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Infringer Lobby Seeks to Strip ITC of Patent Powers


Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog, Inc.
Principal Lecturer, PLI Patent Bar Review Course
Posted: July 17, 2012 @ 1:48 pm

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“Man controlling trade” outside ITC in Washington, DC, by New York sculptor Michael Lantz (1942).

On Wednesday, July 18, 2012, the Committee on the Judiciary in the United States House of Representatives will hold a hearing titled “The International Trade Commission and Patent Disputes.”  The hearing will take place at 10:00 AM in the Rayburn House Office Building, and will take up recommendations by those in the infringer lobby who feel the International Trade Commission must be reigned in and stripped of much of its patent authority.  Yes, those who no longer innovate but find it easier to copy want to make it much more difficult to prevent infringing products from entering the United States.  Hopefully their efforts will not succeed.

The proposal is modestly (and misleadingly) titled “Modernizing the ITC Patent Process to Ensure Consistent Application of US Patent Law.”  Those who seek to weaken the U.S. patent system so that it is easier for them to infringe without consequence are making the argument that the ITC does not apply patent laws the same way as other courts do and are a haven for non-practicing entities seeking to prevent infringing products from entering the United States.  Imagine that?  A patent owner who wants to prevent infringing products from entering the United States.

Perhaps the infringer lobby needs a refresher course on the rights granted to a patent owner.  35 U.S.C. § 271(a) says: “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States, or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”  (emphasis added).  So, as it turns out, importation of products covered by a patent during the term of the patent are an infringement of the patent rights granted.  Let’s not forget that at the end of the day what these Silicon Valley elite are arguing is that it should be more difficult for a patent owner to stop infringement.  The wrong-doers are NOT the patent owners who have the audacity to exercise rights granted by the federal government.  The wrong-doers are those who infringe those rights and there is absolutely no reason to make it easier for them to engage in infringement.



The proposed changes to Section 337 would require the ITC to apply a four-prong equitable analysis before issuing an exclusion order preventing importation of infringing products into the United States. The proposed changes would also limit the statutory definition of a “domestic industry” to exclude any patent licensing activities that do not help bring a non- existent new product to market—a proposal that would effectively bar the ITC from remedying unfair trade practices against many R&D-centric entities. In sum, the proposal weakens the ITC’s ability to administer U.S. trade remedy laws, is predicated on erroneous assumptions, adds inappropriate and unnecessary requirements to Section 337, would lead to absurd outcomes and incentivize perverse behavior, and would have a detrimental impact on American innovation and the American economy.

The big weapon in the arsenal of those who want to weaken the ITC is the Supreme Court’s decision in eBay v. MercExchange, where the Court decided that there is no absolute right to a permanent injunction just because a patent owner has prevailed in a patent infringement litigation.  The decision is wrong, and anyone with even a modicum of understanding of patent law understands it to be misguided and illogical.  The patent itself is a right to exclude others from engaging in certain activity.  if there is no right to a permanent injunction than that means there is no right to exclude.  A permanent injunction that orders no further infringement does not differ in any appreciable way from the very patent grant itself.  The infringer lobby couldn’t obtain this type of asinine change in the patent laws through Congressional action, so they convinced the Supreme Court it was a good idea.  Now they want Congress to ratify that misguided approach and apply it to U.S. trade regulations.

Who in their right mind would apply eBay to importation?  If anyone can import things that infringe into the United States then what is the point of a U.S. patent?  At that point the patent would cease to be an exclusive right and merely a right to obtain royalties.  Why would any company ever respect the patent rights of Universities, R&D companies, small business, start-ups and inventors?  These Silicon Valley elite are already referred to as the infringer lobby because that is what they do — they infringe!  If infringement becomes an even easier business decision then efficient infringement will become rampant.

What is “efficient infringement”?  It is the decision to infringe because if you get caught you will only have to pay a reasonable royalty, which is what you would have had to pay in advance.  So why not take your chances infringing.  The patent owner might not even sue you, and if they do they might not prevail.  Without the threat of injunction or Order by the ITC preventing importation infringement should be the choice all manufacturing companies make.  They should be sued by their shareholders if they choose to obtain a patent license when they could simply infringe without fear of every paying more than a reasonable royalty.  That would be the death knell of the patent system as we know it in America.



It is no exaggeration to say that if the infringer lobby prevails there will be little chance that Research and Development companies could prevent importation of infringing products into the U.S. market.  That would deal a substantial blow to the patent system and make obtaining a patent far less attractive.  It could cripple R&D efforts because if you haven’t noticed there is little or no useful R&D coming from established Silicon Valley giants who are pushing this “weaken the ITC so we can infringe easier” proposal.  Innovation comes from small companies, start-ups and those devoted to research and development, not the giants that control distribution chains and overseas manufacturing.

At its core the proposal by the infringer lobby is based on the untrue assertion that non-practicing entities aggressively use the ITC to avoid application of the eBay injunction test.  Unfortunately, as is all too common any more, truth is the first casualty in public discourse.  There is no evidence to support these assertions, but they are made and unfortunately believed by many who are either uninformed or to lazy to even engage in the most basic of fact checking.

The data simply does not support the assertion that NPEs are aggressively using the ITC.  Indeed, studies show that NPEs represent a mere fraction of the Section 337 cases filed at the ITC. While there has been an overall increase in the ITC caseload, there are numerous reasons why the ITC is a more favorable venue than Federal District Courts that have nothing to do with the eBay decision, undefined NPEs or the ITC’s treatment of licensing activities.

The ITC Working Group recently circulated a paper titled “The Impact of Non-Practicing Entities at the ITC: The Numbers Speak for Themselves.”  About the only thing the ITC Working Group got right is that the numbers do speak for themselves. If you actually look at the numbers and not just the garbage including in the ITC paper it is clear for any objective observer to see that there is NO problem whatsoever.  The ITC uses half-truths, inaccuracies and misrepresentation to make out a case for an extreme overhaul of the ITC.  Shouldn’t legislation be based on the truth?

If you actually look at the facts a starkly different tale is told than the fairy tale of the ITC Working Group.  For example, according to one study, NPEs filed 45 complaints since the Supreme Court’s decision in eBay, which represents less than 20% of the total number of complaints over that time.  According to another study, NPEs filed only 27 complaints, or approximately 11% of the total number of complaints, during a similar time period.

Moreover, of the 45 NPE complainants identified in the first study, only 7 were found by the ITC to have satisfied the domestic industry requirement. Similarly, of the 27 NPE complainants identified in the other study, only 5 were successfully able to demonstrate the existence of a domestic industry under Section 337.  The importance of this is that a case does not move forward at the ITC unless there will be domestic injury.  So NPEs were able to move forward at the ITC either 5 times or 7 times, depending upon which survey you want to rely upon.  In either case the number of NPE cases is hardly indicative of rampant, aggressive over-use that the ITC Working Group claims.  In fact, the numbers do speak very loudly for themselves.  There is NOT an NPE problem at the ITC.  Everyone should be able to agree on that objectively true fact, which in and of itself unravels the infringer lobby argument for a weaker ITC.

Who are these NPEs filing cases at the ITC that must be stopped?  They are inventors, R&D companies, university affiliates, and manufacturers that, for various business reasons, did not produce products that practiced the particular patents asserted in the ITC complaints.  Are these group of innovators, who are the backbone of the United States economy, entitled to enforce their rights against those who no longer innovate and merely copy?

Stay tuned for more later this week.

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Posted in: Gene Quinn, International Trade Commission, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Trolls, Patents

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

5 comments
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  1. “eBay v. MercExchange, where the Court decided that there is no absolute right to a permanent injunction just because a patent owner has prevailed in a patent infringement litigation. The decision is wrong, and anyone with even a modicum of understanding of patent law understands it to be misguided and illogical. The patent itself is a right to exclude others from engaging in certain activity. if there is no right to a permanent injunction than that means there is no right to exclude.”

    Gene – you cannot really believe that a patentee’s right to exclude should be absolute. Not even the pre-eBay Federal Circuit ever went that far. They understood that injunctions *could* be denied after infringement, albeit only in exceptional cases.

    To put things in perspective, let’s look at real property for a second. The owner of land has the right to exclude others from his property. But no one has ever understood this as an absolute right to exclude. If your neighbor builds a $10 million house that happens to accidentally encroach on a few square feet of your land, no court in its right mind would order him to tear the house down so that you can exercise your right to exclude. No, the remedy, according to hundreds of years of common law, is a forced sale: he would have to pay you for the value of the land his house encroaches upon.

    Patent holders have a right to exclude, just like landowners have a right to exclude. But that right to exclude must sometimes yield — certainly no less for intellectual property than real property.

    “If infringement becomes an even easier business decision then efficient infringement will become rampant. What is ‘efficient infringement’? It is the decision to infringe because if you get caught you will only have to pay a reasonable royalty, which is what you would have had to pay in advance.”

    Aren’t you painting an overly simplistic picture here? Yes, injunctions are one way that patent law deters infringement. But they’re not the only way. Courts dole out treble damages and can shift attorney’s fees to punish willful infringement. Someone that decides to infringe isn’t going to pay a reasonable royalty if he gets caught; he’s going to pay some multiple of that, along with patentee’s litigation costs if he’s unlucky. And that’s not all.

    Our would-be infringer would likely face an injunction too: eBay suggests that injunctions should usually issue in cases where the defendant willfully infringed. One of eBay’s factors, the balance of hardships, normally requires a court to consider the hardship an injunction would cause the defendant. But courts will ignore hardship on the defendant when defendant’s conduct was willful, making an injunction far more likely to issue. Maybe eBay was not such a “misguided and illogical” decision after all?

  2. As famed Supreme Court Justice Joseph Story declared in Lowell v. Lewis (1817), patent righjts should be considered as “sacred.”

    “The proper duty of the court,” he argued, is to ensure that “wrongdoers may not reap the fruits of the labor and genius of other men.”

  3. Nick C-

    You say: “you cannot really believe that a patentee’s right to exclude should be absolute.”

    Why not? The patent grant is absolute. Still, I’d be OK with denying injunctions only in exceptional cases under the old rule, but the patent grant is an exclusionary one and if a successful litigation cannot end with an injunction that seems to violate the purpose and intent of a patent.

    Let’s not forget that a permanent injunction in a patent case merely says the same thing that the patent says – You cannot infringe. The difference is that the district court retains jurisdiction to enforce transgressions of the injection, which seems far more equitable than forcing the successful patentee plaintiff to have to sue all over again from scratch. Without a permanent injunction the patentee has to start all over again from scratch, and for what? A reasonable royalty? There is no wonder there is so much infringement and patent owners, including non-NPE innovators, are turning to the ITC.

    -Gene

  4. Nick C-

    You make some interesting assertions, and your real property analogy is actually very good, with a few exceptions as far as I am concerned. What if Congress just decided that your 10 million dollar neighbor was actually entitled to ignore (infringe) *some* of your property rights, and you had no recourse at all?

    That is generally the case lately, when permanent injunctions were mostly done away with by recent court decisions. For instance, if you try to inform the infringer that they may be infringing your patent, if they are smart at all they will just seek a Declaratory Judgment before you even threaten to take them to court. DJ’s are very cheap, and it forces you to argue the case in Their chosen venue, even if it is 2000 miles away.

    Also, I think treble damages are extremely rare these days, and getting the infringing party to pay for your legal expenses is even more rare. The willfulness standard has changed quite a lot in the last 10 years or so. As a small entity, I can’t afford to sue anybody, so the ITC embargo option is all that I have left, which is fairly swift and affordable.

    Now they want to take that away, and if they succeed, Gene is probably right, in that it might pretty much make US patents much less desirable, and perhaps not even worth pursuing any more in many cases. It sounds to me like Senator Leahy and a few others are probably behind this effort, but only the Shadow can know for sure I suppose.

    Looking forward to your report on the hearing Gene, as much seems to be hanging in the balance of law. Blind Justice.

    Stan~

  5. One of the things that I find hard to believe is that when injunctions don’t issue, the court tries to formulate what the ongoing royalty should be based upon the reasonable royalty calculation.

    But, in that circumstance, the continued infringement is WILLFUL infringement, beyond peradventure. The court has found what the defendant did is an infringment and whatever patent valididty challenges that have been asserted have been found wanting. If the court does not enter the injunction, the adjudicated infringer still has the opportunity to stop infringing.

    Therefore, any continued infringement is willful and the royalty should be at least a trebled reasonable royalty.