 S be banned from import into the U.S. as a result. However, that recommendation still has to be reviewed by the entire six-member trade commission, which is expected to review the decision and issue a statement in August.

Meanwhile, Motorola was found to violate a Microsoft patent for that software that creates meeting requests and schedules them on mobile devices, leading to a recommended ban against some Motorola phones.

Apple, whose iPhones and iPads have been found to violate one of Motorola Mobility's patents covering 3G wireless technology, has chided Motorola for making the pledge to offer it under "FRAND," or "fair, reasonable, and nondiscriminatory terms."

A Microsoft representative applauded the letter's message.

"We welcome the FTC's statement agreeing with Microsoft that standard essential patent abuse harms consumers and competition," David Howard, Microsoft's general counsel, said in an e-mailed statement. "The FTC joins a growing chorus of regulators from around the world who recognize the danger posed by companies who try to use standard essential patents to block the sale of products."

A Motorola spokesperson told CNET that an unwillingness on Microsoft and Apple's part left it with no alternative to litigation.

"Motorola Mobility would welcome having Apple and Microsoft join the more than 50 other companies who have entered into licenses and cross-licenses on a FRAND rate for Motorola's portfolio, which includes a number of foundational communications patents," a Motorola spokesperson said in an e-mailed statement. "To date, however, neither party has been willing to enter into a cross-license on reasonable terms and thus we all find ourselves in seemingly endless litigation."

Updated June 7 at 12:15 p.m. PT to add Motorola comment.

 

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