UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C.

Transcription

1 UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C. In the Matter of CERTAIN WIRELESS COMMUNICATION DEVICES, PORTABLE MUSIC AND DATA PROCESSING DEVICES, COMPUTERS AND COMPONENTS THEREOF Inv. No. 337-TA-745 SUBMISSION OF THE OFFICE OF UNFAIR IMPORT INVESTIGATIONS ON REMEDY AND THE PUBLIC INTEREST Lynn I. Levine, Director David O. Lloyd, Supervisory Attorney OFFICE OF UNFAIR IMPORT INVESTIGATIONS U.S. International Trade Commission 500 E Street, S.W., Suite 401 Washington, D.C (202) (202) (Fax) July 9, 2012

2 UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C. In the Matter of CERTAIN WIRELESS COMMUNICATION DEVICES, PORTABLE MUSIC AND DATA PROCESSING DEVICES, COMPUTERS AND COMPONENTS THEREOF Inv. No. 337-TA-745 SUBMISSION OF THE OFFICE OF UNFAIR IMPORT INVESTIGATIONS ON REMEDY AND THE PUBLIC INTEREST I. INTRODUCTION The Office of Unfair Import Investigations ( OUII ) respectfully submits this response to the Notice of Commission Decision to Review a Final Initial Determination Finding a Violation of Section 337; Request for Written Submissions, issued on June 25, 2012 ( Notice ). OUII s submission generally concerns whether and how a commitment to license a patent on reasonable and non-discriminatory ( RAND ) terms relates to public interest and remedy. 1 Although OUII has attempted to respond to all of the Commission questions related to RAND licensing, there are three overarching points related to these issues. First, OUII submits that Respondent Apple has waived its right to assert that Complainant Motorola failed to offer a license on RAND terms. Second, OUII submits that the mere existence of a RAND obligation does not preclude issuance of relief at the Commission. Indeed, the arguments to the contrary are inconsistent with Section 337 and would undermine the Commission s ability to protect domestic industries from unfair acts by foreign importers. And third, OUII submits that whether a 1 The terms RAND and FRAND (fair, reasonable and non-discriminatory) are used interchangeably herein.

3 -2- particular RAND commitment, or the breach thereof, bars relief in a specific investigation will 2 depend on the facts of that investigation, including the products and industries at issue. II. BACKGROUND In its Complaint, filed on October 6, 2010, Motorola Mobility, Inc. ( Motorola ) alleged that Respondent Apple Inc. ( Apple ) has violated Section 337 through the importation and sale of certain wireless communication devices, portable music and data processing devices, computers and components thereof that infringe claims of six U.S. patents, including U.S. Patent 3 Nos. 6,246,697 ( the 697 patent ) and 5,636,223 ( the 223 patent ). The investigation was instituted on November 8, See 75 Fed. Reg (Nov. 8, 2010). The presiding Administrative Law Judge held a hearing from December 8-16, The Judge issued his final initial determination on violation on April 24, 2012 ( ID ), and his recommended determination on remedy and bond on May 9, 2012 ( RD ). Following the issuance of the ID and RD, the Commission published a notice soliciting comments on the public interest. Twelve such comments were submitted: 2 As discussed in greater detail in Section III(B)(1) below, OUII participated in the initial stages of the investigation but, shortly before trial, the investigation was designated for nonparticipation pursuant to the Commission s Supplement to the Strategic Human Capital Plan (issued January 2011) (directing OUII to implement alternative staffing models, including designating some investigations for full participation by OUII, some for nonparticipation, and some for participation only on certain issues). Because OUII did not participate in the hearing or the development of the evidentiary record, OUII takes no position on whether the facts show a violation of Section 337 in this investigation, whether a remedy should be imposed, what form the remedy should take, or what bond would be appropriate. 3 Standard setting organizations develop industry-wide standards designed, among other things, to allow for interoperability. When setting such standards, these organizations often require members to disclose patents that are essential to practice the standard and also to commit to license such patents on RAND terms. Respondent contends that Motorola made such commitments with respect to the 697 and 223 patents.

4 -3-! Respondent Apple submitted a statement arguing that an exclusion order against Apple s products would adversely and significantly impact the U.S. economy and consumers and that an exclusion order is not an appropriate remedy where the complainant is obligated to license its patents on FRAND terms. (Respondent Apple s Statement on the Public Interest, dated on June 6, 2012 ( Apple Statement ), EDIS Doc. ID ).! Eight statements were submitted by non-parties generally arguing that granting an exclusion order in the case of a patent subject to a RAND obligation is contrary to the public interest. (See Letter, the Association for Competitive Technology to the Honorable James R. Holbein, dated June 6, 2012 ( ACT Statement ), EDIS Doc. ID ; Letter, AT&T to the Honorable James Holbein, dated June 8, 2012 ( AT&T Statement ), EDIS Doc. ID ; the Business Software Alliance s Response to the Commission s Request for Submissions on the Public Interest, dated June 6, 2012 ( BSA Statement ) EDIS Doc ID ; Letter, Cisco Systems, Inc. To the Honorable Lisa R. Barton, June 7, 2012 ( Cisco Statement ), EDIS Doc. ID ); Letter, Hewlett-Packard Company to the Honorable Lisa R. Barton, dated June 6, 2012 ( H-P Statement ), EDIS Doc. ID ); Letter, Sidley Austin LLP to the Honorable Lisa R. Barton, dated June 6, 2012 ( Microsoft Statement ), EDIS Doc ID ); Letter, Retail Industry Leaders Association to the Honorable James R. Holbein, dated June 6, 2012 ( RILA Statement ), EDIS Doc. ID ); Letter, U.S. Senators Lee, Kohl, Kyl, Cornyn, Rosch, and Hoeven to the Honorable Deanna Okun, dated June 19, 2012 ( Senators Statement ), EDIS Doc. ID )).! The Federal Trade Commission submitted a statement urging that the Commission consider issues relating to the risk of patent hold-up in crafting its remedies. (Third Party United States Federal Trade Commission s Statement on the Public Interest, dated June 6, 2012 ( FTC Statement ), EDIS Doc. ID ).! Nokia Corporation submitted a statement arguing that an exclusion order would be against the public interest when a patent is subject to a RAND obligation and where a manufacturer of standards-essential products is a willing licensee of such a patent. (Letter, Patrick J. Finn to the Honorable Lisa R. Barton, dated June 6, 2012 ( Nokia Statement ), EDIS Doc. ID ).! Verizon Wireless submitted a statement arguing that no exclusion order should issue in any investigation involving an industry standard or involving wireless broadband technology. (Letter, Cellco Partnership d/b/a Verizon Wireless to the Honorable James Holbein, dated June 6, 2012 ( Verizon Statement ) EDIS Doc ID ).

5 -4- On June 25, 2012, the Commission determined to review the ID in part, asking for briefing on thirteen questions. Eight of the questions deal specifically with RAND issues and the implications of a RAND obligation on the statutory public interest factors. (See Notice at 4-5). The Commission further stated that [p]arties to the investigation, interested government agencies, the Office of Unfair Import Investigations, and any other interested parties are encouraged to file written submissions on the issues of remedy, the public interest, and bonding. (Notice at 6). III. DISCUSSION A. The Public Interest Factors in Section 337 Section 337 provides that if a violation is found, the Commission shall direct that the articles concerned, imported by any person violating the provision of this section, be excluded from entry into the United States, unless, after considering the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such articles should not be excluded from entry. 19 U.S.C. 1337(d)(1). In addition to, or in lieu of, issuing an exclusion order, the Commission may also issue a cease and desist order, again unless after considering the effect of such order upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such order should not be issued. 19 U.S.C. 1337(f)(1). These considerations, i.e., the public health and welfare, etc., are generally described as the statutory public interest factors.

6 -5- Although the public interest factors are broadly drafted, both Congress and the Commission have also recognized that there is a strong public interest in not allowing the importation of articles that infringe U.S. intellectual property rights. See H.R. Rep , at 156 (1987) ( The importation of any infringing merchandise derogates from the statutory right [to exclude], diminishes the value of the intellectual property, and thus indirectly harms the public interest. ); S. Rep , at 128 (1987) (same); see also, e.g., Certain Baseband Processor Chips and Chipsets, Inv. No. 337-TA-543, Commission Opinion at 150 (Public Version June 19, 2007) ( Baseband Processors ) ( [w]e note that, in assessing the public interest factors when granting relief, the Commission relies on the strong public interest in enforcing intellectual property rights ). Thus, the Commission has denied relief based on the public interest in only three investigations, in all of which the issuance of an exclusion order would have resulted in shortages of a critical product. See Certain Automatic Crankpin Grinders, Inv. No. 337-TA-60, Commission Opinion, USITC Pub (1979) ( Crankpin Grinders ); Certain Inclined Field Acceleration Tubes, Inv. No. 337-TA-67, Commission Opinion, USITC Pub (1980) ( Inclined Field Acceleration Tubes ); Certain Fluidized Supporting Apparatus, Inv. No. 337-TA-182, Commission Opinion, USITC Pub (1984) ( Fluidized Supporting Apparatus ). However, the Commission has also used its discretion to fashion more limited or tailored relief in certain investigations in order to accommodate public interest considerations. In Baseband Processors, the Commission grandfathered in older products, i.e., it limited the exclusion order to products produced after June 7, 2007, so as to allow continued public access to 3G smartphones using the EV-DO and WCDMA networks. Baseband Processors,

7 Commission Opinion at Similarly, in Certain Personal Data and Mobile Communications Devices and Related Software, Inv. No. 337-TA-710 ( Personal Data and Mobile Communications Devices ), the Commission established a four-month grace period -6- before the exclusion order went into effect to allow for a transition to non-infringing alternatives. Id., Commission Opinion at (Public Version Dec. 29, 2011). B. The Commission s Questions As noted above, OUII takes no position on whether there has been a violation of Section 337. OUII is therefore responding only to the Commission questions that deal with issues relating to RAND licensing and the public interest. 1. Question 6 Has Apple waived its right to assert that Motorola failed to offer a license on reasonable and non-discriminatory ("RAND") terms? In discussing this issue, please refer to Commission Investigative Staff Motion in Limine to Exclude The Expert Opinion of Jerry Hausman filed July 14, 2011, and to Respondent Apple Inc.'s Opposition to Commission Investigative Staffs Motion In Limine to Exclude the Expert Opinion of Robert O'Hara at page 1, n. 1 filed July 22, OUII is of the view that Apple has waived its right to assert in this investigation that Motorola failed to offer a license on RAND terms. Apple expressly waived its right to pursue this theory in a July 20, 2011, letter to the other parties, and OUII relied on Apple s representation in withdrawing from participation in the instant investigation. Moreover, even if Apple had not expressly waived the issue, the result of Apple s actions was that an evidentiary record concerning the RAND issues was not developed before the Judge. In OUII s view, allowing Apple to benefit from its decision not to create a record would be contrary to Commission policy.

8 -7- By way of background, shortly after the Complaint was filed, the Commission requested comments from the public on whether the public interest should be delegated to the Judge in this investigation. See 75 Fed. Reg (Oct. 12, 2010). Apple did not submit any comments, and public interest was not delegated to the Judge. However, in its response to the Complaint and Notice of Investigation, Apple alleged various affirmative defenses based on Motorola s RAND obligations and the alleged breach thereof. (See Apple Inc. s Response to Motorola s Corrected Verified Complaint, Seventh Additional Defense (EDIS Doc. ID )). OUII initially participated in the investigation as a full party and, after discovery, including the depositions of the experts, moved to preclude testimony by two of Respondents expert on the grounds that their proposed testimony failed to comply with Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). (Motion Docket No ). Apple then withdrew its RAND-based defenses and affirmatively represented to the other parties that Apple will not be pursuing as part of the 745 investigation any affirmative defenses based on Motorola s failure to make a FRAND offer. (Letter, Mark G Davis to Alexander Rudis, dated July 20, 2011, attached hereto as Exhibit A). Apple also withdrew its proposed expert on the issue of whether Motorola had made a RAND offer. (See Respondent Apple Inc s Opposition to Commission Investigative Staff s Motion in Limine to Exclude the Expert Opinion of Robert O Hara at 1 n.1 (EDIS Doc. ID )). OUII subsequently designated the investigation for non-participation by OUII, noting specifically that it was doing so because the RAND-based defenses had been dropped. (See Commission Investigative Staff s Notice of Non- Participation, dated July 29, 2011 (EDIS Doc. ID )). It is OUII s understanding that the private parties thereafter went to trial on the issue of unclean hands, i.e., whether Motorola had

9 -8- breached its duty of disclosure to a standard-setting organization, but not on issues related to RAND. (See, e.g., ID at ). Now, in the context of its public interest submission, Apple seeks to reopen the RAND issue, and has submitted an affidavit by the same expert that OUII originally moved to preclude. (See Apple Statement, Ex. A). Based on the facts set forth above, OUII is of the view that Respondent Apple has waived its right to assert that Motorola failed to offer a license on RAND terms. In general, [a] waiver is comprehensively defined as a voluntary and intentional relinquishment, surrender, or abandonment of a known existing legal right, advantage, benefit, claim, or privilege, which except for such waiver the party would have enjoyed. 31 C.J.S. Estoppel and Waiver 85 (2008); see also, e.g., Johnson v. Zerbst, 304 U.S. 458, 464 (1938); Certain Lens-Fitted Film Packages, Inv. No. 337-TA-406, Initial Determination at 200, USITC Pub 3219 (Aug. 1999). Here, there is no question that Apple had a known, existing right to assert affirmative defenses based on Motorola s alleged FRAND obligations, and that it voluntarily and intentionally relinquished that right, as evidenced by its letter to counsel and its filing with the Judge. This is a clear waiver. More broadly, however, OUII is of the view that it would be contrary to Commission policy to now permit Apple to assert that Motorola s alleged breach of its RAND obligations bars entry of an exclusion order in this investigation. As described above, Apple had the opportunity before the investigation was instituted to request that any public interest considerations, including RAND issues, be delegated to the Judge to develop a record, but it did not do so. Then, faced with OUII s motion to preclude its expert, Apple voluntarily withdrew its RAND-based affirmative defenses. Thus, Apple chose not to create a full record on the RAND issues. But

10 -9- now, Apple has submitted a declaration from the same expert (who is no longer subject to cross 4 examination) arguing that the public interest bars relief on the basis of a RAND obligation. Although various non-parties have also submitted public interest statements echoing Apple s arguments, OUII notes that Motorola is seeking only a limited exclusion order (i.e., an order covering only Apple s products, as opposed to the products of other entities). Thus, as a matter of policy, Apple should not be permitted to benefit from its failure to develop a record on the facts underlying its allegations with respect to Motorola s RAND obligations. 2. Question 7 If the record of an investigation lacks evidence sufficient to support a RAND-based affirmative defense (e.g., equitable estoppel, implied license, waiver, etc.), under what circumstances (if any) should a RAND obligation nonetheless preclude issuance of an exclusion order? Please discuss theories in law, equity, and the public interest, and identify which (if any) of the 337(d)(l) public interest factors allegedly precludes issuance of such an order. As a general rule, OUII submits that if the record of an investigation lacks sufficient evidence to support a RAND-based affirmative defense, there are few circumstances under which a RAND obligation should nonetheless preclude issuance of an exclusion order. The existence of a RAND obligation, and the breach thereof, can support a number of potential defenses, and it is in this context that parties have previously raised RAND-related issues at the Commission. Such defenses generally depend on the scope of the RAND obligation, whether the complainant has breached this obligation, and the relationship between the parties. The statutory public 4 Apple s letter to counsel dropping various defenses stated that Apple reserved the right to make any public interest submissions and arguments. (See Exhibit A hereto). However, this reservation should not, in OUII s view, be read to vitiate Apple s waiver and override its failure to develop a record to support its RAND arguments.

11 -10- interest factors, in contrast, deal with the potential effect of an exclusion or cease and desist order, i.e., whether preventing the importation of the products will harm the public interest. These are generally separate and independent issues. Moreover, to the extent that there is overlap, it is unlikely that a respondent could prove that complainant s breach of its RAND obligation harmed the public interest without first proving the elements of an affirmative defense. In this respect, Section 337 states that [a]ll legal and equitable defenses may be presented in all cases. 19 U.S.C. 1337(c). The Commission has therefore frequently been called upon to adjudicate defenses related to RAND in the course of determining issues of 5 violation. An alleged breach of a RAND obligation will ordinarily give rise to a defense based on equitable estoppel or implied license a failure to negotiate a license in good faith can clearly support such a defense, even outside the RAND context. See, e.g., Certain Dynamic Random Access Memories, Components Thereof and Products Containing Same, Inv. No. 337-TA-242, Initial Determination at (May 21, 1987). However, depending on the specific facts at issue for example the rules of the applicable standard-setting organization, the scope of the RAND obligation, and the relationship between the parties other defenses such as express 5 For example, RAND-based defenses were raised in Certain Wireless Communications Equip., Articles Therein, and Products Containing Same, Inv. No. 337-TA-577, Order Nos. 21 and 33 (Apr. 13, 2007; March 19, 2007); Certain Mobile Telephone Handsets, Wireless Communication Devices, and Components Thereof, Inv. No. 337-TA-578, Order No. 34 (Feb. 20, 2007); Certain 3G Wideband Code Division Multiple Access Handsets and Components Thereof, Inv. No. 337-TA-601, Prehearing Conf. Tr. at (May 22, 2007); Certain 3G Mobile Handsets and Components, Inv. No. 337-TA-613, Order Nos. 18 and 29 (Feb. 25, 2008; Apr. 25, 2008); Certain Optoelectronic Devices, Components Thereof, and Products Containing Same, Inv. No. 337-TA-669, Initial Determination at (Mar. 12, 2010); and Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA-794, Order No. 82 (May 31, 2012).

12 -11- license, patent misuse, and waiver might be applicable. In each case, however, the defense is based on the specific actions (or failures to act) of a complainant. In contrast, the statutory public interest factors of Section 337 are not related to a complainant s contractual obligations, but instead relate to whether excluding the imported goods will damage the public interest. For example, the Commission may decline to exclude infringing products if the exclusion would harm the public health and welfare, e.g., by excluding needed medical materials. See, e.g., Fluidized Supporting Apparatus, Comm n Op. at (beds for burn victims). Similarly, the Commission will consider whether exclusion will harm competitive conditions in the U.S. economy, e.g., by reducing competition in an industry. See, e.g., Personal Mobile and Data Communications Devices, Comm n Op. at (delaying exclusion to allow competitors to switch to non-infringing devices). The Commission will consider whether exclusion will harm the production of like or directly competitive articles in the United States, e.g., by harming domestic manufacturers. See, e.g., id. at (finding this factor irrelevant when there was no domestic production of smartphones); Automatic Crankpin Grinders, Comm n Op. at (products not excluded where domestic industry was not capable of meeting demand of U.S. manufacturers). Finally, the Commission will consider if the exclusion will harm U.S. consumers, e.g., by excluding unique products. See, e.g., Baseband Processors, Commission Opinion at 149 (finding that excluding existing 3G devices would harm consumers because there is a wide array of existing and potential services that would either be only available on, or would be significantly enhanced by, 3G networks and handsets ). Thus, the statutory public factors are largely unrelated to whether a RAND obligation exists or whether a complainant has breached its obligations. As discussed below in response to

13 -12- the Commission s other questions, there may be circumstances in which there may be some overlap, for example, if a complainant s actions constitute price gouging or monopolization. See S. Rep (1974) reprinted in 1974 U.S.C.C.A.N. 7186, 7330 (1974). However, even in these instances, Respondents would still generally need to prove the same facts as would be necessary to support an affirmative defense (for example, that there was a RAND obligation for the asserted patent and that the complainant breached this obligation in a manner that disadvantaged respondent vis-a-vis other competitors) in addition to providing the information about the products and the industry necessary to show that the proposed exclusion would harm the public interest. Thus, although the public interest factors are flexible enough to preclude a hard and fast rule, OUII submits that there would appear to be relatively few situations in which there is insufficient evidence to prove a RAND-based affirmative defense, but in which the evidence concerning the RAND obligation will nonetheless be sufficient to preclude issuance of an exclusion order based on harm to the public interest. 3. Question 8 Does the mere existence of a RAND obligation preclude issuance of an exclusion order? Please discuss theories in law, equity, and the public interest, and identify which (if any) of the 337(d)(1) public interest factors allegedly precludes issuance of such an order. OUII submits that the mere existence of a RAND obligation does not preclude issuance of an exclusion order. As noted above, the statutory public interest factors relate to whether exclusion of a product will harm the public interest, which will depend on the products and industries involved, and will be different in each investigation. In addition, Section 337 and the relevant legislative history make it clear that many of the factors that would allegedly militate

14 -13- against an injunction in U.S. District Court are inapplicable at the Commission. And most importantly, a per se rule would be antithetical to the purposes of the statute because it could leave domestic industries without any remedy against foreign importers of infringing goods. First, OUII submits that the question of whether an exclusion order will harm the public interest depends on the facts of each investigation, and is not amenable to a general rule. For example, an exclusion order on a chip in a two-way radio used by first responders may implicate the public health and welfare while an exclusion order on consumer products using the same chip would not. See Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same, Inv. No. 337-TA-605, Comm n Op. at 74, USITC Pub (Nov. 2011). Similarly, the transition from analog to digital television clearly affected U.S. consumers, but this public interest factor did not weigh against an exclusion order when there were sufficient supplies from other sources. See Certain Digital Televisions and Certain Products Containing Same and Methods of Using Same, Inv. No. 337-TA-617, Comm n Op. at (April 23, 2009). Thus, some types of products potentially subject to RAND commitments might raise public interest concerns, while other types of products might not, depending on the specifics of each investigation. These types of issues are unrelated to whether a complainant has made a RAND commitment, and it would be inappropriate hold as a matter of law that excluding a product covered by a patent subject to a RAND commitment would necessarily be contrary to the public interest. Indeed, OUII notes that even though the FTC submitted comments in this investigation indicating its desire to protect U.S. competition, consumers, and innovation, it has apparently itself not adopted an approach holding that seeking an injunction with respect to a

15 -14- patent subject to a RAND obligation necessarily violates competition or consumer protection laws. (FTC Statement at 1 n.1). In other words, this is not a case of one size fits all. Moreover, much of the rationale for arguing that a RAND obligation precludes an injunction in U.S. District Court is inapplicable to a Commission investigation. A good example of the difference is the decision in the Northern District of Illinois that, to the best of OUII s knowledge, is the first to hold that an injunction is necessarily unavailable when a patentee has made a RAND commitment. See Apple, Inc. v. Motorola, Inc., F.3d, 2012 WL (N.D. Ill. June 22, 2012). The basis for this decision, as with many of the public interest statements submitted in this investigation, appears to be that by making a RAND commitment the patentee implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. Id. at *12. However, as the Commission has explained, Section 337 represents a legislative determination that there is an inadequate remedy at law for infringement by importation. Baseband Processors, Commission Opinion at 63 n.230 (emphasis added); see also Spansion, Inc. v. International Trade Comm n, 629 F.3d 1331, 1358 (Fed. Cir. 2010) ( Congress intended injunctive relief to be the normal remedy for a Section 337 violation and... a showing of irreparable harm is not required to receive such injunctive relief. ); see generally 19 U.S.C. 1337(a)(1) (a Commission proceeding is in addition to any other provision of law ). Indeed, Congress specifically indicated that the Commission cannot use the public interest factors to require a complainant to show that it has it has been injured as a prerequisite for obtaining relief. See S. Rep , at 129 (1987). The argument that making a RAND 6 Other courts have indicated that an injunction is available under such circumstances. See, e.g., Commonwealth Scientific and Industrial Research Organization, 492 F. Supp.2d 600 (E.D. Tex. 2007) (granting injunction as to an essential patent subject to a RAND obligation).

16 -15- commitment shows that the patentee necessarily has an adequate remedy at law in terms of money damages is thus irrelevant to the issue of whether the Commission should grant relief. Most importantly, however, the public interest submissions arguing that an exclusion order should never issue in an investigation involving a patent covered by a RAND obligation appear to be operating from a false premise that a domestic industry that is denied relief at the Commission can always get money damages in U.S. District Court. That may well be true in the instant investigation, where both parties are large U.S. companies. See Apple, Inc., 2012 WL at *14 ( There is no question of collectability in this case, a common reason why a damages remedy is inadequate. ). But this is not the norm in Commission investigations, most of which involve foreign companies, often small foreign companies based in countries with less robust intellectual property systems. In these types of cases, the domestic industry may well be unable to collect damages or royalties for infringement, and one of the purposes of Section 337 is to provide a remedy in such situations. See Certain Steel Rod Treating Apparatus and Components Thereof, Inv. No. 337-TA-97, Commission Action and Order, Appendix B at 7, USITC Pub 1210 (Jan. 1982) ( Congress enacted section 337 because in many instances foreign individuals or firms committing unfair acts to the detriment of an American industry are beyond the in personam reach of the U.S. courts and not amenable to a suit for money damages or injunctive relief. ). Indeed, in situations where a foreign manufacturer has no direct contacts with the United States the Commission would be the domestic industry s sole recourse. See Sealed Air Corp. v. United States Int l Trade Comm n, 645 F.2d 976, (C.C.P.A. 1981) (holding that the Commission does not need personal jurisdiction to issue an exclusion order). A

17 -16- rule that the mere existence of a RAND obligation bars relief at the Commission is thus entirely contrary to the text and purposes of Section 337 and would itself be against the public interest. 4. Questions 9-12 Should a patent owner that has refused to offer [or negotiate] a license to a named respondent [or to some entity (regardless of whether that entity is a named respondent in a Commission investigation)] in a Commission investigation on a RAND obligated patent be able to obtain an exclusion order? Please discuss theories in law, equity, and the public interest, and identify which (if any) of the 337(d)(i) public interest factors allegedly precludes issuance of such an order. OUII submits that whether a patentee should be precluded from obtaining an exclusion order because it has refused to offer or negotiate a RAND license depends upon the specific facts of each investigation. Here, as discussed previously, Apple has waived its right to assert that Motorola failed to offer to license its patents on FRAND terms. More generally, however, OUII is of the view that each of the situations raised in the Commission questions (i.e., the complainant has refused to offer a license on RAND terms to a respondent, has refused to offer a RAND license to a non-party, has refused to negotiate a RAND license with the respondent, or has refused to negotiate a RAND with a non-party) might or might not give rise to a viable defense. A critical issue in each case would be the rules of the applicable standard setting organization and scope of the particular RAND commitment made by the complainant. However, as noted above, the breach of a RAND obligation would by itself rarely preclude issuance of an exclusion order. First, OUII agrees with many of the public interest submissions that the standard setting process is generally in the public interest, and a commitment to license essential patents on RAND terms is an enforceable obligation. (See, e.g., BSA Statement at 2; ACT Statement at 2;

18 -17- Nokia Statement at 1-2; Senators Statement at 1-2). Thus, when a complainant breaches a RAND obligation, a respondent may have a number of potentially meritorious affirmative defenses. If a complainant refuses to offer a RAND license to an essential patent to a respondent, it may well be equitably estopped from asserting that patent against that respondent. If a complainant has breached its RAND obligations to others in the industry, it may potentially be deemed to have waived its right to assert the patents, or it may be engaged in patent misuse, 7 which would render the patent unenforceable. Similarly, when a complainant has refused to negotiate a RAND license in good faith, this may also potentially provide a defense to a respondent, especially if during the negotiations the complainant failed to offer RAND terms. However, in order to prevail, a respondent must prove the merits of its defense, which will depend on the specific facts of each investigation. In particular, OUII notes that the rules of the standard setting organization at issue and/or the terms of a complainant s RAND commitment may provide that a particular form of relief is available or unavailable under specific circumstances. As discussed above, the mere existence of a RAND obligation does not, by itself, bar relief at the Commission. Nevertheless, a standard setting organization could potentially require its members to agree to give up certain forms of relief (e.g., to affirmatively waive a right to any remedy other than damages), could require that all disputes be litigated in certain forums, or could itself adjudicate disputes between its members concerning essential patents. See, e.g., Zoran Corp. v. DTS, Inc., 2009 WL , at *1 (N.D. Cal. Jan. 20, 2009) (noting that the Blu-Ray Disc Association requires its members to arbitrate 7 OUII notes that an argument that other entities have not been offered RAND licenses would be more compelling in the context of an investigation where the proposed remedy was a general exclusion order, because those entities products would also be subject to exclusion.

19 -18- certain disputes concerning a member s compliance with its FRAND obligations). On the other hand, a standard setting organization may not have any rules for such situations, and may essentially leave it for the courts to decide what relief is proper. See, e.g., Certain Encapsulated Integrated Circuit Devices and Products Containing Same, Inv. No. 337-TA-501, Trial Transcript at 1949, , 2096 (July 16, 2004) (EDIS Doc ID , ) (general counsel of EIA and JEDEC sector president testifying that whether parties are complying with their licensing obligations is between the parties in the first instance and ultimately for the courts if the parties can t resolve the matter ). Obviously, a situation in which a standard setting organization requires its members to forgo an injunction or to resolve disputes in certain forums presents a more compelling argument against entry of relief at the Commission than one in which the standard setting organization does not have such explicit requirements. Finally, whether entry of an exclusion order would be contrary to the public interest will generally involve a separate analysis, which depends on the products and industries involved rather than on whether a complainant has breached its obligation to offer or negotiate a license with a respondent or with non-parties on RAND terms. Some of the public interest submissions appear to allege that an exclusion order with respect to a patent subject to a RAND obligation will necessarily impact competition, inhibit production of articles in the United States, or harm consumers. (See, e.g., BSA Statement at 4-5; AT&T Statement at 2; Nokia Statement at 5; H-P Statement at 3-4). However, this is not always the case. For example, if the industry at issue is one in which there is no domestic production, then the question of whether a RAND obligation has been breached is obviously unlikely to affect U.S. production of like or directly competitive articles. See Personal Mobile and Data Communications Devices, Commission Opinion at 77-

20 This is, of course, not an absolute rule. As noted above, there may be circumstances under which the breach of RAND obligation directly implicates one of the statutory public interest factors, such as when a patentee is using a standards-essential patent to engage in price gouging or monopolistic practices (and is thus affecting competitive conditions in the United States economy). See S. Rep (1974) reprinted in 1974 U.S.C.C.A.N. 7186, 7330 (1974). But, in any event, whether a particular breach of a duty to license or negotiate RAND terms implicates the statutory public interest factor depends on the products and industries involved, and must be determined on a case-by-case basis. 5. Question 13 Should a patent owner who has offered a RAND license that the named respondent in a Commission investigation has rejected be precluded from obtaining an exclusion order? Please discuss theories in law, equity, and the public interest, and identify which (if any) of the 337(d)(1) public interest factors allegedly precludes issuance of such an order. OUII submits that whether a patent owner that has offered a RAND license that the named respondent has rejected is precluded from obtaining an exclusion order depends upon the facts in a given investigation. Here, Apple has waived its right to assert that Motorola failed to offer to license its patents on FRAND terms. More generally, however, OUII is of the view that a complainant that has made a RAND offer that is rejected by a respondent will ordinarily be entitled to relief at the Commission, although there may be exceptions. In this respect, if a patentee has made a RAND offer, particularly if it makes the offer before filing a complaint, then it will have satisfied its obligations to a respondent. If an infringer then refuses a RAND license, there would thus not normally be a basis for denying relief. See

21 -20- Apple, Inc., 2012 WL at *12 ( I don t see how, given FRAND, I would be justified in enjoining Apple from infringing the 898 unless Apple refuses a royalty that meets the FRAND requirement ) (emphasis added). Moreover, a RAND offer would seem to obviate the fear of a patent hold-up. (See FTC Statement at 2-3; Cisco Statement at 2; Microsoft Statement at 2). A RAND license is, by definition, reasonable and non-discriminatory, and an offer to license on RAND terms is thus not a hold-up (the patent holder would not be using the threat of an exclusion order to get unreasonably high royalties). Moreover, because a license must always be available on RAND terms, regardless of whether the infringer refused the initial offer, the infringer could end the threat of an exclusion order at any time simply by taking the RAND license and paying the royalties that are due. Of course, the rules of the relevant standard setting organization or the terms of the RAND commitment may still bar relief, but this will depend on the specific facts of each investigation. Moreover, whether an exclusion order implicates the statutory public interest factors will involve a separate analysis, which depends on the products and industries involved, not on the behavior of the patentee. In general, however, if a license to an essential patent is freely available, the public health and welfare will not be harmed, competition will not be distorted, and U.S. production and U.S. consumers will not be affected (because everyone, including the respondent, could secure a license on reasonable terms). Again, there may be circumstances where a RAND offer does not remove public interest concerns (for example, a patentee could be using a RAND licensing program as an anticompetitive horizontal arrangement). Similarly, it would be entirely possible that a patent holder could make a RAND offer, the infringer could refuse to pay, and the Commission would still not issue relief because exclusion of the products

22 -21- at issue (e.g., medical equipment for which there is no available substitute) would damage the public interest (e.g., the public health and welfare). Again, however, this will depend on the specific facts of each investigation. C. General Remedy Issues As discussed above, OUII s participation in this investigation terminated before the trial. OUII is therefore not in a position to comment on the evidence or to provide a position with respect to whether a remedy is appropriate or what form(s) any remedy should take. Nevertheless, OUII is able to offer the following comments regarding certain additional issues raised in the public interest submissions. Respondent Apple s public interest statement contends that it supplies 42.2% of the smartphone market and 55% of the tablet computer market and that an exclusion order would negatively impact its employees, stores, and research and development. (Apple Statement, Ex. 1, 5-6). This is essentially an argument that Apple is too big to fail, i.e., it must be allowed to import infringing products because to do otherwise would harm the economy. However, the markets in question appear to be highly competitive. See, e.g., Investor s Business Daily, Samsung Overtakes Apple in Smartphone Shipments, 2011 WLNR (Oct. 28, 2011) (noting that Samsung had overtaken Apple in smartphone shipments despite Apple blocking sales of Galaxy mobile devices in patent claims around the world ). Apple has not provided any evidence that other companies would not be able to fill in the gap, if any, left by Apple if an exclusion order should issue. Non-party Verizon Wireless s public interest statement appears to argue in part that no exclusion order should issue in any investigation involving wireless broadband technology

23 -22- because such an order would hamper technological development, strand critical infrastructure development, and cost American jobs. (Verizon Statement at 2-4). However, intellectual property laws generally promote innovation and enhance the public welfare, see, e.g., U.S. Department of Justice & Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property at 2 (April 6, 1995), and the Commission has previously issued exclusion orders involving wireless products without harming technological development and competition. In appropriate factual situations, an exclusion order may contain special provisions to protect the public interest, see Personal Data and Mobile Communications, Commission Opinion at 83-84, but this should not translate into an industry-wide exemption from Section 337. Finally, the Federal Trade Commission has made two suggestions with respect to remedy. The first, which calls upon the Commission to refuse to issue an exclusion order unless the patentee has made a RAND offer, is addressed in the context of Commission questions However, the FTC also proposes that the Commission delay the effective date of its Section 337 remedies until the parties mediate in good faith for damages for past infringement and/or an ongoing royalty for future licensed use, with the parties facing the respective risks that the exclusion order (i) will eventually go into effect if the implementer refuses a reasonable offer or (ii) be vacated if the ITC finds that the patentee has refused to accept a reasonable offer. (FTC Statement at 4). With respect to this suggestion, OUII notes that the Commission does not have the statutory authority to compel a license. Moreover, implementing the FTC s suggestion would put the Commission in the position of refereeing the private parties business negotiations over a reasonable royalty, which is something that none of the standard setting organizations themselves

24 -23- seem to be willing to do. OUII is therefore of the view the FTC s second suggestion could not be adopted absent an agreement among the private parties. IV. CONCLUSION For all of the above reasons, OUII submits that: (1) Apple has waived the right to assert that Motorola failed to offer a license on RAND terms; (2) there is no general rule prohibiting an exclusion order with respect to products covered by a RAND obligation; and (3) whether and under what circumstances a RAND commitment will prevent relief depends on the particular facts and circumstances of each investigation. July 9, 2012 Respectfully submitted, /s/ David O. Lloyd Lynn I. Levine, Director David O. Lloyd, Supervisory Attorney OFFICE OF UNFAIR IMPORT INVESTIGATIONS U.S. International Trade Commission 500 E Street, S.W., Suite 401 Washington, D.C (202) (202) (Fax)

25 EXHIBIT A

26 1300 Eye Street NW, Suite 900 Washington, DC tel fax Weil, Gotshal & Manges LLP Mark G. Davis Mark.Davis@weil.com July 20, 2011 BY Alexander Rudis, Esq. Quinn Emanuel 51 Madison Avenue, 22nd Floor New York, New York Re: In the Matter of Certain Wireless Communication Devices, Portable Music And Data Processing Devices, Computers And Components Thereof, Inv. No. 337-TA-745 Dear Alex, In response to your of July 17th regarding certain possible inequitable conduct defenses and inventorship of the `862 patent, I write to inform you that Apple will not be pursuing as a defense in the 745 investigation any allegations of inequitable conduct before the Patent Office with respect to any of the patents at issue and that we will also not be asserting an inventorship defense regarding the `862 patent. Additionally, Apple will not be pursuing as part of the 745 investigation any affirmative defenses based on Motorola's failure to make a FRAND Offer. Apple will be raising defenses based on the untimely disclosure of the the `697 patent. Apple specifically reserves the right, however, to pursue any of these defenses (including, without limitation, those based on a failure to make a FRAND offer and/or inequitable conduct) and claims related to them in other actions, including for example, the 661, 662, and 178 actions pending in Wisconsin. Similarly, Apple expressly reserves its rights to make any public interest submissions and arguments it may wish to raise - particularly since any such argument can only be made to the Commission. Sincerely, Mark G. Davis US ACTIVE: \

27 CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing was served on July 20, 2011 as indicated, on the following: Via Via and Hand Delivery Kevin Baer, Esq. Charles F. Schill Office of Unfair Import Investigations Steptoe & Johnson LLP U.S. International Trade Commission 1330 Connecticut Avenue, N.W. 500 E Street, S.W., Room 401-A Washington, DC Washington, D.C S e. corn kevin.baer@usitc. gov Via Via Charles K. Verhoeven Robert T. Haslam Quinn Emanuel Urquhart & Sullivan LLP Covington & Burling LLP 50 California Street, 22nd Floor 333 Twin Dolphin Drive, Suite 700 San Francisco, CA Redwood Shores, CA David A. Nelson Robert D. Fram Quinn Emanuel Urquhart & Sullivan LLP Covington & Burling LLP 500 West Madison Street, Ste One Front Street Chicago, IL San Francisco, CA Edward J. DeFranco Quinn Emanuel Urquhart & Sullivan LLP 51 Madison Avenue, 22nd Floor New York, NY AppleCov@cov.com Tessa Strasser Paralegal

28 Certain Wireless Communication Devices Investigation No. 337-TA-745 CERTIFICATE OF SERVICE The undersigned certifies that on July 9, 2011, she caused the foregoing SUBMISSION OF THE OFFICE OF UNFAIR IMPORT INVESTIGATIONS ON REMEDY AND THE PUBLIC INTEREST to be filed with the Secretary and served upon the parties (1 copy each) via (PDF). Counsel for Complainant Motorola Mobility, Inc.: Charles F. Schill Steptoe & Johnson LLP 1330 Connecticut Ave., NW Washington, DC Counsel for Respondent Apple Inc. Mark G. Davis Weil, Gottshal & Manges LLP 1300 Eye St., NW., Suite 900 Washington, DC /s/ Anne Goalwin Anne Goalwin OFFICE OF UNFAIR IMPORT INVESTIGATIONS U.S. International Trade Commission 500 E Street, S.W., Suite 401 Washington, D.C (202)