Tag: Apple

Obama Chastises Rogue Trade Agency for iPhone Ban

On Saturday, the president vetoed a decision of the U.S. International Trade Commission for the first time in over 25 years. As a result, the United States will not be imposing an import ban on older iPhones despite the ITC’s finding that Apple infringed certain patents owned by Samsung. This action by the Obama administration is undoubtedly a good development, not just because you will still be able to get a free iPhone 4 when signing a 2-year contract, but because the veto simultaneously disciplines and discredits the ITC’s disruptive role in the U.S. patent system.

The president’s intervention corrects a bad decision by the ITC. The patents that Samsung accused Apple of infringing in the ITC investigation are standard technology required to run phones on a 3G wireless network. Owners of standard-essential patents must agree to license the technology on fair, reasonable, and non-discriminatory (FRAND) terms to anyone who asks. Samsung claimed at the ITC that Apple refused to pay any royalties at all, and Apple claimed that Samsung demanded an unreasonable royalty. The ITC sided with Samsung.

The ITC’s ruling has been controversial not because Samsung won the case, but because the ITC’s remedy—total exclusion of the infringing products from the U.S. market—is excessive.

If Samsung had brought its case in federal district court instead of the ITC, the judge would most likely have ordered Apple to pay the royalties it owed Samsung. An injunction against future sales would not be granted, because Samsung never had the right to keep Apple from using the technology in the first place, only to collect royalties.

As I wrote last month in anticipation of a potential presidential veto, this action by the president has a number of policy implications that go beyond the Apple–Samsung patent dispute. The Obama administration, leaders in Congress, and much of the tech industry have been converging lately on the idea that remedies for patent infringement at the ITC are too strict. The ITC should not be able to ban future sales in a situation where a district court would refuse to do the same thing. As it stands now, the ITC’s excessive remedies allow patent holders to wield more power than they should and exacerbate the ongoing struggle against patent trolls.

Korean press coverage of the issue has implied that the administration’s veto of Samsung’s patent victory against Apple amounts to “flagrant protectionism.” In a separate case, the ITC is set to decide later this week whether Samsung infringed patents owned by Apple. If the administration allows an import ban on Samsung products despite intervening to help Apple, many in Korea will surely cry foul.

A trade conflict would be a fitting consequence of mixing patent litigation with trade policy. It doesn’t make sense for President Obama to have the power to intervene in a patent case simply because he doesn’t approve of the outcome. Section 337 of the Tariff Act of 1930, the law that enables the ITC to litigate patents, was designed as a protectionist trade remedy. The president’s veto power is meant to ensure that the ITC’s decisions don’t impede U.S. foreign or economic policy. If the ITC were a legitimate patent court, its decision would not be subject to executive override. The ITC is simply the wrong place to litigate patents, standard-essential or otherwise.

The Real Reason Politicians Want a Bigger Bite of Apple

Earlier this month, I explained four reasons why the Apple “tax avoidance” issue is empty political demagoguery.

And Rand Paul gave some great remarks at a Senate hearing, excoriating some of his colleagues for trying to pillage the company.

But this Robert Ariail cartoon may be the best summary of the issue.

Arial Apple Cartoon

What makes this cartoon so effective is that it properly and cleverly identifies what’s really driving the political class on this issue. They want more revenue to finance a bigger burden of government spending.

When I did my contest for best political cartoonist, I picked a cartoon about Greece and euro for Robert Ariail’s entry. While I still think that was a very good cartoon, this Apple cartoon would probably take its place if I did a new contest.

Senators Levin and McCain: Two Peas All Up in our iPods

Earlier this year, Senator Carl Levin (D-MI) announced that he will be retiring after many, many, many decades of lawmaking when his term expires in January 2015. But he doesn’t intend to make for the exits without sealing his legacy of disdain for America’s wealth creators. After holding hearings last September to shed light on the “loopholes and gimmicks” employed by U.S. multinational companies to avoid paying their “fair share” of taxes, Levin resumed his inquisition today by holding a hearing intended to publically shame one of America’s most successful and most bountiful companies:

Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed.

Man, the spite in those words is palpable.

At the outset, it is important to note that no illegalities have been alleged, nor have any likely been committed. Like most other U.S.-based multinational corporations, who face tax rates of 35 percent on profits repatriated from abroad, Apple has tax avoidance specialists on its payroll to figure out the most effective ways to minimize their tax burden. They’d be sued for corporate malfeasance by their shareholders if they didn’t.

Unlike foreign-based multinationals whose governments don’t tax their profits earned abroad (or do so very lightly), U.S multinationals are subject to double taxation—first in the foreign countries where they operate at local tax rates and then by the IRS, at up to 35 percent, when profits are brought home. Well guess what? That system discourages profit repatriation, depriving the economy of working capital, and it encourages elaborate, legal tax avoidance schemes.

Oddly, Senator Levin’s problem is not with these perverse incentives, but with the act of following them. Thank you, sir, may I have another! But even worse, Senator John McCain (R-AZ) acknowledges the faults and disincentives of the system, but still casts the blame on those following Congress’s incentive structure:

I have long advocated for modernizing our broken and uncompetitive tax code, but that cannot and must not be an excuse for turning a blind eye to the highly questionable tax strategies that corporations like Apple use to avoid paying taxes in America. The proper place for the bulk of Apple’s creative energy ought to go into its innovative products and services, not in its tax department.

A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the U.S. economy should not be shifting its profits overseas to avoid the payment of U.S. tax, purposefully depriving the American people of revenue. It is important to understand Apple’s byzantine tax structure so that we can effectively close the loopholes utilized by many U.S. multinational companies, particularly in this era of sequestration.

Apple’s byzantine tax structure?

Should Apple be blamed for optimizing according to the legal incentives created by the likes of Senators Levin and McCain? Rather, the public would be better served if Senators Levin and McCain were hauled before a public panel to explain why the tax system they helped create and have failed to reform penalizes U.S. companies, and discourages domestic reinvestment.

Apple Users Are Stupid

Wow! That is fun to say! After suffering years under the smug superiority of my Apple-using friends…

The evidence that they’re stupid is not evidence of stupidity at all. It’s evidence that they are willing to pay a premium for luxury/status goods like their Apples. The evidence was gathered by the Orbitz travel web site, which has experimented with pricing hotel rooms consistent with what Apple users are likely to pay: more.

Perhaps we’ll hear wails of outrage from self-styled consumer advocates, the drama heightened by the glow of the apple icons on their Macbooks. Perhaps Congress will look into “unfair” pricing schemes. I’m hard-pressed to see how offering a price based on an indicator of one’s willingness to pay is unfair.

What’s happening here is the articulation of pricing and marketing practices that have been at play probably since commerce began. (Perhaps you’ve heard of haggling.) I’m not saying commerce began around his time, but my dad used to tell me about when he sold suits. If a guy wearing a fancy blue suit came into the store, he would try to sell him a fancy blue suit. If a guy came in wearing something a little downscale, pops steered him over to the sale rack. Now that’s happening with digital data rather than analog data.

Perhaps public reaction will be strongly opposed. A rough sense of pricing “fairness” will threaten differential pricing’s practitioners with too much opprobrium to make it worth the risk. Or perhaps Apple users are relatively indifferent to price and they won’t be able to sustain their outrage. I’m in favor of whichever development the free interaction of sellers and buyers produces.

I hope you gather the negative inference in that last sentence: this is not an issue for politicians to meddle with. If they did, that would be truly stupid.

Update: Kashmir Hill, not befogged with glee at Apple users’ travails, writes with more care, noting, “Mac users can still choose to sort their hotel and flight options by price, and then see the cheap stuff. And PC users can still filter their results so they get four- and five-star hotel options instead of a three-night deal at the Super 8 Hotel.” So it’s not actually differential pricing, though I wish it were…

Apple: Too Big Not to Nail

In Sunday’s New York Daily News, I deplore the efforts of politicians and regulators to drag successful companies into the parasite economy of Washington, the most recent example being Apple. As the article says,

Heard of “too big to fail”? Well, to Washington, Apple is now too big not to nail.

I was prompted to these reflections by a recent article in Politico. The Wall Street Journal used to call itself “the daily diary of the American dream.” Politico is the daily diary of the rent-seeking class. And that class is very upset with Apple for not hiring many lobbyists, as illustrated by Politico’s front-page cartoon:

The story begins:

Apple is taking a bruising in Washington, and insiders say there’s a reason: It’s the one place in the world where the company hasn’t built its brand.

In the first three months of this year, Google and Microsoft spent a little more than $7 million on lobbying and related federal activities combined. Apple spent $500,000 — even less than it spent the year before.

The nerve of them! How do they expect lobbyists to feed their families? Then comes my favorite part:

The company’s attitude toward D.C. — described by critics as “don’t bother us” — has left it without many inside-the-Beltway friends.

“Don’t bother us”—yes! Don’t tread on me. Laissez nous faire. Leave us alone. Just let us sit out here in Silicon Valley, inventing cool stuff and distributing it to the world. We won’t bother you. Just don’t bother us.

But no pot of money can be left unbothered by the regulators and rent-seekers.

Apple is mostly on its own when the Justice Department goes after it on e-books, when members of Congress attack it over its overseas tax avoidance or when an alphabet soup of regulators examine its business practices.

And what does the ruling class say to productive people who try to just avoid politics and make stuff? Nice little company ya got there, shame if anything happened to it:

“I never once had a meeting with anybody representing Apple,” said Jeff Miller, who served as a senior aide on the Senate Judiciary Committee’s Antitrust Subcommittee for eight years. “There have been other tech companies who chose not to engage in Washington, and for the most part that strategy did not benefit them.”

As I noted in the Daily News, back in 1998 Microsoft was in the same situation—a successful company on the West Coast, happily ignoring politics, getting too rich for politics to ignore it—and a congressional aide told Fortune’s Jeff Birnbaum, “They don’t want to play the D.C. game, that’s clear, and they’ve gotten away with it so far. The problem is, in the long run they won’t be able to.” All too true.

Watch out, aspiring entrepreneurs. You too could become too big not to nail.

R.I.P. Steve Jobs

Apple’s tribute webpage says it well:

Apple has lost a visionary and creative genius, and the world has lost an amazing human being. … Steve leaves behind a company only he could have built, and his spirit will forever be the foundation of Apple.

Steve Jobs’ creativity and business acumen delivered a better life to millions. He did better than most at that task, bringing new things to more people in better ways.

To Jobs, the man, we bid goodbye with thanks. Condolences to his family and friends.

When we return to debating what systems best deploy the resources of our society, let’s remember Jobs as also a great capitalist and a counterpoint to the stories that too often dominate the narrative about business.

Want Privacy? Nevermind. We Want to Censor!

Senator Chuck Schumer rounds out a trifecta of bloggable moments from the Senate Judiciary Subcommittee on Privacy, Technology, and the Law’s hearing this morning.

Ignoring the subject of the “mobile privacy” hearing, Schumer queried the witnesses from both Google and Apple on whether they will accede to his demand that they reject certain “apps” on Android phones and iPhones. The applications Senator Schumer dislikes alert people on their mobile phones to the locations of DUI checkpoints.

Senator Schumer says these apps “allow drunk drivers to evade police checkpoints,” but that statement fails to include other parties who might rightly wish to avoid police checkpoints—such as law-abiding citizens who wish to live free in this country, for example.

Recently, I landed at Harford’s Bradley International Airport late on a Friday night, heading to a Saturday morning meeting in Northampton, Massachusetts. From my shuttle bus to a remote rental car area, I saw a DUI checkpoint. After I completed the arrangements for my car, I asked the agent how I might leave so as to avoid the checkpoint. I wanted neither the delay nor the impingement on my sober liberty that a police checkpoint represents. He cheerfully directed me to a route I could freely travel.

Senator Schumer wants to prevent conversations like this from taking place on a mass scale, facilitated by advanced technologies. He stands a good chance of succeeding—RIM has already given in—because Google and Apple have repeat business before the federal government. Senator Schumer can raise their regulatory costs far higher than the value of allowing minor, but controversial apps on their systems.

If Senator Schumer succeeds, our right to freely and efficiently communicate about police activity will diminish in a way that is effectively insulated from First Amendment challenge. Privacy and freedom be damned. There are drunk drivers to catch.