Apple Inc. (NASDAQ:AAPL) could face an additional headwind in the current quarter if President Obama doesn’t step in. He now has 48 hours to prevent a ban on imports of Apple Inc. (NASDAQ:AAPL)’s iPhone 4.
ITC bans Apple’s iPhone 4
The International Trade Commission (ITC) banned imports for the iPhone 4 two months ago, and the 60-day review period ends tomorrow. Only President Obama has the authority to step in and veto that ban. Sales of the iPhone 4 were still strong in the June quarter, indicating that U.S. demand for the older handset is still strong. Of course if we’re about to see a new iPhone, the iPhone 4 might not be in production much longer anyway.
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ITC’s decision was controversial
Fortune’s Philip Elmer-DeWitt explains just how controversial the ITC’s decision was. Even Apple Inc. (NASDAQ:AAPL)’s opponent Microsoft Corporation (NASDAQ:MSFT) came out on its side in this debate. Intel Corporation (NASDAQ:INTC), a bipartisan Senate coalition and Verizon Communications Inc. (NASDAQ:VZ) expressed dislike for the ITC’s decision. Verizon’s iPhones and iPads were not even part of the ban.
He says the problem is that the ITC appears to be ignoring an important distinction between the two different types of patents. Standards-essential patents are those that have to be used in order to meet a technical standard. Wi-Fi protocol is given as one example. Companies which own these patents are required to license them under fair, reasonable and non-discriminatory terms. In return, they get to rake in royalties from every single device which uses the standard.
The other type of patent is referred to the innovation patent. The technology covered by this type of patent is not part of any kind of standard and is usually the result of years of proprietary work. These patents are not required to be shared with the company’s competitors.
The patent in Apple’s case
The ITC’s decision stems from the case in which Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) sued Apple Inc. (NASDAQ:AAPL) for violation of a patent that was supposedly an important part of the 3G protocol used in the AT&T Inc. (NYSE:T) wireless network. As such, it was only the AT&T versions of Apple Inc. (NASDAQ:AAPL) products which were banned.
Of course it’s worth noting that not only was Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) allowed to prevent Apple Inc. (NASDAQ:AAPL) from being able to import its own products into its own home country, but it did so using what appears to be a standards-essential patent. And don’t forget all of the cases in which Apple Inc. (NASDAQ:AAPL) won a judgment from Samsung because Samsung was found guilty of violating one of Apple Inc. (NASDAQ:AAPL)’s proprietary patents. Of course Apple Inc. (NASDAQ:AAPL) has lost to Samsung too in the past.