“The intangible nature of patent rights is not a reason to allow parties willfully to ignore those rights. Quite the opposite: it is the very reason society has predictable rules and reliable and transparent procedures for the enforcement of those rights.”
Editor’s note: The authors are consulting with Pittsburgh Dynamics for the limited purpose of helping the company and the public understand how the recent initial determination in the case discussed below fits within the policy framework that has long been the subject of their academic collaborations.
An Administrative Law Judge (ALJ) at the International Trade Commission (ITC) recently determined that Samsung Phones violate key patents on magnetic emulator technology for contactless payment systems from Pittsburgh’s Dynamics, Inc. We have been collaborating for years in the academic and public sectors on issues raised in that case, and are consulting consult with Dynamics because we think these issues are vital to our innovation ecosystem, our national economy, and our commitments to international partners. It is especially illustrative of the serious risks facing these vital public interests that far too frequently when there has been a full and fair adjudication determining that there has been infringement of multiple patents and that those patents are neither invalid nor unenforceable, the headline more than suggests that the infringer has been cleared of responsibility. (See Adam Lidgett, ITC Judge Clears Samsung In Patent Fight With Dynamics, Law360, March 16, 2021). It is hard to square that suggestion with a public order that the company was adjudicated to have been infringing two of another company’s patents that also were adjudicated to be neither invalid nor unenforceable. The ITC has sound limits on the few remedies it can provide, including the requirement that there be a showing of a specific domestic industry that practices each particular patent adjudicated to have been infringed and neither invalid nor unenforceable. And that is exactly why patentees these days so often have to bring their cases before both the ITC and a district court. Patentees like Dynamics must appeal to the full ITC Commission ALJ determinations on the legally complex issues of what constitutes a sufficient domestic industry tied to each particular patent if they want access to the ITC’s limited remedies. But none of that stops the court from providing a much broader set of remedies. However uncertain companies may be about responsibilities they owe each other in many settings, things are much more certain when a company has been adjudicated to have been infringing another company’s valid property rights.
Dynamics has worked for over a decade with scores of employees, including technologists such as Carnegie Mellon graduates like its CEO, to develop various technologies that have attracted over a hundred million dollars in venture capital to Pittsburgh. It was awarded patents from the U.S. Patent and Trademark Office (USPTO) on magnetic emulators that allow consumers to do contactless payment. The emulators work across different payment terminals, which gives flexibility to businesses to accept many forms of payment while still using standard magnetic card readers and other point of sale tools. Dynamics collaborates to provide this technology to partners around the world, like IndusInd Bank, which offers India’s first battery-powered interactive payment card, and LG Electronics, another major South Korean company, which uses Dynamics’ technology in its phones. But Samsung, unlike LG, decided to use Dynamics’ technology without a license. Reports indicate that Samsung already has sold millions of units in the United States that rely on Dynamics’ patented innovations. Thus, Dynamics asked the ITC and a federal court to step in.
As IP lawyers and technology companies well know, these kinds of patent disputes cover many issues and claims. Dynamics asserted multiple patents, and Samsung argued that it didn’t infringe any of them. The IP community also understands that, just because the USPTO issued a patent, that doesn’t necessarily mean the USPTO should have. But in this case, after a detailed trial, the ALJ determined that Samsung is infringing two key Dynamics patents and that the USPTO was right to have issued them, because they are neither invalid nor unenforceable.
The Importance of the ITC
When the Founders gave Congress the power in the Constitution to create a patent system to encourage innovation, they recognized that predictable enforcement of patents on technologies that are truly new is a powerful engine for jobs and economic growth. Right after the Civil War, the predecessor to the ITC was created to de-escalate the politics of trade by harnessing the power of political balance to foster transparency and independence. The ensuing decades in America saw one of the greatest economic and technological expansions of all time. Today, the ITC continues in a tradition of political balance, transparency, and independence, with about 400 highly trained staff led by six Commissioners, three from each party, with a Chair that is statutorily required to rotate person and party every two years.
When recent Presidents from both political parties worked to strengthen ties with our allies, like South Korea, they prioritized predictable patent enforcement. That’s why patent protection is codified in Article 18 of the U.S.-Korea Free Trade Agreement, KORUS.
Patent adjudication at the ITC has a well-earned, long-standing reputation for being non-partisan, fair, well-reasoned, and well-supported by a detailed factual record. ITC patent trials are faster than in federal courts, and instead of generalist judges and juries of non-experts, the ITC has a large and highly trained staff, including judges and commissioners, with experience in patents, trade, technology, and economics. Yet, like courts, the ITC operates under exacting procedures, gives detailed reasons for its decisions, and functions independently. ITC trials like the one between Dynamics and Samsung include full examination of witnesses and extensive evidence about the “prior art” (i.e., all those technologies that pre-date the patent) and the products that allegedly infringe.
The Troll Trap and Other Red Herrings
Concerns today are voiced that so-called patent trolls buy bad patents to monetize them by asserting ones that are invalid because they don’t beat the prior art or are stretched beyond their true meaning to trap products that don’t actually infringe, and then, like a litigation mill, threaten suit against everyone to get shake down settlements. But patent troll concerns don’t apply here. Dynamics invented its own technology, patented it, and includes that technology countless products. In addition, the ITC ALJ determined that the USPTO made no mistake because the patented technology was not in the prior art and the claim for infringement is not a stretch but a solid match. Moreover, this is the first and only defendant that Dynamics has had to sue. Dynamics’ wide-ranging and successful relationships with companies, like IndusInd and LG, show how generative Dynamics has been; and also attest to the genuine value of the innovations from this significant Pennsylvania employer. Indeed, Dynamics rolls over the big investments it receives around magnetic emulator patents to develop other innovations in Pittsburgh, such as new systems that use UV-C sterilization against COVID.
Concerns today are also voiced about how hard it can be for users of patented technologies to know what patents they should respect. The complaints seem to start with the argument that the intangible nature of these legal instruments makes them too clumsy for market transactions. In part, this is said to be because there too many patents, and patent owners are too hard to find. It is also said that patents are so hard to interpret that they end up surprising technology users who had no idea they were infringing until an adjudicator tells them so.
Let’s first consider the intangible nature of patents, which those voicing the concerns contrast against other property rights in things we can touch like land and mobile phones. What is a company to do, when there are millions of issued patents at any time? The sheer number of patents and of patent owners makes it hard to determine which ones might matter, and who owns them. Whatever one thinks about optimal patent system design, the question is a red herring for this case. Dynamics has said publicly that when its team went to Korea and had early talks with LG, it had similar talks with Samsung. That would mean Samsung is no stranger to these patents or their owner.
Besides, if intangibility makes doing business in a market for IP so hard, then how does anyone manage in a market for stocks, bonds, mortgages, or easements? These are all intangible legal instruments. Markets for such instruments have oversampled for excessive junk at times. But they all nevertheless represent very real value that most of us would love to find in our accounts. And markets function worldwide for all of them.
Related concerns are that users of patented technologies are too often surprised to learn they are infringers because patents can be hard to interpret. While some legal instruments are harder to interpret than others, the legal rules for each kind of instrument set the standard. In many of the big patent cases that have made headlines over recent years—like eBay v. MercExchange, TiVO v. Echostar, and i4i v. Microsoft, the patents were adjudicated to have fully met each of patent law’s four disclosure requirements—enablement, written description, best mode, and definiteness. While we should always consider the pluses and minuses of making objective disclosure rules like these somehow more demanding on the patentee, there will always be a zone of uncertainty between what a patent does and does not cover.
But, however uncertain things may be in some settings, we shouldn’t forget that in eBay, TiVO and i4i, the patent infringements were adjudicated to have been willful. That means the infringer knew or should have known its conduct was wrong. It stretches the definition of surprise to reach a case where a lawyer’s legal advice would have told—or did tell—the user of the patented technology that its use would be adjudicated to be infringement.
The intangible nature of patent rights is not a reason to allow parties willfully to ignore those rights. Quite the opposite: it is the very reason society has predictable rules and reliable and transparent procedures for the enforcement of those rights. Imagine you own an electronics shop and come in one morning to find a broken window and some items strewn across the floor, but it’s hard to tell exactly what has been stolen. At least with tangible property like phones or chips or any physical goods in a shop you can count your inventory and see what was stolen. But, even with a theft like this of physical goods, your insurance company will still require a report by the police investigators verifying what’s been taken before they cut a check to cover the loss. With intangible property like a patent, you also need a process to sort out the facts, and perhaps even more so, because you might only imperfectly know exactly what a thief has taken. Patent infringement suits help everyone in the market figure how many of each specific type of inventory has been taken, whether the USPTO somehow made an error, and what remedies are appropriate. That’s why patentees often go both to the court and the ITC at the same time. The court has the full panoply of remedies in its tool belt, but takes much longer, usually several years, to reach a judgment. The ITC has many fewer remedy tools in its toolbelt, but goes faster, and carries out at least as full and fair an adjudication that helps everyone in the market get a full and crisp picture of what actually has happened.
Whether the ITC will use the limited remedies in its power to stop future theft in the case of Dynamics and Samsung remains to be seen. That’s why the determination so far is only initial and now will go before the full Commission. But the underlying facts have now been fully, fairly, and transparently adjudicated. At least some of the patents have been adjudicated to be both infringed by Samsung and validly issued by the USPTO. Now we will see what remedies the courts and the ITC will impose. If there is no remedy after winning an adjudication a companies’ patents are infringed and not invalid or unenforceable, then why have the patent system and why provide such careful, fair, transparent, and expensive adjudications in the first place?
So, where do things go from here? Both sides will likely appeal on many fronts. And both sides may win here and there. But one thing is clear at this stage: after presiding over a detailed trial with adverse parties putting their best case forward, an independent judge at the ITC has determined that Samsung is infringing valid patent rights of Dynamics.
An adjudicated infringer who has been caught using someone else’s patented invention has a number of options at this stage. At the ITC, if the infringer wants to continue to import goods that use that invention, the infringer can design around the patent and then let the ALJ study the new design to see if it really avoids infringement. Another option is to remove the infringing components. A third option, that may suit Samsung in the present case when customers want contactless payment systems and are already fans of a brand-specific system, is for that infringer to simply ask the patentee to sell or license the patents. The collaborations that this patentee already has in India and in South Korea suggest that it likes collaborating.
The ITC will review the ALJ’s initial determination, and both the White House and the Court of Appeals for the Federal Circuit may have a chance to weigh in. If political leaders decide that some other policy goals trump, they have the power to set aside ordinary patent enforcement and international commitments like in KORUS. And of course, if the ITC or the appellate courts find some specific errors of law or fact in the ALJ’s detailed record and lengthy written determination, then those reviewing authorities should make specific corrections.
We All Benefit from Strong Patent Rights
But absent a change in policy or the discovery of some particular material error in the ALJ proceedings, the ordinary enforcement of patent rights in cases like this is exactly what our patent system is intended to achieve. That system turns the intangible rights contained in patents into further innovation, jobs, and investment. Communities as diverse as western Pennsylvania and South Korea all benefit from this cooperation around patents.
Image rights acquired by 123RF.com