August 31, 2012 4:59PM

Section 337: A Second Bite at the Samsung

Last Friday, a court determined that Samsung phones did not copy the iPhone’s design and found Apple liable for infringing Samsung’s patents on mobile technology.  Wait, is that right?  Yes---in Korea.  The same day that a California jury found that Samsung owed Apple $1 billion for infringing design and utility patents, a court in Korea came to a very different conclusion.

In fact, courts all over the world have weighed in on the dispute and the results have not been at all consistent.  Just today, Apple lost in Japan, but it has had better results in Germany and Australia.  So far, the most entertaining decision has come from the United Kingdom, where a judge decided that Samsung’s products were not “cool” enough to be confused with the iPad or iPhone and then ordered Apple to issue a public apology to Samsung in paid newspaper ads.

The bizarre drama that is the smartphone patent wars is the byproduct of an international patent system in which products are global but patents are national.  Each country issues its own patents under its own rules, and any infringement determination must be made at the national level.  Samsung and Apple have sued each other in at least half a dozen countries.   In the United States, they are doing it twice.

Unlike every other country in the world, the United States allows patent holders to seek relief from allegedly infringing competitors in both a court of law and an administrative agency.  The U.S. International Trade Commission (ITC) has the power to exclude imported products from the U.S. market if it determines (based on its own separate investigation) that a respondent company has infringed the complainant’s patent and imported the offending product from abroad.

ITC investigations are authorized by Section 337 of the Tariff Act of 1930, a law designed to protect domestic manufacturers who could show that their foreign competitors engaged in “unfair methods of competition or unfair acts.”  Patent infringement has long been the most common allegation made under Section 337.  Although in many ways indistinguishable from a court trial, ITC investigations are generally faster than court cases, have only one remedy available (an import ban), and can only be used against alleged infringers who manufacture their products outside the United States.

In an upcoming Cato Policy Analysis, I explain why the existence of Section 337 is so problematic and argue for its repeal:

The only reasonable justification offered for retaining Section 337 is that district courts lack the power to stop infringement by foreign manufactur­ers. This argument is premised on an inac­curate perception of Section 337 respon­dents as untraceable foreign counterfeiters hiding behind national borders to leach off of innovative U.S. industries. In truth, the vast majority of respondents at the ITC are well-known corporations with operations in the United States, and many are cham­pions of the innovative U.S. industries that Section 337 is supposedly meant to protect. Having a special patent enforcement mecha­nism just for imports serves no legitimate purpose and poses substantial risk to the effectiveness of the patent system, the abil­ity of the United States to participate in the international trading system, and the rights of American consumers to pick their own winners and losers in a globalized economy.

Section 337 violates U.S. obligations as a member of the WTO because it treats imports less favorably than domestic goods.  There is simply no need to give patent holders two chances to get a favorable verdict in patent litigation---foreign manufacture doesn't change that.

The existence of Section 337 also raises the possibility of conflicting judgments.  In December, the federal district judge in the case Samsung just lost will decide whether to issue a permanent ban on the importation and sale of certain Samsung products.  The ITC is scheduled to make a similar determination by the end of October.  Apple gets two chances, because Samsung has to win both.  If the court decides to issue a ban, the ITC proceeding is a complete waste of time.  If the court doesn't issue a ban, the ITC may make that determination irrelevant by issuing its own.  If the ITC finds that Samsung did not infringe Apple’s patents, the whole thing is a complete mess.