Patent Litigation Investors Follow the Money to the ITC
|Written by Paul Roeder
Vice President and Associate General Counsel, Hewlett Packard
Posted: March 4, 2012 @ 7:30 am
Bernard Cassidy, 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 curb” the ITC’s enforcement powers and to “delegitimize all patents.” He attributes this lobbying to a business model of his own invention he coins “efficient infringement,” under which he claims tech companies choose to infringe patents and pay damages later, rather than to take patent licenses. After standing up this straw man, he knocks it down, claiming it enables tech companies to steal the fruits of the labors of the inventors of new tech products and services. He repeatedly claims the victims of this scheme are “inventors who neither have the capital nor the business model to commercialize their own inventions.” Finally, he associates this all with “outsourcing” to “cheap labor from China,” though he makes no link between “efficient infringement” and overseas manufacturing other than that both lower costs.
What Mr. Cassidy seems to be saying is that the recent stampede of complainants to the ITC (all of whom sell no products) had valuable tech inventions to commercialize, but tech companies refused to license these inventions and instead copied them to avoid paying license fees. But Mr. Cassidy does not quite say that. And he cannot. All of the appropriation is by the complainants themselves, to whom I will refer as “patent assertion entities” (PAEs). (I will not use the term “Non Practicing Entity” or “NPE” because it sweeps in patent holders who are not abusing the ITC, such as universities and, ironically, Tessera.) The PAEs in the ITC are patent litigation investors. For example, there is Beacon Navigation Gmbh, a Swiss PAE which is holding up Ford, GM and every other auto maker. In virtually every suit, these PAEs assert patents they claim read on products independently created and commercialized by others, with no knowledge of these patents or so-called “inventors.”
And this is not merely a question of inadvertent infringement. The avalanche of PAE cases, in the ITC and District Court, exists because the PTO issues hundreds, if not thousands of patents that can be asserted against every minute feature and functionality of tech products and services. The overwhelming majority issued to so-called inventors who played no part in developing these features and functionalities, including to patent mills that specialize in stalking the development of technology standards and obtaining claims they hope will read on those standards. And tech patent applications often pend (through continuations) for 10 years or more, enabling patentees to intentionally draft claims to read on existing products and services. In fact, these euphemistically entitled “early priority date” patents are the grist of tech patent litigation today, including PAE cases in the ITC.
Mr. Cassidy’s blog repeats arguments being made by investors (large and small) in tech patent litigation. Ironically, I consistently encounter these arguments in my attempts to advocate for ITC reform, indicating that patent litigation investors and have been busy with their own lobbying efforts.
Tech Companies Do Not Advocate to End ITC Investigations of Patent Infringement
HP makes two simple requests of the ITC. First, the ITC should even-handedly enforce the technical prong of section 1337 (a)(2) and (3). Currently, patent licensors alone are given a pass on this crucial jurisdictional requirement to pursue an exclusion order in the ITC. Second, the ITC should invest the necessary time and effort (which will be substantial) to enforce section 1337(d)(1), which requires the ITC to consider the impact of an exclusion order on (1) the public health and welfare, (2) competitive conditions in the United States economy (3) the production of like or directly competitive articles in the United States and (4) United States consumers. Enforcement by the ITC with these statutory requirements would not bar anyone from making a complaint with the ITC, would have no impact on investigations that are properly instituted, and would eliminate only exclusion orders that harm the public interest as that interest was defined by Congress in the statute.
Tech Companies Do Not Advocate Excluding Licensing Companies from the ITC
Section 1337, properly interpreted, allows licensors (including individual inventors such as today’s Thomas Edisons), to make use of the ITC to exclude products which infringe US patents. That licensor must show, as must every complainant, a substantial investment in a domestic industry in articles protected by the patent. A licensor can establish domestic industry by showing that it commercialized its invention through licensees. That licensor may then complain to the ITC and obtain an exclusion order against infringing imports that harm that domestic industry. What is not domestic industry, under the statute and the clear legislative history and intent, is ex post or “hold up” licensing; that is, demanding license fees on existing products to which the licensor contributed nothing. That is patent trolling, as the term was coined by Mr. Detkin of Intellectual Ventures. Patent trolling has nothing to do with trade or protecting US domestic industry from unfair practices, and belongs in District Court. Most PAE licensing is exactly that, often if not usually with patents obtained after the accused products were fully developed.
Tech Companies Do Not Challenge the Authority of the ITC To Decide Validity and Infringement
Many tech companies, including HP, file complaints in the ITC. We do not use the ITC to enforce patents we simply believe read on imported products. Rather, pursuant to the Congressionally-created limitations imposed on the ITC, we use it to exclude articles, produced by companies over whom we often cannot get jurisdiction, that are copies of our patented products. We thereby protect domestic industries in articles protected by our patents, and thousands of US tech sector jobs. Obviously, we do not question the ITC’s authority to investigate and decide patent infringement.
What many tech companies question, along with many outside the industry, is whether the ITC is invading the province of the judicial branch. By waiving the domestic industry technical prong for licensors, and failing to fully consider the public interest requirements, the ITC has leaped the boundaries of its mandate from Congress. Those who defend these decisions by the ITC believe the ITC is an all-purpose IP enforcement agency, rather than trade agency with narrow and specific jurisdiction. Mr. Cassidy, for example, claims every patent owner has a “Constitutionally-protected right” to use the ITC. That simply is not correct. PAEs have a constitutionally protected right to enforce IP, and to complain to the ITC, but not to have an investigation initiated. The ITC’s power to investigate and provide an exclusion order is limited to circumstances threatening a substantial domestic industry in articles protected by the patent, and by the four public interest factors.
PAEs now account for a quarter of the cases and over half the respondents in the ITC, up from just a handful of cases before 2011. Patent litigation investors, with no domestic industry in articles protected by a patent, are suddenly using the ITC to avoid (1) the US Supreme Court’s eBay decision (2) Uniloc and other damages decisions by the Federal Circuit and (3) joinder law. The basic purpose of the Judicial Branch – to define rights and remedies under US law – is being undermined by patent investor use of the ITC to circumvent the Federal Rules of Civil Procedure and Supreme Court and Federal Circuit rulings, raising a serious separation of powers problem. The US cannot have two general purpose IP enforcement venues, defining essential patent rights and remedies differently, and the Judicial Branch is clearly the correct venue to define these rights and remedies.
Follow the money – PAE litigation in the ITC taxes the many to benefit the few
The real irony in Mr. Cassidy’s blog is his claim that ITC reform “is a vast effort to transfer wealth in a manner contrary to our nation’s fundamental principles and historical economic success.” A wealth transfer is occurring, but not as Mr. Cassidy describes. The recent complainants in the ITC have purchased patents in the secondary market and complained in the ITC so as to threaten exclusion orders against importation of all products claimed to infringe those products. The most recent complainant, for example, is “Pragmatus AV, LLC,” a lawyer who purchased patents from Intellectual Ventures and seeks an exclusion order against a substantial share of all mobile phones and tablets. But of course, Pragmatus and the other PAEs don’t really seek exclusion orders. All they want is money. Despite having contributed nothing to the development of the accused products (PAEs rarely if ever allege copying), and despite having no domestic industry to protect, they want to tax tech products. It is a tax that ultimately will be paid by all consumers of these products. With due respect to Mr. Cassidy, these PAEs are trolls. They have invaded the ITC because Congress and the US District courts, recognizing the harm caused by hold-up patent litigation, now prohibit mass joinder, require real evidence of the value of the patented invention and do not grant injunctions to PAEs. Stymied in the lower settlements they can now extract in District Court, these patent litigation investors have followed the money to the ITC.
About the Author
Paul H. Roeder is Vice President and Associate General Counsel for IP Litigation and Public Policy at Hewlett Packard. He is a 1986 graduate of Harvard Law School, and spend 13 years in private practice as an IP and commercial litigator before joining Hewlett Packard to manage patent litigation.