On July 18, the House Judiciary Subcommittee conducted a hearing entitled "The International Trade Commission and Patent Disputes." Opening remarks from members of the Subcommittee on Intellectual Property, Competition and the Internet indicated a concern regarding non-practicing entities (NPEs) improperly taking advantage of the ITC simply to use the threat of an exclusion order as a negotiating tool. In particular, Chairman Bob Goodlatte remarked that, after the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C. made it more difficult for entities to obtain an injunction in district court, an increasing number of ITC cases have been brought because an exclusion order is “almost always granted.” Ranking Member Mel Watt voiced concerns about the negative impact on consumers that recent large purchases of patent portfolios may bring. “Large companies expanding their patent arsenals clearly does not signal a retreat in the patent arms race,” he said. Further, Watt indicated that the patent wars and NPEs using the threat of an exclusion order as an “unfair negotiating tool” is a drain on the economy, a waste of resources, and ultimately not good for consumers.
Professor Colleen V. Chien from Santa Clara University School of Law testified that “sometimes the ITC is being used opportunistically,” against U.S. companies, contrary to the intent of Section 337 to protect U.S. companies against foreign companies selling infringing products inside the country. Within the ITC, Professor Chien suggested that exclusion orders could be tailored based on the particular facts of the case (e.g., offering a delay or transition time for the exclusion to commence), and that the domestic industry requirement could be more consistently and rigorously enforced for licensing-based complainants. Absent change within the ITC, Professor Chien proposed Congressional action to narrow the gap between the requirements for an injunction in a district court and an exclusion order in the ITC.
Both Neil Rubin from Cisco Systems, Inc., and David Kelley from Ford Global Technologies, LLC, told the subcommittee that fighting an ITC case, and the related threat of an exclusion order in negotiating settlements, costs companies millions of dollars. Kelley stated that the current circumstances “cry out for reform” because there is no evidence that the ITC will change its application of the statute. Kelley suggested that instituting a procedure to challenge an ITC case in its early stages could help to limit costs and resolve cases more expeditiously. Rubin repeatedly called for changes in the domestic industry requirement, advising that “revenue-driven licensing” (i.e., using patents to extract licensing fees from others for sales of products that were already in the marketplace), in contrast to “production-driven licensing” (i.e., licenses between a party that developed the technology and another party that seeks to use the technology), should be deemed insufficient to establish a domestic industry based on “substantial investment in exploiting the patent via licensing in the U.S.” Such a change, he said, would limit the ability of NPEs to bring cases at the ITC.
Agreeing with Chairman Goodlatte’s proposition that, perhaps exclusion orders are too cavalierly granted, Albert Foer, President of the American Antitrust Institute, suggested that “exclusionary injunctions shouldn’t be so easily granted.” Foer proposed that the ITC take a broader interpretation of the public interest factors in the statute as a way to limit exclusion orders.
The lone dissenting voice was that of Bernard Cassidy, General Counsel and Executive Vice President of Tessera Technologies, Inc., who was skeptical of changes being proposed. Cassidy insisted that no Congressional action was necessary because the ITC has interpreted and applied the domestic industry inquiry in a consistent, balanced manner. In addition, Cassidy noted that the public interest factors in the statute can be used to prevent a remedy being ordered for “policy reasons,” and that, because the ITC and district courts are “markedly different,” the eBay factors should not be mandated for the ITC.
Representative Darrell Issa, noting that about two-thirds of cases at the ITC have a counterpart in a district court and that many entities pursue a case in the ITC for its speedy process in addition to the prospect of injunctive relief, suggested that “perhaps the real issue is Article III courts” and their perceived inadequacies. Before concluding, Ranking Member Watt wondered whether imposing sanctions and awarding attorney’s fees in the ITC, similar to how they are imposed and awarded in district courts, might help. But, as several of the witnesses noted, it often is difficult to discern bad faith that warrants sanctions or fees, and judges are frequently reluctant to do so.