Import Ban Too Strong as Patent Case Remedy, FTC Says
June 7 (Bloomberg) -- Google Inc.'s bid to block imports of Microsoft Corp.'s Xbox gaming system and Apple Inc.'s iPhone based on patents owned by its Motorola Mobility unit may hurt competition, the U.S. Federal Trade Commission said.
Weighing in on cases before another U.S. agency, the International Trade Commission, the FTC said in a filing yesterday that companies should be limited in their ability to win orders blocking imports of competitors' products over the use of patents built into industrywide standards.
Motorola Mobility is citing its standard-essential patents to persuade the ITC to stop imports of Apple and Microsoft devices made in Asia.
"We are concerned that it might be hindering innovation," FTC Chairman Jon Leibowitz said in an interview with Bloomberg Government yesterday in Washington.
The FTC's position would limit the power of companies like Motorola Mobility, Samsung Electronics Co. and InterDigital Inc. to use the international trade agency as a forum in patent disputes. Each company has asserted patents that cover aspects of industry standards they helped establish.
An ITC judge in April said Microsoft's Xbox infringes four Motorola Mobility patents, including three related to industry standards covering Wi-Fi technology and video decoding. Another judge said that Apple's iPhone and iPad tablet computer infringed a patent related to 3G technology.
Microsoft Pleased
"We welcome the FTC's statement agreeing with Microsoft that standard-essential patent abuse harms consumers and competition," David Howard, Microsoft's deputy 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," Howard said.
The FTC rarely gets involved in activities of the ITC, another independent agency, because their roles are different. The FTC investigates antitrust and consumer protection issues, while the ITC's job is to protect U.S. markets from unfair trade practices.
Patents relating to industry standards should be treated differently than other forms, Leibowitz said in the interview. Companies pledge to license such patents on fair terms, he said.
Leibowitz said the litigation over smartphones and tablet computers, with a related race to buy more patents, doesn't promote the introduction of new products. Mountain View, California-based Google spent $12.5 billion to buy Motorola Mobility in large part to obtain its trove of 17,000 patents.
Wasteful Purchases
"All these tens of billions of dollars spent on buying defensive portfolios I think can raise a pretty serious question about whether that is wasteful and inefficient," Leibowitz said in the interview.
The FTC, in its filing, suggested the International Trade Commission refrain from imposing an import ban or delay the imposition until both sides "mediate in good faith." Commissioner Tom Rosch, in a footnote, said import bans are inappropriate when a patent owner has pledged to license standard-essential patents on fair terms.
Motorola Mobility filed its ITC case against Cupertino, California-based Apple after the iPhone maker challenged other makers of phones running on Google's Android operating system.
The dispute over Xbox began after Microsoft approached Motorola Mobility and demanded patent royalties on smartphones that run on Android. Motorola Mobility responded by claiming it was entitled to royalties on the Xbox.
Royalty Rates
Motorola Mobility sent letters to Microsoft with what it said was a standard demand for a 2.25 percent royalty on the end price of products that use the inventions, including the Xbox and Windows products. Microsoft contends that would add up to as much as $4 billion in annual royalties, a figure Motorola Mobility disputes.
Microsoft's entertainment division, which includes sales of the Xbox, generated $8.9 billion in global sales in fiscal 2011, about 13 percent of Microsoft's revenue.
Microsoft, based in Redmond, Washington, filed a lawsuit accusing Motorola Mobility of breaching its contractual obligations.
ITC Judge David Shaw, in his determination, said no company would agree with Motorola Mobility's demands. Still, he said, the dispute over royalty rates shouldn't preclude an import ban if a violation of standard-essential patents is found.
The FTC supports Microsoft's argument that any dispute over standard-essential patents should be limited to deciding royalty rates in court.
Seattle Ruling
U.S. District Judge James Robart in Seattle yesterday declined to rule in Microsoft's favor in its case with Motorola Mobility, saying the royalty issue must be resolved at a November trial.
Apple, which is trying to curtail growth of Android devices, has accused Samsung of improperly using its standard- essential patents in a case that's in trial at the trade agency. Huawei Technologies Co. has made similar allegations in an ITC case filed by InterDigital over third-generation technology on mobile phones.
Apple and Microsoft have pledged that they wouldn't use their own standard-essential patents to block products.
"We think it's an abuse of the patent system to use an essential patent to block the import and sale of a competitor's product, and Apple has never used standards essential patents in that way," Apple said in February. Kristin Huguet, an Apple spokeswoman, said the company stood by that statement.
Pending Cases
The ITC has more than a dozen pending cases involving smartphones and tablet computers, and lawsuits have spanned four continents with Apple and Microsoft going against makers of Android devices.
The European Union is investigating complaints by Microsoft and Apple that Motorola Mobility is unfairly using standard- essential patents to block competition.
The U.S. case is Microsoft Corp. v. Motorola Inc., 10cv1823, U.S. District Court for the District of Washington (Seattle). The ITC case is In the Matter of Gaming and Entertainment Consoles, 337-752, U.S. International Trade Commission (Washington).
To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Eric Martin in Washington at emartin21@bloomberg.net.
To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net; Joshua Goodman at jgoodman19@bloomberg.net.
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