Facts and Trends of USITC Litigation

By Dennis Crouch

The United States International Trade Commission (USITC) is a US-based agency tasked with the goal of protecting US domestic industry against improper foreign competition. The law provides that one form of improper foreign competition is the unauthorized importation of patented goods. See 19 U.S.C. 1337 (“Section 337″). A patentee has the power to separately allege patent infringement at the USITC or in Federal Court. There is also no prohibition against both actions being brought at once. One distinction is that the only remedy available from the USITC is blocking importation of infringing goods. However, the USITC is not bound by eBay v. MercExchange, and thus, the likelihood of a winning patentee being awarded injunctive relief is much greater.

Some commentators have argued that the USITC is improperly supporting the activities of patent licensing companies. However, in a recent four-page report, the USITC has offered a defense against those accusations. The agency notes that, since eBay v. MercExchange, the about 20% of the instituted investigations are associated with patent licensing companies who do not themselves practice the invention. That figure is well below the numbers seen in federal district courts. Further, in that same time period, only four patent licensing companies have obtained exclusion orders (injunctive relief).

USITC: FACTS AND TRENDS REGARDING USITC SECTION 337 INVESTIGATIONS

In general, the number USITC 337 investigations is on the rise. However, the number of patent licensing company (NPE) lawsuits has remained relatively small.

Game Theory: Patent licensing companies generally make money when others use the patented technology – that is where the licensing royalties come into play. And, apart from artificially shifting supply, licensing companies do not make money by excluding others. Thus, one question that arises is why a patent licensing company would file suit in the USITC since the only result is injunctive relief? One solution is to change the law the USITC has the power to award ongoing royalties when a patentee is willing to license the asserted patent rights.

 

26 thoughts on “Facts and Trends of USITC Litigation

  1. anon, one more point, the great advantage of the ITC is its time compression and elimination of issues such as damages.

    Regarding discovery by the respondents, why is that a problem, particularly since damages are not an issue. All they really have to do is produce product and import information. This cannot be all that hard since they are doing business with those products.

  2.  otheranon, I am sure that most ITC complainants also file suit in district court to collect damages.  after the ITC proceedings are done, the proceedings in the   District Court would be rather simple, almost an accounting. I have no idea why a losing party in the ITC we even litigate in district court over damages; but if they did, they would have an opportunity to try to protect present a defense there.
     
    I think the main reason people choose the ITC, in addition to the District Court,  is because of eBay.   It is the forum  where an “injunction” is somewhat reliable.
     
    A secondary reason is that the remedy is prompt.  With the Federal Circuit and Congress trying to prevent litigation in rocket dockets in an efficient manner,  District Court litigation is enormously expensive, drawn out, and in the end, it has no guarantee of an adequate remedy primarily because of eBay.
     
     

     
     
     
     
     

  3. It’s my understanding that it was enacted to protect US businesses against infringing imports that would displace US products

    It’s obvious then that your understanding is flawed as it has been clearly established that manufacturing is not a critical element if the law.

    Other than for non-legal philosophical reasons then, why do you persist with such a view,

    Thanks

  4. Everything IS 103, What I am saying is that the ITC will not start an investigation unless the petitioner demonstrates investment in R&D that resulted in the patents. The licensing entity cannot be just a law firm or equivalent owning and asserting patents.

    Of course the entity is trying to stop infringement and to make money from its R&D. But that is what the patent system is all about.

    Regarding eBay, I daresay that the courts should issue injunctions to protect R&D investment. After all, wasn’t that what happened in i4i? They started out intending to make and sell. But in the end, all they had were the patents.

    Still the injunction issued.

  5. Ned,
    You’re correct, we do not share the same understanding about why the ITC patent remedy was enacted. It’s my understanding that it was enacted to protect US businesses against infringing imports that would displace US products in the US market. Not to protect US R&D.

    Per the Ebay factors, an injunction is generally not appropriate for patents owned by licensing entities.

    Also, do you really think the licensing entities that are using the ITC are protecting US R&D? Maybe you should look at some of those patents. In most cases that I’ve been involved with, there wasn’t any R&D by the patent holder. Just the investment in writing a patent on a trivial variation of something that already existed.

  6. Sorry for the confusion, this is the 9:15AM anon.

    If the respondents actually infringed a valid patent, you would expect the NPEs to file in district court and receive a damages jackpot.

    Filing in the ITC makes little sense for an NPE with an infringed and valid patent. The ITC is happy to delay enforcement of a final determination until a design around can be implemented (see HTC). And, even if the ITC sits on its hands, U.S. Customs will typically also delay action on any imports until a design around can be implemented.

    Harassment via the ITC’s infinite discovery process is the only reason NPEs file in the ITC.

  7. Everything, you and I do not share the same premise. I think the domestic industry protected is US R&D. The inventions of Americans is being used for off-shore manufacture of products covered by the patents of US R&D. That is the way I look at it.

    The ITC remedy was enacted as a complement to US district court proceeding where an injunction to protect US R&D business was assumed to be almost a given upon proof of infringement.

  8. MrObvious,

    I am not sure you are right. Perhaps the licensing activity is small, but the investment in R&D must still be there, I think. I think the intent of Congress was to protect US R&D just as much as US manufacturing. Am I completely wrong in this?

  9. Ned,
    I’m not sure I understand you. You support banning goods ordered by US companies via an injunction loophole in US law?

    Are you kidding?

  10. you’ve obviously never litigated in the ITC. Pretty much any small amount of licensing activity is enough. “Domestic Licensing Industry” is a joke.

  11. anon, which they should have avoided in the first place by not infringing or by taking out a license.

    You forget, that there has to be a domestic licensing industry that is based on domestic R&D before an investigation is even launched. Filing a complaint does not automatically launch an investigation.

  12. In contrast to district courts, the ITC authorizes infinite discovery (unlimited depositions and document production). The rapid pace of ITC investigations requires respondents to immediately spend large sums of money on discovery–far beyond what a defendant faces in federal district court. This provides leverage for NPEs to quickly extract cost-of-defense settlements.

  13. And I would be more impressed that if we are to take a look at the ‘who,’ that any big-corp multinational (who is not beholding to the concerns of the US) ‘take it in the shorts.’

  14. and no domestic manufacturing

    It’s a good thing, then, that the law is not limited to merely manufacturing, is it Paul?

  15. How the worm turns. IIRC, in the late ’80s the law was changed to define licensing as a domestic industry.

    Now, if my memory is correct, just who was behind this change?

    Regardless, there is a difference in my view if the patents flow out of an R&D effort financed in the US, and revenue flows back to the original inventors or investors in some fashion. This fosters investment in US R&D.

    I would be less impressed with a US licensing industry based on foreign inventions where the licensing revenue flowed to foreign companies.

  16. Ahmen. The only way many U.S. companies can offer many electronic and other such products these days is to import them. Domestic manufacturing alternatives are no longer even available for many commerical electronics parts or products. In which case, if the product imports become barred by an ITC import exclusion order there are only two real choices – go out of business, or pay whatever the patent owner asks for. If there are no alternative products [something the ITC ought to take into consideration], consumers needing them are also out of luck, and no domestic manufacturing is being protected, irrespecitive of who is bringing the ITC action.

  17. I wonder how that “one question arises?”

    Is the heated air from burning straw involved?

    Maybe there is some product of nature in chum that is involved…

  18. Dennis, I don’t get why you ask “why a patent licensing company would file suit in the USITC since the only result is injunctive relief?” The obvious answer is “for negotiation leverage, the same as Mercexchange and NTP and every other non-practicing entity seeking an injunction.”

  19. “why a patent licensing company would file suit in the USITC since the only result is injunctive relief?”

    Because the threat of injunction is huge leverage in licensing negotiations.

    “change the law the USITC has the power to award ongoing royalties when a patentee is willing to license the asserted patent rights”

    Why? If both parties are willing to license, they will work out an agreement on their own. Adding ITC-determined royalties lowers the incentive to bargain, increases the complexity of ITC actions, and makes the whole process costlier and slower, undermining the advantages of ITC over federal courts.

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