The International Trade Commission (“ITC” or the “Commission”) recently issued an article (dated June 18, 2012) highlighting the dramatic increase in the agency’s Section 337 caseload from FY 2000 to 2011, and providing detailed statistics regarding the use of Section 337 investigations by non-practicing entities (“NPEs”).
According to the article, the number of new Section 337 investigations has increased by over 530% from FY 2000 to FY 2011. Current statistics for FY 2012 indicate that the agency’s caseload will remain stable or increase going forward, with proceedings involving high-tech products, such as smartphones and tablets, accounting for much of the workload. For instance, “[s]martphone companies involved in Section 337 investigations during the first half of FY 2012 include: Apple (14), HTC (8), Motorola (4), Samsung (3), RIM (3), Nokia (3), and LG (1).”
In 1988, Section 337 was amended to allow IP rights-holders that do not manufacture products, i.e., NPEs, to obtain remedies at the ITC. There is currently much debate as to whether NPEs should be permitted to obtain relief by instituting a Section 337 investigation. In order to analyze the prevalence of NPE activity at the ITC, the Commission classified NPEs into two distinct categories — Category 1 and Category 2 NPEs. “Category 1 NPEs include manufacturers whose products do not practice the asserted patents; inventors who may have done R&D or built prototypes, but do not make a product covered by the asserted patents and are therefore relying on licensing to meet the domestic industry requirement; research institutions, such as universities and laboratories, that do not make products covered by the patents, and therefore are relying on licensing to meet the domestic industry requirement; and start-ups that possess IP rights but do not yet manufacture a product that practices the patent.” Category 2 NPEs included entities that “do not manufacture products that practice the asserted patents, and whose business model primarily focuses on purchasing and asserting patents.”
Since the Supreme Court’s decision in 2006 in eBay v. MercExchange, the Commission reports that 258 investigations have been instituted trough the first quarter of 2012. Of these 258 investigations, 26 (or 10%) were filed by Category 1 NPEs and 21 (or 8%) were filed by Category 2 NPEs. Only one Category 2 NPE complainant (Rambus in Inv. No. 337-TA-661), and two Category 1 NPE complainants (Tessera in Inv. No. 337-TA-605 and UNeMed Corporation in Inv. No. 337-TA-679), were successful in obtaining an exclusion order. Based upon this data, the Commission concludes that the agency’s increased caseload may not be directly driven by NPEs desire to litigate in the ITC following eBay.
As to the suggestion that NPEs are using the ITC to obtain settlements with respondents (whom are likely involved in parallel district court proceedings against the NPE-complainant) the report finds that the data is inconclusive due to the relatively small number of NPE investigations. However, despite the small sample size, the data shows that 38% of all Section 337 investigations involving Category 1 NPEs resulted in a settlement, while 62% of all investigations involving Category 2 NPEs resulted in a settlement.
Lastly, the Commission reported that its data regarding the number of respondents named in Section 337 investigations varies substantially from year to year, thereby preventing the agency from accurately commenting on whether the total number of respondents in NPE investigations has increased significantly in recent years. The article seems to suggest that any general increase in the number of Section 337 respondents may stem from the Federal Circuit’s decision in Kyocera v. Int’l Trade Comm’n, which prohibits the scope of remedial orders issued by the ITC from reaching third party downstream products containing accused components, rather than being directly correlated to increased NPE activity at the ITC.