Trade Commission Told to Review Google Patent Ruling

Acting on an appeal by Microsoft, the U.S. Court of Appeals for the Federal Circuit found that the ITC erred in its reasoning when it found that the Google unit Motorola Mobility did not infringe a Microsoft graphical interface patent.

After a critical discussion of the ITC judge's reasoning, the appeals court said: "This conclusion requires reversal of the 133 patent non-infringement judgment."

But it also said it agreed with the ITC that Motorola Mobility had successfully changed its smartphones so they no longer infringed the patent.

It also found the ITC was correct in ruling that Motorola Mobility, which was acquired by Google during the legal fight, did not infringe three other patents.

The dispute is one of dozens globally between various smartphone makers. Google's Android system has become the top-selling smartphone operating system, ahead of mobile systems by Apple, Microsoft, Blackberry Ltd and others.

In the original case, the ITC found in May 2012 that Motorola Mobility infringed a patent for meeting-scheduling technology but did not infringe several other Microsoft patents. An order was issued banning infringing mobile phones from the marketplace.

Motorola Mobility says it removed the infringing software from its phones. Microsoft disagrees, and has filed a lawsuit against the U.S. Customs and Border Protection, accusing the agency of failing to properly enforce the ITC order.

Microsoft said it was happy with the appeals court decision.

"We're pleased the court determined Google unfairly uses Microsoft technology," said David Howard, corporate vice president and deputy general counsel. "Google is free to license our inventions, but we're equally pleased if Google makes product adjustments to avoid using them."

A Motorola Mobility spokesman also saw good news in the appeals court decision. "Today's favorable opinion confirms our position that our products don't infringe the Microsoft patents," said spokesman Matt Kallman.

U.S. courts continue to work during the shutdown of the federal government but the ITC is largely shut down.

The case at the ITC was No. 337-744. At the Federal Circuit, the case is No. 2012-1445, -1535.

(Reporting by Diane Bartz, editing by Ros Krasny, Gerald E. McCormick and John Wallace)

Bits Blog: Trade Commission Orders Ban on Some Samsung Products

Bits Blog: Apple Urges Trade Agency to Stop Product Ban

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Chinese Telecom Companies Caught in Middle of Trade Dispute

“Actually in France, this market is quite developed and Huawei and Alcatel can coexist, just like in China,” Mr. Hu said at a hotel in the Trocadéro neighborhood. “I don’t want there to be a misunderstanding. We are not here to replace Alcatel. It would be like saying Alcatel is coming to China to replace Huawei.”

A month later, on May 17, the European trade commissioner, Karel De Gucht, accused Huawei and another Chinese equipment maker, ZTE, of violating the antidumping and subsidies laws of the European Union. Mr. De Gucht, a Belgian lawyer, called for negotiations between the European Union and China to avoid an investigation that could lead to punitive customs duties.

Now the two sides appear set to meet in an attempt to work out their differences. China has asked that Mr. De Gucht hold an informal meeting with its vice commerce minister, Zhong Shan, in Brussels on Monday, China’s Ministry of Commerce and a European Union trade spokesman confirmed on Sunday.

“It appears that the commission is using the telecom equipment situation as some kind of a stick and bargaining chip against China,” said Stuart Newman, an antidumping expert at the Foreign Trade Association, a Brussels group that represents European trade associations.

Mr. Newman said the Europe-China trade relationship had become more difficult over the last two years, driven by disputes over solar panels and now, telecom equipment.

The 27-nation European Union is China’s biggest trading partner, the destination for Chinese exports worth 289.7 billion euros, or about $377 billion, last year. Last September, Mr. De Gucht opened an antidumping investigation of Chinese solar panel makers after receiving a complaint from a European industry association, EU ProSun. That investigation is set to end this year.

The stakes in the solar panel dispute dwarf those of the telecom equipment makers. Last year, Chinese exports of solar panels and components to the European Union were roughly 21 billion euros, while shipments of telecom network gear were only about 1 billion euros, according to European Commission figures.

China’s commerce minister, Gao Hucheng, said in comments published on Sunday on the ministry’s Web site that he hoped the disputes over photovoltaic and telecommunications products could be solved through talks.

A meeting on Sunday between the Chinese premier, Li Keqiang, and the German chancellor, Angela Merkel, also touched on the trade tensions. Both leaders emphasized their desire to resolve the dispute over solar tariffs, which Mr. Li said China considers dangerous to the global economy.

“These are measures that will flood into the neighboring countries, and are not useful to anyone,” Mr. Li said.

A person close to the European negotiating team played down the Chinese push for dialogue, saying the country’s trade officials were maneuvering ahead of June 5, when Mr. De Gucht is expected to reveal the level of punitive tariffs that the European Commission intends to impose on Chinese solar panel makers. Serious negotiations with the Chinese will begin only after the commission publishes the customs duties, the person said.

An important difference separates the telecom equipment and solar panel situations. For the telecom sector, formal legal proceedings have not yet begun, and an agreement between governments could head them off.

On the solar panel case, antidumping and antisubsidy cases are already well along, greatly limiting the statutory authority of European officials to negotiate. Once the European Union announces the preliminary level of antidumping duties, then any deal would legally need to take the form of an offer by the Chinese industry, not the Chinese government.

Hakan Wranne, an analyst at Swedbank in Stockholm, said Mr. De Gucht’s accusations suggested that the commissioner believed he had a good case against Huawei and ZTE. “I don’t think he would be making these types of claims unless he felt he had solid evidence,” Mr. Wranne said.

But a prosecution of the Chinese telecom equipment makers could cost European rivals in terms of lost revenue in China, where the state-owned mobile operators are preparing for what may be multibillion-euro contracts to build the country’s first fourth-generation high-speed networks.

Keith Bradsher and Chris Buckley contributed reporting from Hong Kong, and Melissa Eddy from Berlin.

News Analysis: Computers Trade Quickly, but Leave No Time to Think

Most of the time.

Unfortunately, the improved markets also are more prone to disaster. The same computerization and increased competition that provided the benefits also weeded out people who had the obligation to step up in times of stress, and virtually eliminated the ability of people and institutions to slow or halt markets when something goes badly wrong.

And with technological innovation continuing apace, the risks may have increased. Regulators can require changes that will prevent an exact repeat of any given disaster, as they did after the flash crash of May 6, 2010, but there appears to be no way to guess what will be the immediate cause of the next problem. And that problem may be huge. On Wednesday, computers at Knight Capital Group, a firm that executes millions of stock trades every day, went haywire.

Unintended orders spewed forth and some stocks gyrated wildly. It took the firm the better part of an hour to turn off its computers, and on Thursday it estimated its losses at $440 million.

Knight, one of the biggest players in the stock market, said it was exploring strategic alternatives. That is a polite way of saying it is desperately searching for a buyer.

It may be worthwhile to consider what would have happened a few decades ago had a computer somehow done the same thing.

The orders would have flooded into specialists at the New York Stock Exchange — people who had a duty to make markets — or to the market makers in Nasdaq stocks who had a similar responsibility. Some of the stupid orders might have been executed, but trading in the affected stocks would have come to a halt within minutes while people tried to figure out what was going on. There would have been red faces at the firm responsible, but much less red ink.

Those market makers are largely gone now. Their sources of profit — the spreads between what they sold stocks for and what they would pay for them — have vanished with competition and rule changes that allow share prices to move by one cent or less, rather than the one-eighth of a dollar, or 12.5 cents, that used to be the minimum change.

Market makers have been largely replaced by high-frequency traders who use computers that can react to orders in nanoseconds. They send in orders — and cancel them — far faster than any human could hope to do.

Exchanges, knowing that they need market makers who will take the other side of customer orders, offer rebates to high-frequency traders who manage to fill a lot of orders. In normal times, the result is markets that are highly liquid and very fast.

Decades ago, the size of an order that could be executed was limited by the capital available to the stock exchange specialist, and it was necessary for Wall Street firms like Goldman Sachs and Salomon Brothers to fill the role for large institutional orders. There are enough high-frequency firms that big orders can now be filled quickly and at lower costs.

However, those high-frequency traders have no obligation to hang around and continue to make markets when things get dicey. There was plenty of criticism of the specialists and market makers in the old days. We are approaching the 25th anniversary of the 1987 crash, when many Nasdaq market makers panicked and decided that the safer course was to not answer their phones.

But the market makers generally met their responsibilities. If they were unwilling to do so, perhaps because of a flood of orders to sell a particular stock, the market in that stock would simply shut down for a time. That pause would give others time to see what was happening, and anyone who thought the market move was unreasonable could step in and offer to buy the stock.

Now, many of the high-frequency traders — who have no power to halt trading, even if their computers somehow concluded that was wise — have simply programmed their computers to get out of a market if it is going crazy. The result is that markets may have far less liquidity when that liquidity is needed most.

To get the advantages that come with being listed as market makers, high-frequency firms were required to usually have offers posted to buy and sell the stocks in which they made markets. That rule led to the stub bid. If things were going crazy, the firm would put in a bid of $1 a share for a $40 stock. It met the requirement, but obviously no one would be stupid enough to sell at that price.

Unless that someone were a computer.

News Analysis: Computers Trade Quickly, but Leave No Time to Think

Most of the time.

Unfortunately, the improved markets also are more prone to disaster. The same computerization and increased competition that provided the benefits also weeded out people who had the obligation to step up in times of stress, and virtually eliminated the ability of people and institutions to slow or halt markets when something goes badly wrong.

And with technological innovation continuing apace, the risks may have increased. Regulators can require changes that will prevent an exact repeat of any given disaster, as they did after the flash crash of May 6, 2010, but there appears to be no way to guess what will be the immediate cause of the next problem. And that problem may be huge. On Wednesday, computers at Knight Capital Group, a firm that executes millions of stock trades every day, went haywire.

Unintended orders spewed forth and some stocks gyrated wildly. It took the firm the better part of an hour to turn off its computers, and on Thursday it estimated its losses at $440 million.

Knight, one of the biggest players in the stock market, said it was exploring strategic alternatives. That is a polite way of saying it is desperately searching for a buyer.

It may be worthwhile to consider what would have happened a few decades ago had a computer somehow done the same thing.

The orders would have flooded into specialists at the New York Stock Exchange — people who had a duty to make markets — or to the market makers in Nasdaq stocks who had a similar responsibility. Some of the stupid orders might have been executed, but trading in the affected stocks would have come to a halt within minutes while people tried to figure out what was going on. There would have been red faces at the firm responsible, but much less red ink.

Those market makers are largely gone now. Their sources of profit — the spreads between what they sold stocks for and what they would pay for them — have vanished with competition and rule changes that allow share prices to move by one cent or less, rather than the one-eighth of a dollar, or 12.5 cents, that used to be the minimum change.

Market makers have been largely replaced by high-frequency traders who use computers that can react to orders in nanoseconds. They send in orders — and cancel them — far faster than any human could hope to do.

Exchanges, knowing that they need market makers who will take the other side of customer orders, offer rebates to high-frequency traders who manage to fill a lot of orders. In normal times, the result is markets that are highly liquid and very fast.

Decades ago, the size of an order that could be executed was limited by the capital available to the stock exchange specialist, and it was necessary for Wall Street firms like Goldman Sachs and Salomon Brothers to fill the role for large institutional orders. There are enough high-frequency firms that big orders can now be filled quickly and at lower costs.

However, those high-frequency traders have no obligation to hang around and continue to make markets when things get dicey. There was plenty of criticism of the specialists and market makers in the old days. We are approaching the 25th anniversary of the 1987 crash, when many Nasdaq market makers panicked and decided that the safer course was to not answer their phones.

But the market makers generally met their responsibilities. If they were unwilling to do so, perhaps because of a flood of orders to sell a particular stock, the market in that stock would simply shut down for a time. That pause would give others time to see what was happening, and anyone who thought the market move was unreasonable could step in and offer to buy the stock.

Now, many of the high-frequency traders — who have no power to halt trading, even if their computers somehow concluded that was wise — have simply programmed their computers to get out of a market if it is going crazy. The result is that markets may have far less liquidity when that liquidity is needed most.

To get the advantages that come with being listed as market makers, high-frequency firms were required to usually have offers posted to buy and sell the stocks in which they made markets. That rule led to the stub bid. If things were going crazy, the firm would put in a bid of $1 a share for a $40 stock. It met the requirement, but obviously no one would be stupid enough to sell at that price.

Unless that someone were a computer.