http://www.forbes.com/sites/roslynlayton/2015/11/16/nvidia-and-the-nuclear-option-of-banning-samsung-smartphones/

Samsung smartphones are some of the most popular mobile devices with 21.4 percent market share in the US. But many Galaxy and Note smartphones as well as some tablets could be blocked from importation into the U.S. if a lawsuit by computer graphics maker NVIDIA succeeds. The firm has sued Samsung and Qualcomm at the US International Trade Commission (ITC), charging that NVIDIA’s patents were used without a license.

The shift away from desktops to mobile devices has ripple effects in the Internet ecosystem. While video gaming has been traditionally enjoyed on consoles and desktops, mobile devices are increasingly popular gaming platforms. For NVIDIA, a leader in computer graphics with some 7,000 patents, mobile is a tremendous business opportunity and the company has licensed its patents forAndroid devices.

Within the intellectual property (IP) world and closely related industries like video gaming, patent litigation is standard operating procedure. Slapping a patent infringement lawsuit on a competitor is an effective way to enhance negotiating leverage over the cost of a license or to slow a product roll out. The cost to file a lawsuit is relatively low, but it takes significantly more resources for the served party to respond. Lawsuits bring media attention (a free form of PR for challengers) and must be disclosed to shareholders. Thus lawsuits also figure into assessment by investors and analysts—so it is effective way to raise rival’s costs. This is frequently why parties give into patent trolls’ demands right away without putting up a fight.

But video gaming is just one function of many in a modern smartphone. A single device is more complex than an entire factory, comprising thousands of individual components and software, each with their own set of intellectual property. In practice smartphone makers such as Samsung, Apple, and Huawei contract with hundreds of vendors to produce a single phone or tablet, and the set of components and vendors may even differ depending on the country. On top of that, device makers sell directly to consumers as well as retailers and a number of other intermediaries. It is a marvel then that device makers not only license the IP, organize the supply chain, product development, and sales & marketing, but also succeed to produce generally better devices at a decreasing cost to consumers.

The device market is so diversified and competitive that profits are generally short lived in the mobile device industry, and overwhelmingly, IP licensors such as NVIDIA are hoping to increase profits by threatening litigation – and in this case taking the nuclear approach of litigation at the International Trade Court.

The ITC is unique in the world of courts. Established from the laws used to ensure the movement of goods across the US states, it has evolved to be the court to adjudicate suits between American and foreign companies. While the ITC does not that have the broad enforcement power of the Circuit Courts or the ability to award financial damages, it can impose sizeable remedies, such as embargos on certain imported goods, for example the Samsung Galaxy S5, S4, smartphones and the majority of Galaxy Note ‘phablets,’ that NVIDIA says infringe on its patents.

To be sure, intellectual property rights (IPR) are the bedrock of capitalism andintimated in the Constitution. There would be no Silicon Valley without IPR. But the digital technology has evolved more quickly than the legal framework for patents, and reform has been difficult. As a result, litigation has become the way we determine the value for patents, quite a costly and inefficient price determination mechanism.

While some intermediary regimes have emerged such as non-practicing entities (NPE) because they don’t use their patents for production, the current system leaves only those rich enough to afford legal help as the ones who can defend their patents. As such, brilliant inventors are bereft of compensation while companies with clever legal departments can exploit the system to their advantage. Thus when NVIDIA claims that the reason for the suit is to get “fair” compensation, one wonders whether NVIDIA, more likely frustrated that it can’t get the licensing price it wants, is abusing the public courts to enhance its negotiating leverage with Samsung by the threat of an ITC exclusion order to preserve its margin. As such, filing a suit at the ITC can inflict serious market impact. Companies file there specifically to impose bans on competitors’ products, perhaps giving insight to NVIDIA’s motives.

Should a ban on Samsung’s products be imposed, it threatens the supply of a highly valued consumer device, particularly for people for whom mobile broadband is their main source of Internet connectivity. Separately the International Trade Commission is requesting statements related to the public interest implications of a ban on Samsung products. The deadline for consultation is November 16.

In a preliminary ruling, the court has said the Samsung has not violated NVIDIA’s patents, however the court will move toward a full review. It appears that NVIDIA is using the ITC as a form of brinkmanship to shakedown Samsung for higher licensing fees. But given that some of America’s most popular devices are at stake, the outcome should not be left to happenstance. Nvidia can only threaten the nuclear option because Samsung is a foreign company and its jurisdiction is the ITC. Thus this is a case best settled in the board room and not the court room.