On April 14th the House’s Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet convened for a hearing focused on the topic of patent litigation at the United States International Trade Commission (ITC).
The Subcommittee is Chaired by Congressman Darrell Issa (R-CA), who has been an outspoken advocate for the need for more patent reform in order to provide relief from those he believes are abusing the patent litigation system — those sometimes called patent trolls. Indeed, from the start of the Thursday’s hearing, the debate regarding patent infringement at the ITC was couched in the language of the patent troll debate. For example, during his opening statement Congressman Issa rather imperiously stated: “for purposes of my opening statement ‘plaintiff’ and ‘troll’ will be interchangeable.”
Did Issa admit that he is a patent troll?
Prior to becoming a Member of Congress Darrell Issa was a very successful inventor. Issa, himself a patent owner, was forced to litigate against companies that pirated technology covered by his patents. As a patent owner forced to sue at numerous infringers, it would seem that Congressman Issa believes that patent owner and inventor Issa was a patent troll because he was a plaintiff who had the audacity to assert his patent rights against others.
In recent years Congressman Issa, who should be a natural ally of innovators and patent owners given that is how he made his millions prior to running for Congress, has become a champion for what many patent owners refer to as the infringer lobby. It is difficult to understand why Issa seems to so loathe patent owners when he himself was a patent owner who successfully sued infringers for patent infringement, the very thing he seems to find so egregiously offensive these days.
In any event, if Issa is going to use the terms patent troll and plaintiff interchangeably then we should fairly understand that as an admission against self-interest. By Issa’s own definition he was himself a patent troll. Perhaps his deep hatred for patent trolls, or in other words patent owners who must sue infringers (i.e., plaintiffs) speaks volumes about how terrible he feels about the abuse he brought to bear against those helpless infringers he so aggressively pursued many years ago.
Behind the scenes
Although his profile has greatly diminished within Republican ranks since he lost the Chairman’s gavel on the House Oversight Committee, Issa would like nothing more than to pass substantive changes to the patent litigation process that make it much harder for patent owners to successfully sue those who pirate their technology.
Much of the testimony and questioning at the hearing focused on the attractiveness of the ITC as a venue for patent infringement litigation and the potential that abusive litigation techniques could be carried out as a result of ITC proceedings. The ITC, if available as a forum for patent owners, is particularly attractive because injunctive remedies are actually obtainable. The ITC is not required to apply the Supreme Court’s decision in eBay v. MercExchange, which effectively makes injunctive relief for victorious patent owners virtually impossible even though by its very nature a patent is an exclusive right granted by the federal government.
Make no mistake about it, attempts to change the laws pertaining to patent litigation at the ITC is a frontal attack on the last remaining useful rights of patent owners to stop infringement. That is why those within the infringer lobby are so keenly interested in having the ITC wane as a forum for patent disputes, which would be yet another in a long line of significant blows against innovators.
Although a previously introduced trade protection bill relating to the topic of the hearing was discussed, it’s worth noting that there does not seem to be a companion bill currently in the U.S. Senate. It is also at least a little strange that a Subcommittee of the House Judiciary Committee would be focusing on this ITC issue given that jurisdiction over matters of trade, including the budget for the International Trade Commission, falls under the House Committee on Ways and Means.
It is also worth noting that House Judiciary Committee chairman Bob Goodlatte (R-VA) made an appearance at this Subcommittee hearing despite the fact that he is not a Member of the Subcommittee. Goodlatte continued to beat the drum on the effects of abusive patent litigation on our country’s economy, especially where patent owners are looking to exact settlements just under the cost of litigation. “This type of tactic made the ITC a potentially attractive venue for patent infringement cases,” Goodlatte said. He made recommendations that the ITC should return to its pre-2010 domestic industry standard, apply public interest and economic interests tests at the beginning of Section 337 cases and an articulation of standards clarifying which patent disputes should be at the ITC and which in the federal court system.
Given the apparent lack of a companion Senate bill, the fact that Ways and Means has jurisdiction over the ITC, and the fact that Goodlatte made a special appearance, it seems quite possible (if not likely) that Congressman Issa’s Subcommittee was engaging in a bit of grandstanding on the issue, perhaps in an attempt encourage patent reform supporters despite the stalling of both the Innovation Act and the PATENT Act.
Section 337 investigations
A great deal of focus during the hearing was placed upon Section 337 investigations conducted by the ITC to look into complaints alleging unfair practices in import trade. A high percentage of Section 337 investigations involve allegations of patent infringement, greater than 80 percent of all such proceedings according to written testimony submitted by Dominic Bianchi, General Counsel of the ITC. A statistics report on Section 337 investigations at the ITC show a spike of 70 Section 337 cases instituted at the ITC in 2011, rising up from less than 10 cases instituted in 1999.
At least some of the basis for this steep increase in Section 337 cases was attributed at multiple points to consequences resulting in the U.S. Supreme Court’s 2006 decision in eBay v. MercExchange. Prior to eBay, a victorious plaintiff in a patent infringement litigation was granted an injunction as a matter of right, which makes all the sense in the world given that an injunction is just a court order prohibiting certain defined action and a patent is by its very nature a grant of an exclusive right that is supposed to prevent that very same defined action. In reaching its decision in eBay, the Supreme Court required a four-part test typically required to obtain injunctions in other matters, which increases the burden on a patent owner seeking injunction. The net effect is that a victorious patent owner most frequently does not receive an injunction, which means the losing defendant is free to continue infringing, thereby turning the U.S. patent system into a compulsory licensing system.
Issa also spoke of cases that he sees having no place being litigated at ITC, especially those cases involving American companies on both sides of the argument. ITC decisions in Kodak’s 2010 suit against Apple and RIM over a digital image preview technology, as well as in Broadcom’s 2007 ITC victory over Qualcomm barring importation of chips and downstream products like cell phones, were not cases where a foreign entity with assets that couldn’t be reached was involved, Issa said. “Should Broadcom and Qualcomm be in the ITC while simultaneously in district court?” Issa asked. “They’re in the ITC because they wanted to use it as part of the leverage and bring about a settlement.”
“The ITC is an expert trade agency which provides effective remedy against infringing imports,” said Deanna Okun, a former ITC chairwoman testifying on behalf of her own perspective based on her time serving on the ITC. Weakening U.S. trade protections by reducing the ITC’s ability to bar infringing imports would send the wrong message, she said. Between 2008 and 2015, Okun said that 80 percent of products for which Section 337 investigations were filed came from China, suggesting that a great majority of the ITC’s relatively small caseload was focused on foreign entities. “The data does not support that the ITC has a patent troll problem,” Okun said.
The uniquely leveraging power of ITC decisions in patent infringement cases were one reason why such a venue would be so attractive to patent owners, according to testimony given by John Thorne, partner at Kellogg Huber Hansen Todd Evans & Figel, PLLC. Thorne gave an example involving television set top boxes, a consumer product, which may involve technologies protected by many hundreds of patents held by a myriad of companies. A district court ruling could find that patent infringement could occur and yet not issue an injunction if the court decides that disrupting a cable company’s ability to import more set top boxes to add customers would harm the public good. Thorne also noted that the ITC was about half as likely as district courts to throw out a patent case on charges of patent invalidity.
Mark Whitaker, partner at Morrison & Foerster LLP and President-Elect of the American Intellectual Property Law Association (AIPLA), discussed changes to Section 337 proceedings which would be enacted by proposed bill H.R.4829, the Trade Protection Not Troll Protection Act. This act would create a higher burden for a plaintiff at the ITC to argue that injunctive relief is required to protect genuine domestic industries by eliminating that plaintiff’s ability to rely solely on licensing activities to argue a genuine domestic industry. Whitaker indicated that changes resulting from passage H.R.4829 would improve ITC access for universities and other entities without a great deal of capital.
In the mind of Dr. Fiona Scott Morton, economics professor at the Yale School of Management, the duplicative nature of ITC and district court proceedings naturally results in forum shopping. Further, the leverage afforded by injunctive relief at the ITC creates a distortion in U.S. contractual negotiations over IP royalties. “Instead of charging 50 cents in royalties on a $600 device, the risk of exclusion is like a $600 royalty,” Morton said. Obviously, Morton was vastly exaggerating to the point of absurdity given no one would ask for, receive or pay a $600 royalty for a $600 product. What Morton seemed to miss is the essential nature of a patent, which is an exclusionary right. At least in theory, the way the patent grant was historically created gave the patent owner the right to simply say no, you can’t do that no matter how much of a royalty you are willing to pay. That is what it means to be an exclusive right, although over the last 10 years Congress, the Supreme Court and the Federal Circuit have done their level best to nearly completely eradicate the “exclusive” from the “right” when it comes to patents.
Morton also spoke to issues posed by allegations of patent infringement in situations where standard-essential patents (SEPs) are involved. Morton argued that injunctive relief from the ITC on such patents was inappropriate because these parties holding patents essential to standards like Bluetooth or LTE networks have usually agreed to fair, reasonable and non-discriminatory (FRAND) royalty agreements to be part of that standard. Instead, those cases should be handled in the federal courts. Interestingly, a statement released by InterDigital CEO Bill Merritt refutes Morton’s statement on the grounds that standard-essential patents are awarded globally, making it difficult for an American court to assess global damages. “The simplest answer to all of Ms. Scott Morton’s concerns regarding the potential for lopsided negotiations given the alleged market power of SEPs is to compel the parties to arbitration and remove the economic determination of FRAND from the hands of either party,” Merritt’s statement reads.
Frankly, there is something that just sounds silly saying that an essential patent is one that shouldn’t receive injunctive protection as a remedy. KSR v. Teleflex was ostensibly to prevent trivial patents from issuing, and now we want to make the most important — “essential patents” by name — weaker than some nice but not particularly paradigm shifting incremental innovation? Sometimes it seems that the patent critics haven’t really thought through what they are saying very well because when you actually say it out loud it just sounds ridiculous.
Since the spike in Section 337 cases instituted in 2011, the ITC has taken measures within its agency designed to reduce the chances that a party would bring forth frivolous claims in patent infringement charges filed at the ITC. Some of these were brought up by Thomas Stoll, principal at Stoll IP Consulting. For one, the ITC has heightened its requirements for proving a domestic industry for the alleged infringing product, required for a Section 337 proceeding. The ITC has also instituted a 100 day pilot program for early determination of specific and potentially case-dispositive issues in an effort to minimize costs for all parties and reduce the chances that a party could leverage a drawn out litigation process to extort a positive outcome. “A reduction in cases instituted appears to have gone far to address concerns that the ITC has become a venue for patent owners with cases without merit,” Stoll said.
Questions on balancing of equities were brought up by Congressman Jerrold Nadler (D-NY), who found issues with the fact that the balancing of equities required of Article III courts, such as the federal courts, was not required of Article I courts such as those implemented at agencies like the ITC. In response, Thorne evidenced a little bit of confusion to Nadler’s remarks as he noted that aspects of Section 337 enables the ITC to consider all equitable defenses in response to the finding that a violation has occurred. Okun noted that as part of the ITC’s Section 337 proceedings, a public interest test is considered, and the sitting U.S. President always has the power to overturn an ITC exclusion order for any policy reason whatsoever.