INTELLECTUAL PROPERTY TODAY OCTOBER, 2013 19
BY MARK WHITAKER AND KASSITY LIU OF BAKER BOTTS
You probably already know that the U.S. International Trade Commission (“ITC”) has become a popular forum for handling IP disputes. The ITC, which has the power to ban imports of products that result from unfair acts into the U.S., has attracted the attention of many IP owners. To plan for future litigation in this forum, offensive and defensive, companies should thoroughly familiarize themselves with the ITC’s procedural and substantive practices now.
GOING OFFENSIVE — WHY FILE
AT THE ITC
To be sure, most patent litigation (as well as other IP disputes) still takes place in federal district court. Nevertheless, companies should take a close look at the ITC before dismissing it as a viable alternative for resolving their patent disputes. Under Section 337, the ITC can investigate and adjudicate generally any type of IP case (including misappropriation of trade secrets) that involves an element of importation.
There are a number of advantages to litigating at the ITC. Key among those is the fast pace of ITC investigations. Target dates for completing an investigation range from fifteen to eighteen months and are rarely extended. For example, ITC investigations are typically not stayed pending the reexamination of a patent. The ITC also does not consider counterclaims. Accordingly, companies can use the ITC to quickly enforce their rights. And because of the speed of the proceedings, settlement negotiations tend to move with enhanced urgency.
The ITC is also very receptive to technical arguments. Juries play no role in ITC investigations. Each investigation is overseen by an administrative law judge (“ALJ”). Given the number of patent disputes that these judges see every year, they are usually very experienced with technical subject matter. Thus, when cases require technical expertise, the ITC may be the superior choice.
ITC investigations also have less discovery limitations than district court litigations. Once an investigation starts, companies can expect to conduct extensive discovery of other parties. Of course, this advantage is also a two-edged sword, as other parties can do the same. Accordingly, companies should weigh the benefit of more aggressive discovery against the added cost of responding to more discovery.
Companies can also target many infringers located in different jurisdictions in a single ITC action. The ITC has authority to adjudicate claims relating to any U.S. imports. Hence, the agency can order relief in a case even if it does not have personal jurisdiction over the parties. The ITC issues equitable relief in the form of exclusion orders and cease and desist orders. As their name suggests, these orders exclude infringing products from entering the U.S. Exclusion orders can be limited to the parties in a case, or they can apply generally to all present and future imports of an infringing product or separate components of a product. Of course, general exclusion orders are harder to obtain than limited ones. But, if successful at obtaining a general exclusion order, companies can avoid repeat litigation with new infringers.
Companies may also find it easier to obtain equitable relief at the ITC. After the Supreme Court’s decision in eBay v. MercExchange (2006), plaintiffs in district court must satisfy a four‑prong test in order to obtain a permanent injunction. The same standard does not apply at the ITC. In fact, if the agency determines that there has been a violation of Section 337, it is directed by that statute to issue an exclusion order.
Of course, the ITC also has its drawbacks. Key among these is its higher upfront costs. To initiate an investigation, companies are required to satisfy a number of requirements. These include, among other things, having to file a separate statement of public interest and having to establish a domestic industry. Thus, if a company does not want to face high costs early on in litigation, and wants to proceed more slowly to resolution, then a district court action may be the better choice.
Confidential information in ITC investigations are also subject to protective orders that exclude a company and its in-house counsel from obtaining access to such information. So, after an investigation starts, it may be difficult for companies to keep themselves fully apprised of the investigation’s progress. It is thus critically important for companies to choose outside counsel that they trust and have experience with ITC actions.
The ITC also does not award any monetary relief. In order to obtain damages for past or continuing infringement, companies will still have to file in district court. To preserve choice of forum and access to damages, dual filings of ITC and district court cases are common. However, ITC determinations are not binding on a district court, having no preclusive effect. Accordingly, it would be important for companies to consider whether the additional cost of an ITC action is worth its benefits.
PLAYING DEFENSE — STRATEGIES
FOR CHALLENGING PATENT TROLLS
AT THE ITC
Given its many advantages, patent assertion entities (“PAEs”), so-called patent trolls, have started to target more and more companies in ITC actions. Below are a couple of strategies for challenging these entities at the ITC.
First, companies can conduct discovery early on in an investigation to determine whether they can challenge a PAE’s assertion of domestic industry. Typically, PAEs establish their domestic industry by relying on their licensing activities. For this, they must show that they have made substantial investments in licensing, and that there is a sufficient nexus between the patent-at-issue and their licensing activities.
In practice, there are four types of licensing activity — pure licensing activity, litigation activity used to compel royalties, portfolio licensing activity, and royalties. Pure licensing of the patent-at-issue has been held sufficient for domestic industry purposes. However, when relying on litigation activities, a PAE must show that its litigation activities are directed toward licensing the patent-at-issue. Similarly, when relying on portfolio licensing, a PAE must show that its licensing activities focused on licensing the patent-at-issue. Also, PAEs can only rely on evidence of royalties as circumstantial evidence and
Getting the Most Out of
Section 337 Investigations
20 INTELLECTUAL PROPERTY TODAY OCTOBER, 2013
not direct evidence of having a domestic industry.
Accordingly, if a PAE’s evidence of domestic industry looks weak, then respondent companies should try to terminate the investigation by filing an early motion for summary determination. On point, in Certain Products Having Laminated Packaging (Inv. No. 337-TA-874), the ITC instituted the investigation by instructing the presiding ALJ to “hold an early evidentiary hearing, find facts, and issue an early decision, as to whether the complainant has satisfied the economic prong of the domestic industry requirement,” expecting “the issuance of an early ID relating to the economic prong of the domestic industry requirement within 100 days of institution.” Alternatively, companies can use this knowledge to pressure a PAE into settling for a lower royalty.
Second, companies can raise public interest concerns during an investigation. Under Section 337, the ITC can rely on one or more public interest factors to deny issuing relief in an investigation. Recently, the ITC has taken an increased interest in these factors. The agency has delegated authority in many investigations to ALJs to consider public interest evidence. Moreover, the President has the power to veto an ITC order based on public interest issues. President Barack Obama recently exercised this power in a case involving a standards-essential patent, Certain Electronic Devices (Inv. No. 337-TA-794), calling the agency’s attention to the important role that such patents have on U.S. consumers and competitive conditions in the U.S. economy. In Certain Coaxial Cable Connectors (Inv. No. 337-TA-650), the ITC has also indicated that revenue-driven licensing activity — activity that focuses solely on deriving revenues from existing production — should be given less weight than production-driven licensing activity — activity that encourages further innovation and development. Raising issues of public interest is virtually a risk-free proposition for companies. Thus, companies should use this additional tool to challenge the rent-seeking activities of PAEs at the ITC.
As the ITC becomes an ever more popular forum for patent litigation, it is important for companies to familiarize themselves with the agency’s procedural and substantive practices and develop strategies for handling its investigations. ITC actions move quickly, so get smart and be prepared. IPT