US Congress Mulls Broken Patent System; Rethinks Sales Bans on Infringing Patents

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The United States Congress may finally wade into the deep waters of the broken U.S. patent system. Yesterday, Congress began discussions regarding the ramifications of sales bans on patent infringing products, and are considering reducing/eliminating them. They are trying to determine what can be done to limit or stop rival companies from banning the importation of competitors products because they infringe on controlled patents. Sen. Patrick Leahy (D-VT), Judiciary Committee Chairman, contacted representatives of the Federal Trade Commission and Department of Justice for the hearing. Leahy announced that the goal is to "further explore the competitive impact of ITC exclusion orders and whether more needs to be done to ensure consumers are not the victims of the tech patent wars."

Don't get too excited yet though. At first, this may not make much of a difference for Google and it's OEMs, and in fact may hurt them. It's ironic really, but the reason why Congress is looking at this isn't because of the oppressive legal nature of Apple and Microsoft, but is actually because Motorola is attempting to ban the sales of the XBOX 360 and the iPhone because they infringe upon some of Motorola's FRAND (fair, reasonable, and non-discriminatory terms) patents. In his statement, Leahy specifically identifies the Xbox and iPhone. The hearing was called while the ITC is currently deciding whether to stop imports of these products because of standards-essential patents owned by the Google-owned Motorola Mobility.

The difference between Motorola's import sales ban request at the ITC against Apple and Microsoft, and the import sales bans that Apple is levying against Samsung is that the patents that Samsung is supposedly infringing are non-industry-standard patents. The patents that Motorola is calling Apple and Microsoft out on are FRAND or standards-essential patents (SEP). There are loose terms defined for SEP that basically make it a requirement for companies to allow use for and/or license with fees their SEP patents, but the problem is that a FRAND/SEP patent compared to a non-industry-standard patent has not been properly defined. In this instance, Motorola required Microsoft to pay royalties of 2.25 percent of the retail price of each Xbox 360 to use Motorola's WiFi and video streaming patents. Normally a company will instead apply that percentage to the portion/part of the device that uses the infringing technologies. Microsoft scoffed at this and refused; now Motorola requested a sales ban on the XBOX 360.

In fact, the FTC is currently investigating this issue now as well. Here is a quote with the details,

The FTC has already made its position clear by filing the case of Motorola v Microsoft with the International Trade Commission, which has the power to impose the bans, while urging the ITC not to issue an injunction.

The FTC said it was concerned that companies were trying to use the threat of a sales ban to force others who wanted to use the standard to pay higher royalty fees. That would of course be directly against the point of SEP, which is supposed to be licensed on a fair, reasonable and non-discriminatory (FRAND) basis so that everyone's kit can be interoperable and on the same standard.

"Incorporating patented technologies into standards has the potential to distort competition by enabling SEP owners to negotiate high royalty rates and other favourable terms, after a standard is adopted, that they could not credibly demand beforehand," the FTC said in its filing.

This viewpoint is valid, because tech companies must build products that comply with industry standards in order to compete, and they shouldn't have to face import bans when patent holders ask for unreasonable amounts of money.

Still, the only reason that Motorola has taken this approach at all is because they are trying to fight back in a patent war that they didn't start. It's possible that this was a strategic move on Motorola's part designed to get this ball rolling to begin with. Maybe Motorola started making unreasonable demands on purpose in order to finally focus attention on the broken patent system, (although this is purely speculation). It also could simply have been a purely defensive move of desperation.

Regardless if that was their intent, it could have that effect in the long run. Senator Leahy seems to be taking a reasonable point-of-view on this. Here are a couple of quotes from the Arstechnica article with his perspective,

Leahy said a company could develop products assuming it will be able to get a license to all the relevant patents, and then "get the door slammed in your face."

"When inventors and developers are willing to license their technologies to one another at reasonable rates, the cross-fertilization of ideas benefits us all," Leahy said. "But I am concerned that the recent trend of seeking exclusion orders from the International Trade Commission, rather than negotiating and seeking license fees, may have the opposite effect."

He also added,

Although the topic of the hearing was FRAND patents, Leahy said he wonders if lawmakers can also stop harassment by patent trolls, companies that don't make technology of their own but buy patents to assert in lawsuits. "People who invent should be compensated," Leahy said. "I don't have a lot of sympathy for people who buy patents."

This seems to leave the door open a little bit to fixing everything in the future. In the mean-time, if Congress does get involved, it will probably drag things out even further and involve passing some sort of legislation to help standardize the industry and give the ITC broader scope. It doesn't look like anything will be accomplished yet to abate the legal violence of the patent wars, but at least steps are being taken in the right direction.

Sidenote: It's almost comical that the reason the broken patent system is finally getting the attention it deserves is because of a gaming console. Fictional headline: "Broken U.S. Patent System Saved by XBOX!"

Source: ArsTechnica and Reuters and TheRegister