The House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet on March 14, 2013, heard from six witnesses that the business of “patent assertion entities” (PAEs) is inflicting severe harm on a broad range of technology users.

That business involves the enforcement of weak or invalid patent claims against initial and downstream users of devices that are remotely related to the patent claims for the sole purpose of extracting settlements in amounts much lower than the cost of litigating the rights. The witnesses at the hearing agreed that, when confronted PAE demand letters on frivolous claims, settlements by and large are economically unavoidable.

Committee Members Are Cautious

The Subcommittee had before it a particular bill (H.R. 845; the Shield Act) to create a limited loser-pays system. It would award full costs to the prevailing party unless the plaintiff is (1) the inventor, (2) the original assignee, (3) one who produced or sold items covered by the patent, or (4) a university or technology transfer organization.

On Friday, March 22, 2013, Administrative Law Judge David P. Shaw of the United States International Trade Commission issued a remand determination relating to the investigation instituted by the Commission to investigate patent infringement allegations leveled against Microsoft’s Xbox . Judge Shaw determined that the Xbox does not infringe the remaining patent involved in the ITC investigation, which is a complete reversal of his earlier determination that the Xbox did infringe (see below).

Shaw’s remand determination was brief:

It is held that a violation of section 337 of the Tariff Act, as amended, has not occurred in the importation into the United States, the sale for importation, or the sale within the United States after importation, or the sale within the United States after importation, of certain gaming and entertainment consoles, related software, or components thereof that are alleged to infringe asserted claims 1 and 12 of U.S. Patent No. 6,069,896.

The full Commission now has until July 23, 2013, to consider Judge Shaw’s remand ID.

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More news to report in the ongoing ITC battle between Motorola Mobility (owned by Google) and Apple. Earlier this week the U.S. International Trade Commission announced that it will review part of the presiding Administrative Law Judge’s (“ALJ”) initial determination issued on December 18, 2012, finding no violation of section 337 of the Tariff Act of 1930 by Apple. The ITC case is styled In the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, and is Investigation No. 337-TA-745

The ITC had originally instituted an investigation on November 8, 2010, based on a complaint filed by Motorola Mobility, Inc. The complaint alleged violations of section 337 as the result of importation into the United States and the sale within the United States after importation of certain wireless communication devices, portable music and data processing devices, computers and components thereof. The violation of section 337 was alleged to be the result of patent infringement. Specifically Motorola Mobility charged Apple with infringing U.S. Patent Nos. 6,272,333 (“the ’333 patent”); 6,246,862 (“the ’862 patent”); 6,246,697 (“the ’697 patent”); 5,359,317 (“the ’317 patent”); 5,636,223 (“the ’223 patent”); and 7,751,826 (“the’ 826 patent”). The ITC subsequently terminated investigation into the ’317 patent (on June 28, 2011) and the ’826 patent (on January 27, 2012).

NOTE: This article was first published in “The Paul J. Luckern Summer Associate Edition – 2012, published by the ITC Trial Lawyers Association.” It is republished here with permission.

One of the requirements of finding a violation of section 337 of the Tariff Act of 1930 is that the Complainant must establish that “an industry in the United States, relating to the articles protected by the [intellectual property right] … concerned, exists or is in the process of being established.”1 In particular, the domestic industry requirement is broken up into two prongs: one technical, and one economic.2 “The technical prong concerns whether the complainant practices at least one claim of the asserted patents, while the economic prong concerns domestic activities with respect to the patent or patented article.”3 Satisfying the economic prong of the domestic industry requirement is not necessarily straightforward.4 Specifically, in certain cases, a value-added analysis has been conducted to determine if the economic prong had been satisfied. Ultimately, the analysis turns to exactly what would be considered “significant” and/or “substantial.”

This article will examine the value-added analysis with respect to the economic prong of the domestic industry requirement, basically what is the current standard for what qualifies as significant/substantial investments.5 Moreover, this article will review past decisions, assess current decisions, and attempt to forecast the value-added component of the economic prong of domestic industry.

A wide variety of credible sources confirm the existence of an inexorable link between the profound historical uniqueness of the American Patent System, the rate and quality of American innovation, the rate and quality of American business and job creation, and the profound historical uniqueness and evolution of the American economy.

Accordingly, changing the US Patent System has measurable and profound effects on the American economy just as surely as changing the Tax Code, the Antitrust Laws, or Trade Policy is routinely relied-upon public policy tools for regulating the American economy.

The verdict is not yet in on the constitutionality of the major changes mandated by the 2011 America Invents Act (AIA) as is reflected in the Constitutional challenge discussed in here and here. More importantly, however, is the fact that the smallest and most innovative entities which create most of the new jobs in America already know that the AIA will undermine the US Patent System, and adversely impact their innovation and their job creation in America. It is imperative that we all understand the impact of the implementation of the AIA in 2013 and particularly the ability of large deep-pocketed Multinational Mega-Techs to game the system in the areas of post-grant review, business-method patents, and enforcement. This should be a year where we take control of the AIA implementation and fix the problematic aspects of the law.

Something a bit out of the ordinary occurred earlier this month in the ITC investigation Certain Devices for Mobile Data Communication, 337-TA-809. There, Unwired Planet had accused Apple and Research-In-Motion of infringing four patents related to data transmission with cellular phones. A trial before the ITC’s Administrative Law Judge Gildea was scheduled to begin October 15, but shortly before that date, Unwired withdrew its Complaint and filed a motion with the Judge Gildea to terminate the investigation. Unwired’s problem was that the Judge had previously construed the asserted claims to require that the mobile devices do not contain “a computer module,” thereby precluding a finding of infringement by the accused devices that do contain module computers. Unwired, however, has not entirely given up on its infringement allegations against Apple and RIM – rather, Unwired continues to pursue those claims in a parallel infringement action in Delaware.

Unwired’s withdrawal of its Complaint raises several interesting questions. First, could Unwired have continued its ITC case?

In two days we will celebrate the first anniversary of the signing of the America Invents Act (AIA). Over the next week to two weeks I will be focusing on the AIA, both in retrospect and insofar as practice and procedure is concerned at the USPTO.  Yesterday I wrote about Supplemental Examination.  Today we take a look a the Final Rules packaged titled Changes To Implement Miscellaneous Post Patent Provisions of the Leahy- Smith America Invents Act, which were published in the Federal Register on August 6, 2012.

The “miscellaneous” final rules primarily implement two things.  First, section 6 of the AIA to provides for an estoppel that may attach to the filing of an ex parte reexamination request subsequent to a final written decision in a post grant review or inter partes review proceeding. See 37 CFR 1.510(b)(6).  Second, the final rules expand the scope of information that a person may cite in the file of a patent to include written statements of the patent owner filed in a proceeding before a Federal court or the Office in which the patent owner took a position on the scope of any claim of the patent.

With respect to the first, relating to ex parte reexamination, USPTO rules will now require that a third party request for ex parte reexamination contain a certification by the third party requester that the statutory estoppel provisions apply to completed inter partes reviews and post grant reviews do not bar the third party from requesting ex parte reexamination. Cosmetically, the final rules also implement Section 3(i) of the AIA, which replaces interference proceedings with derivation proceedings, and replaces the title ‘‘Board of Patent Appeals and Interferences’’ with ‘‘Patent Trial and Appeal Board.”

In my first article, I posed the question whether the “Smart Phone Patent Wars” were giving IP rights – and more specifically, patents – a bad rap?  My conclusion was an unfortunate “yes,” with the villains being a handful of companies that willingly contributed patented technologies to various standard setting organizations (SSOs), encouraged their use in a host of consumer electronics, and years later charge the very producers they encouraged to implement these standards with patent infringement.  In my second article, I examined the so-called “Fair, Reasonable and Non-Discriminatory” (FRAND) licensing terms that SSOs require of their participants and concluded the phrase has no clear, widely-accepted definition or standards for determining compliance.  In my third article, I examined the patent policies of four major SSOs and concluded that none offered any clear guidance on what constitutes a FRAND license leading to unnecessary and counterproductive litigation.  In my fourth article, I made a few observations among the flurry of activity as to the market effects of these patent wars.  Now, I report on potential congressional action on the horizon and the increasing focus on the U.S. International Trade Commission (ITC).

Pew Research recently reported that 46.0% of Americans now own a smartphone device, making them more commonly owned than regular, basic mobile telephones. This ownership figure rises to 66% for the sought-after consumers population aged between 18-29.  Thus, there is no surprise that the smart phone patent wars rage on, and members of Congress have noticed.

On Thursday, July 25, 2012, the International Trade Commission (ITC) terminated an investigation into whether certain Rambus patents were being infringed by Garmin International, Cisco Systems, Seagate Technologies and others. In closing this investigation the ITC affirmed the initial determination of Administrative Law Judge (ALJ) that there was no violation of Section 337 of the Tariff Act of 1930 with respect to the asserted patents. The patents in question are “the Barth patents” (U.S. Patent Nos. 6,470,405; 6,591,353; 7,287,109) and ”the Dally patents” (U.S. Patent Nos. 7,602,857 and 7,715,494).

The notice of termination is subject to appeal. “We are evaluating our next steps in this matter, which may include a possible appeal to the Federal Circuit. We remain steadfast in our commitment to protecting our patented inventions from unlicensed use,” said Thomas Lavelle, senior vice president and general counsel at Rambus.

The International Trade Commission (ITC) has become the centerpiece of a number of debates about the patent system. As readers of this blog know, one debate, some of it carried out on this blog, has centered on data, and the question of whether or not PAEs really are filing a lot of cases there seeking an injunction or the credible threat of one. The vetting of ideas and data is a great service to policy-making and I thank Gene for letting me post to this blog as part of that.

On Wednesday, I testified before Congress about the prevalence of patent assertion entity (PAE) cases at the ITC.  For as long as I have been an academic, I have been studying the ITC, and my testimony drew upon the scholarly literature about the International Trade Commission including three review articles — Patently Protectionist, Patent Holdup, the ITC, and the Public Interest, Protecting Domestic Industries at the ITC, a separate amicus brief, and an ITC treatise in development that I have authored or co-authored.

As detailed in my written submission, my research has found that in the last 18 months (Jan. 2011-Jun 2012), PAEs brought more than a quarter of Section 337 patent cases, and nearly half of the total respondents appearing before the ITC were there because of a PAE-initiated case. (The submission details my methodology and reports the results of an independent parallel analysis that has been conducted by other attorneys, which find higher shares than I report for licensing-based investigations. It also reports my analysis that, in most cases, the PAE patent was purchased from its original owner.)

Just about one month ago the International Trade Commission prepared a brief document identifying the facts and trends relative to Section 337 investigations.  The Silicon Valley elite who would prefer a weaker patent system — those I refer to as the “patent infringer lobby” — would like to strip the ITC of it’s patent jurisdiction and make it easier to import infringing products into the United States.  Lead by the ITC Working Group, the patent infringer lobby is forwarding a proposal to accomplish their goal of further weakening the patent system in America, while at the same time grossly exaggerating the problem of non-practicing entities who seek to use the ITC to stop the importation of infringing products.

Frankly, calling what the patent infringer lobby is doing “grossly exaggerating” is being profusely generous.  The facts and figures relative to Section 337 investigations put out by the ITC itself demonstrate that the alleged NPE problem simply does not exist.  The House Subcommittee on Intellectual Property held a hearing on July 18, 2012.  Hopefully Members of Congress will be able to see through the lies and distortions and not put the U.S. patent system in the cross-hairs.

Editor’s Note: What appears below are the prepared remarks of Bernard J. Cassidy.  Mr. Cassidy testified earlier today before the House Committee on the Judiciary’s Subcommittee on Intellectual Property, Competition and the Internet.  The Hearing was on “The International Trade Commission and Patent Disputes.”  Mr. Cassidy’s remarks are published here with his permission.

Chairman Goodlatte, Ranking Member Watt, and Members of the Subcommittee,

My name is Bernard J. Cassidy, and I am Executive Vice President and General Counsel at Tessera Technologies, Inc., which is headquartered in the heart of Silicon Valley, in San Jose, California.  We have facilities in Charlotte, North Carolina, Rochester, New York, and Arcadia, California as well as in Europe and Asia.  I deeply appreciate this opportunity to speak before you regarding the importance of the International Trade Commission to my company and our innovation economy.

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.

On Friday, July 6, 2012, the United States Court of Appeals for the Federal Circuit issued a decision in General Electric Co. v. ITC.  The Federal Circuit, per Judge Newman with Chief Judge Rader and Judge Linn, did not give GE a total victory, but victory enough over Mitsubishi.  The Federal Circuit affirmed in part and reversed in part the original decision of the ITC, and remanded the case for further proceedings consistent with the decision.

GE appealed the decision of the United States International Trade Commission, which held that certain variable speed wind turbines imported by Mitsubishi Heavy Industries, Ltd. and Mitsubishi Power Systems Americas, Inc. (together “Mitsubishi”) did not violate section 337 of the Tariff Act, 19 U.S.C. §1337. The patents at issue were U.S. Patent No. 7,321,221, U.S. Patent No. 5,083,039 and U.S. Patent No. 6,921,985.  On February 1, 2011, the ’039 patent expired, and the Federal Circuit dismissed that portion of the appeal as moot, vacating the Commission’s rulings relative to the ’039 patent.  The appeal continued relating to the ’221 patent and the ’985 patent, which were the subject of this latest Federal Circuit decision.