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Follow the Money – Will the ITC Lose its Patent Jurisdiction?

Written by: Bernard J. “Barney” Cassidy
Tessera Technologies, Inc.
Posted: February 27, 2012 @ 7:05 am
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Whenever a newly-minted lobbying group proposes to radically curb a government agency’s enforcement powers, it’s wise to ask, Who will benefit?

Such is the case with the newest lobby in Washington, the self-described “ITC Working Group.” You won’t learn anything about this organization by searching Google — odd, considering that Google is a member — but according to industry sources, its aim is twofold: First, it wants to block the International Trade Commission (ITC) from hearing patent infringement cases brought by “non-practicing entities” — i.e., patent holders like universities, independent inventors, and others who license their patents for manufacturers to commercialize. And second, it wants to weaken the ITC’s power to block the importation of infringing products into the U.S.

Who are the members of the new ITC Working Group lobby? In addition to Google, they are Apple, Avaya, Broadcom, Cisco, Hewlett Packard, Intel and Oracle.

What do all these companies have in common — other than that they comprise a Who’s Who of some of the biggest outsourcers in the U.S. tech industry? First, they all profit from imported products that are manufactured overseas, often using cheap labor from China and other Asian nations. And second, they have all been sued multiple times for patent infringement and from time to time been forced to pay the price.

On the face of it, a skeptic might conclude that these companies are simply trying to make patent infringement less costly and thus more efficient. Only time will tell whether the skeptic is right.

The “efficient infringement” business model focuses on sales and marketing rather than research and development. The business rationale runs something like this: let’s 1) incorporate the best available technology without regard for whether or not we have the rights to that technology, 2) build products employing the cheapest available labor, 3) race our products to market, 4) capture and maintain customers, and 5) pay later (if at all) for infringement. Oh yes, and 6) to the extent that the laws of the United States might slow us down or increase our costs, let’s deploy enough capital to weaken those laws.

How? Spend tens of millions to support a sustained multi-year campaign to delegitimize all patents. Complain about how patent owners victimize giant companies. Focus everyone’s attention on a handful of silly outlier patents that should not have been granted while ignoring the broader national economic benefits generated by legitimate patent licensing. Fund academics and other spokespersons to spread FUD (fear, uncertainty and doubt) about patents in the media and on Capitol Hill. And then lobby lawmakers to further tilt the legal playing field in favor of large, already-dominant businesses that profit handsomely from uninterrupted importing.

What will the FUD sound like? The spokespeople for efficient infringement will claim that the public interest requires that we curb the ITC’s ability to block infringing products from being imported. This is especially true, they will say, when the patentee is a non-practicing entity or NPE.

Exactly why NPEs should have their constitutionally-protected rights curbed will not be made very clear. Instead, efficient infringement representatives will try to delegitimize the entire class of inventors who have neither the capital nor the business model to commercialize their own inventions by name-calling. They will call such inventors and their agents “patent trolls.”

The entire campaign to make identity-based determinations of intellectual property rights is a vast effort to transfer wealth in a manner contrary to our nation’s fundamental principles and historical economic success. For it turns out that NPEs are as American as apple pie and have always been central to U.S. economic growth. Indeed, patent and legal records from the golden age of American invention in the 19th century indicate that more than two-thirds of the 160 so-called “great inventors” of the Industrial Revolution — including Thomas Edison — were NPEs.

Were Thomas Edison alive today, would it be in the national interest to bar him from seeking justice at the ITC?

Besides name-calling, the efficient infringement spokespeople will base their policy arguments on unproven assertions offered as givens. And one of the biggest of these assertions is that the commercially-profitable infringement that goes on is mostly “inadvertent.”

Really? How would they even know, one way or the other? Were these spokespersons for efficient infringement privy to the internal boardroom discussions of the hundreds of companies that have been judged to have infringed the patents of others in recent years? Can they verify that R&D managers and engineers at these firms did not discuss whether any startups with interesting technologies had the $5 million-plus needed to wage an infringement fight against them in court?

In truth, it matters little whether the defendant’s infringement was intentional or not. When infringement occurs, it robs inventors of the fruits of their creative labor and more importantly robs the whole society of the economic incentive to innovate new products and services. Intentional infringement is worse, but as a matter of national interest our system must protect against all infringement, intentional or not.

These same spokespeople will also assert that the very act of enforcing patents against infringers by the ITC constitutes “putting a thumb on the scale in favor of the patent owner.”

Meaning, like the way prosecuting a burglar constitutes “putting a thumb on the scale” in favor of the property owner?

Excuse me, but isn’t that what’s supposed to happen? Isn’t the enforcement of valid property rights, both real and intellectual, the proper role of government? This is certainly what the Founders had in mind when they enshrined in our Constitution government’s duty “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

They will claim that the ITC grants injunctions promiscuously. But true experts know that the number of injunctions granted by the ITC is precisely zero – the ITC grants statutory exclusion orders that are effective only after a lengthy Presidential review has determined that the public interest will not be harmed.

They will claim that only federal courts can properly make determinations about patent validity and infringement. But true experts know that Congress decides which issues should be within the exclusive jurisdiction of our federal courts, and has the full authority to give an Article II agency like the ITC the power to make such determinations in the context of the Tariff Act.

They will claim that the ITC’s power must be limited lest this somewhat-obscure agency thwart the commercial interests of respected American companies. But true experts know that the ITC has no jurisdiction over goods manufactured within the United States. The simplest way for these companies to avoid the reach of the ITC is to bring those manufacturing jobs back home.

Finally, they will offer a constant stream of cryptic arguments conflating patent rights with economic harm. The phrase “patent holdup” — a shorthand reference to the hypothetical claim that “rent seeking” behavior by patentees stifles innovation and harms consumers — has become a term of art lately, where its frequent use is substituted for a full and open discussion of the actual commercial impact of intellectual property on the national and international economy.

But there is another economic term of art that policy makers ought to consider. It’s called “regulatory capture,” which occurs when “groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions gain the policy outcomes they prefer.” The end result is that “a regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry.”

I am optimistic that we will win the battle to preserve the ITC. The very respectable tech giants in the ITC Working Group certainly have the clout to get members of the House and Senate to consider their proposals. But patent owners and other defenders of intellectual property are going to organize and fight back as well.

In the end, we doubt there are enough elected officials in Washington who will be willing to side with foreign manufacturers over American inventors.

About the Author

Bernard J. “Barney” Cassidy is general counsel and executive vice president of Tessera Technologies, Inc., a Silicon Valley company that develops, invests in, licenses and delivers innovative miniaturization technologies and products for next-generation electronic devices.

PLEASE NOTE: The views expressed in this article are the author's and not necessarily the views of Tessera Technologies, Inc.


19 comments
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  1. We also have a debate going on in this country about the gap between the haves and the have-nots.

    Members of the “ITC Working Group” are haves. Garage inventors and NPE’s who hope to be paid for their inventions are the have-nots. What the ITC Working Group is trying to do is maintain and perhaps exacerbate the wealth disparity that, if left unchecked, will cause rioting in the streets.

  2. Right on all points. It is all about a false sense of entitlement.
    There is a procedure employed by all responsible product designers and that procedure is called “patent search”. Amazing that those with the most resources (engineering & legal) carefully avoid any discussion of their responsibility to conduct thorough patent searches before committing to a design. Certainly far cheaper than litigating, but then doing patent searches may mean they have to FORMALLY concede markets to more competent competitors or heaven forbid, more competent upstarts.

  3. Certainly far cheaper than litigating

    Alas, this too is a fallacy.

    Sure, on an atual cost of litigation matter, that cost maybe high, but on a business decision, risk versus reward acturial basis, litigation is far far cheaper.

  4. At this point, ITC judges are far more experienced, on average, than Federal District Court judges, and the same substantive law regarding patentability and subject matter eligibility applies. Plus ITC proceedings are resolved much more quickly than court proceedings, and decisions are appealed to the same court, the CAFC, that hears patent appeals from district courts. Those sound to me like arguments to retain the ITC as a patent infringement forum, not get rid of it. Moreover, unlike a DC, where any patent holder has standing to bring suit (provided the court has jurisdiction over the defendant), at the ITC the patentee must have a domestric industry. So it’s not like the ITC is open to everyone. The fact that a licensing program can be recognized as a domestic industry somewhat lowers that particular bar to jurisdiction in the case of what are traditionally regarded as patent trolls, but *that’s* something that Congress could address, and could do so without destroying what has proved to be an efficient venue for patent enforcement.

  5. Injury to a “domestic industry” is a statutory requrement to an ITC proceeding to block importations of products for patent infringment. [It is not a requirement for bringing a normal patent infringement suit.]
    It stretches credulity and semantics to think that the “domestic industries” Congress intended to protect with this additional litigation route that Congress created would extent to merely lawyers buying up patents of others to sue genuine U.S. domestic industries making or selling products consumers want. What Congress intended by those words is the only proper test. If the ITC does not sort this out the Fed. Cir. will have to do it .

  6. In 1988, Congress amended the ITC statute to specifically include as “domestic industries” companies that licensed patents rather than commercialized the inventions themselves.

    Congress did this specifically to recognize how dramatically the rampant offshoring craze that had begun in the 1970s had already reshaped the U.S. industrial landscaqpe.

    Congress’s decision to include licensing organizations in the definition of “domestic industry” was simply a recognition that America had already begun to morph into more of a service and “ideas” IP-based economy.

    Today, that separation between R&D (IP) and manufacturing is even more pronounced than in 1988, obviously.

    We can argue that we should take steps as a nation to revitalize manufacturing again and bring those jobs. But until that happens, the fact remains that a significant share of the economic output of this nation is in the form of intellectual property, including IP developed and owned by non-practicing entities.

    It would be destructive of America’s innovation capacity and economic output, therefore, to deny NPE licensing organizations the right seek redress at the ITC for infringement.

    By the way, I have a question I’m hoping someone can answer: If a giant company like Apple can make such effective use of ITC exclusion orders to bash its competition (see the order against HTC it got a few months ago), how does the company justify trying to deny the same rights to smaller companies like NPEs?

  7. Nice rebuttal Mr. Kline.

    I would have been far less kind, as Paul F. Morgan has shown a consistent bias in his posts that defy such calm rational answers as you have provided.

    It streches credulity and semantics, though, to see such a statement by Paul F. Morgan to be seen to be such a shallow and thoughtless attack, to have such daring words be so effortlessly shorn of effect. Such words, clearly based purely on a philosophically induced (with the aid of my new Kool-Aid) intoxication have such ring and to see them suffer such an ignoble end makes me want to raise my glass in a farewell salute.

    Drink up Mr. Morgan, sales have been down of late.

  8. Mr. Dogma, I know Mr. Morgan and have a lot of respect for him. He is a straight shooter. Yes, as I recall he was and may still be an in-house counsel for a big corporation and that colors his point of view, but he is not a suitable target for vitriol.

    And notice: he uses his real name here, unlike you and me.

  9. And notice: he uses his real name here, unlike you and me.

    So what?

    Using a “real name” is meaningless. Pay attention to the “what is being said” rather than the “who is saying it.”

    If the vitriol fits, then it fits. Obviously, Mr. Morgan’s statements make it fit in this instance – unless of course you think Mr. Kline’s statements are either in error or outright false.

  10. In response to David Kline, I wonder if this is merely a case of the law of unintended consequences. I haven’t done the research but it seems to me that, contrary to Mr. Kline’s assertion, the 1988 amendment might not have constituted “a recognition [by Congress] that America had already begun to morph into more of a service and “ideas” IP-based economy” but was instead meant to placate universities. The CAFC’s State Street Bank decision – the harbinger of current NPE or “troll” business models – was still far off in the future, and Congress’ track record as soothsayers is spotty at best, so it seems just as likely if not more so that the amendment was aimed to university tech transfer offices. Does anyone know if the evidence doesn’t bears that out?

  11. merely a case of the law of unintended consequences

    Yes, I can see that – or a case of selective bias post facto. Patents, being property, should be allowed to be treated as property, right? Unless a selective group of people don’t like a particular aspect of that treatemnt of property and then, post facto, want to change the rules.

    Same as it ever was.

  12. Dan,

    You raise a good point that Congress may have also recognized the growing role of universities in that decision. The Bayh-Dole Act allowing universities to patent and commercialize research had been passed in 1980, and as we all know today, thaty act proved to be a huge boon in stimulating new inventions and the formation of many new startup companies.

    But the offshoring of manufacturing and the growing separation of R&D from production was also a major stimulus to Congress’ action in this regard. Remember, it was widely believed by economists and policy makers until recently that the theory of comparative advantage meant that the U.S. could maintain a strong economy merely by doing the world’s R&D and inventing while leaving the “grunt work” of manufacturing to countries like China.

    Now, of course, most people realize this wasn’t such a bright idea. For one thing, R&D always — and I mean always — follows manufacturing. And sure enough, more than 20% of total U.S. R&D has now been offshored along with a huge chunk of U.S. manufacturing. An d this 30-years-long flight of manufacturing has gutted the middle class and job creation.

    If we were smart, we’d do all we could to bring back manufacturing, which is a huge economic force multiplier that creates up to 15 jobs outside of manufacturing for every position on the shop floor.

    But that’s another question. Whether it’s a good idea or not, the reality is that R&D has been separated to a large degree from commercialization. Hence the prominent role of licensing companies and NPEs. And hence the reason why Congress allowed them to seek redress at the ITC for infringement.

  13. [...] IP Watchdog: Follow the Money – Will the ITC Lose its Patent Jurisdiction? – This post, written by guest author Bernard J. “Barney” Cassidy, details the impact of [...]

  14. In fact, the number of patent enforcement actions submitted to the ITC has nearly doubled in the last five years. Patent holders are selecting this forum because of its speedy proceedings and its ability to award broad exclusion orders. This rise in ITC patent litigation, however, has revealed weaknesses in the structure of § 337. In broadening the provision to facilitate the enforcement of patent rights, Congress failed to consider the impact of this change on technological innovation and on the coherence of the patent system. In particular, Congress did not clarify the relationship between § 337 and the Patent Act, thereby jeopardizing the uniformity of the patent system. Nor did it consider the effect that patent-related exclusion orders would have on innovation and on strategic behavior.

  15. Online said “Congress did not clarify the relationship between § 337 and the Patent Act, thereby jeopardizing the uniformity of the patent system. Nor did it consider the effect that patent-related exclusion orders would have on innovation and on strategic behavior.”

    In your opinion, if they had done what you said they did not do, what would they have found?

  16. [...] the General Counsel of Tessera Technologies, posted a provocative blog on IP Watchdog entitled Follow the Money – Will the ITC Lose Patent Jurisdiction?  In it, he accuses a group of tech companies, including HP, of lobbying Congress to “radically [...]

  17. [...] (a Silicon Valley company that develops semiconductor technology) was around to spread the news in a blog post later in the month. His piece set off a war of words with a top lawyer at Hewlett-Packard and led [...]

  18. [...] and legal records from the golden age of American invention in the 19th century indicate that more than two-thirds of the 160 so-called “great inventors” of the Industrial Revolution — including Thomas Edison — were [...]

  19. [...] of its patent jurisdiction or at the least preventing the ITC from issuing exclusion orders. See Follow the Money and Weakening the ITC Will Harm the US Economy and Are Some Patent Holders More Equal Than [...]