ITC Policy Project Series: Public Interest and Smartphones
The International Trade Commission (ITC) recently instituted an investigation in Certain Semiconductor Devices, Mobile Devices Containing the Same, and Components Thereof (Inv. No. 337-TA-1336) at the behest of Daedalus Prime LLC. This case again provides the ITC with the chance to reexamine its take on the statutory public interest factors. Before issuing an exclusion order, the ITC must consider the effect the order would have on public health and welfare, competitive conditions in the U.S. economy, U.S. production of articles that are like or directly competitive with those that are subject to investigation, and U.S. consumers.
We’ve discussed the public interest factors in various contexts, most recently in examining the little-to-big problem at the ITC. As explained there, the ITC invokes the public interest too rarely under its current understanding of the statute. But this case may prove to be at the public interest breaking point.
Daedalus seeks to ban the importation of Samsung’s popular phones, tablets and smartwatches. Samsung products have the second-highest U.S. market share in both phones (30 percent) and tablets (21 percent) and the third-highest U.S. market share in smartwatches (16 percent). Apple is the leader in all three product categories, with 48 percent, 53 percent and 46 percent of the respective markets.
Daedalus is a non-practicing entity (NPE), specifically a patent assertion entity (PAE), that we’ve discussed before. It cannot benefit from an order excluding Samsung from the market because, as Samsung tells the ITC, “Daedalus, a recently formed NPE, does not make anything, does not sell anything, and does not develop anything.”
An ITC exclusion order would effectively remove Apple’s main competitor from the U.S. market. That can only harm U.S. consumers and competitive conditions in the U.S. economy. There is no reasonable view of the U.S. market that concludes otherwise.
Daedalus’ risible argument to the contrary that the “change in pricing in the market for mobile devices is expected to be minimal” is unsupported by citation for good reason. Excluding the second biggest provider in any market in complex goods with two primary suppliers inevitably leads to shortages and extreme price hikes.
Exacerbating the effect of any potential exclusion order is Apple’s difficulty in keeping pace with current demand due to COVID-19 issues in China. It seems unlikely Apple would be able to make up for the sudden absence of Samsung. The next-largest smartphone market share (12 percent) is attributed to “others”; Lenovo has 9 percent. Neither figure bodes well for any participant being able to replace Samsung’s production for consumers.
The ITC has at least one informative case, which we covered extensively, that it could follow. In 2018, Qualcomm—a company that produces chips for cell phones—sued Apple at the ITC, seeking to exclude Apple iPhones that did not include Qualcomm chips. The agency’s initial determination found infringement, but the administrative law judge (ALJ) recommended the ITC not exclude the accused products, citing the public interest factors.
The ALJ was particularly troubled by the apparent elimination of one of two major players in the chip market. Such an order would “deprive U.S. smartphone consumers of quality improvements because of a lack of competition.” He also noted that the complainant, Qualcomm, “has an adequate remedy at law for any patent infringement by Apple.”
In reviewing the Qualcomm initial determination, the ITC found the patent claim at issue invalid and never addressed the remedy or the ALJ’s analysis of the public interest factors. But it should consider the reasoning behind the recommendation seriously in the present investigation.
Undoubtedly, innovations by Samsung push Apple to perform better and vice-versa. Removing one of these market leaders would reduce the pressure to innovate and deprive smartphone users of improvements. Qualcomm was a productive company seeking to enforce its patents to expand its market. Conversely, as is typical in an NPE case, Daedalus cannot benefit from the catastrophic change in multiple markets it seeks. It simply does not participate in any market. Finally, PAEs like Daedalus have an adequate remedy at law for patent infringement in the district courts. Ending the investigation would allow the complainant to proceed in district court, where it can receive damages for whatever contribution its recently acquired patents have made.
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Image credit: Ashley Blackwell