by Dennis Crouch
Roku, Inc. has asked the Supreme Court to review 2024 Federal Circuit decision affirming the US International Trade Commission’s (ITC) finding of a Section 337 violation based on infringement of a TV-remote patent owned by Universal Electronics, Inc. (UEI). US10593196 (method of configuring user interfaces on home theater devices to control other appliances).
The petition focuses on the ITC’s “domestic industry” requirement, and the level of nexus required between substantial domestic investment, the scope of the asserted patent, and any articles that embody the patented invention. The case invites a broader reconsideration of the ITC’s role in patent disputes, including its near-automatic issuance of exclusion orders against adjudged infringers.
Roku’s petition presents two questions:
- Did the ITC exceed its Section 337 authority by finding the entirety of complainant’s investments in unpatented, multi-purpose software to be “with respect to the articles protected by the patent?”
- Did the ITC exceed its Section 337 authority by failing to consider whether the complainant’s investments in unpatented, multi-purpose software were “substantial” “with respect to the articles protected by the patent?”
Background on the ITC and Section 337: The ITC is an independent branch of the US government charged with protecting U.S. domestic industries from foreign competition deemed to be ‘unfair.’ Section 337 of the Tariff Act particularly empowers the quasi-judicial agency to investigate and adjudicate IP importation issues, recognizing that IP misappropriation and infringement are forms of unfair competition.
The ITC remedy is limited to exclusion orders — effectively injunctive relief — that bar infringing products from entering the United States. Importantly, the ITC’s statutory structure means that these exclusion orders are not subject to the traditional four-factor test for injunctive relief set forth by the Supreme Court in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006). They are, however, subject to Presidential override, which I believe was last used by President Obama in 2013 when he overturned a ban on Apple iPhone importation that Samsung had won. The ITC’s unique remedial powers make it an attractive forum for patent owners seeking to block competitors’ products. The direct Presidential power may be required in order to make the agency Constitutional, and it also makes sense if ITC action is seen as an element international trade negotiations that is typically the President’s bailiwick.
Congress placed limits on access to ITC remedies through a domestic industry requirement. Under 19 U.S.C. § 1337(a)(2), patentee complainants must demonstrate existence of “an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.” This requirement serves as a gatekeeper to ensure the ITC’s focus is protecting U.S. industry.
Under eBay, non-practicing entities have struggled to obtain injunctive relief because they are typically seeking monetary damages and are unable to show other irreparable harm due to ongoing infringement. (They also typically sue companies with plenty of cash, and are thus able to pay any resulting damage award). But, an injunction is a powerful negotiation tool — creating a major hold-up cost against accused infringers who otherwise refuse to play ball. What all this means is that NPE’s would love to have access to the ITC and have been seeking ways meet the domestic industry requirement. To be clear, UEI develops and sells software used on remotes and so is not an NPE. However, in recent years UEI’s sales have dropped significantly, and the company hopes that its IP can help stave-off competition.
In the case between UEI and Roku, the ITC ultimately found that Roku’s product infringed, and that the domestic industry requirement was satisfied, including the technical prong and economic prong. Lets walk through the statutory basis for these requirements found in 19 U.S.C. § 1337(a)(2) and (3).
The technical prong requires that an industry in the United States “relating to the articles protected by the patent” exists or is in the process of being established. This typically involves showing that the complainant or its licensees practice at least one claim of the asserted patent.
The economic prong, detailed in § 1337(a)(3), requires a showing of one of three types of investments in the United States: (A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in the patent’s exploitation, including engineering, research and development, or licensing. As with the technical prong, these investments must also be “with respect to the articles protected by the patent.” The rules here were amended in 1988 to include investment in licensing activities. This change was significant as it allowed entities that primarily license their patents, rather than manufacture products, to potentially satisfy the domestic industry requirement and bring cases before the ITC.
Roku’s basic argument on these issues is that there is a disconnect between “articles protected by the patent” and UEI’s domestic industry investment. Remember, UEI does not itself manufacture home theater devices or televisions that are necessary to practice the full scope of the patent claims. Instead, UEI develops and licenses software called QuickSet, which may be incorporated into third-party devices like Samsung televisions to enable the claimed functionality. It is those Samsung TVs that are the “articles” protected by the patent, but since they don’t contributed to the domestic industry since they are designed and manufactured abroad.
In affirming the ITC decision, the Federal Circuit concluded that “investments need only to be tied to the scope of the patents, and not necessarily whole products that are the subject of the exclusion order.” The court relied on its 2013 decision in InterDigital Communications, LLC v. ITC, holding that a patentee “can satisfy the economic prong of the domestic industry requirement based on expenditures related to a subset of a product, if the patent(s) at issue only involve that subset.” 707 F.3d 1295 (Fed. Cir. 2013). Because UEI’s QuickSet software embodied the teachings of the ‘196 patent, even if it did not alone practice all claim elements, the court found UEI’s investments in QuickSet sufficient to establish a domestic industry.
In its petition, Roku argues that the Federal Circuit failed to properly interpret the requirement that domestic industry investments be made “with respect to the articles protected by the patent.” The court counted UEI’s QuickSet investments toward the domestic industry, despite QuickSet being used in many non-infringing products and not fully embodying an article covered by the patent. In other words, those investments were both over and under inclusive. Roku suggests that UEI should have been required to allocate or quantify what portion of its QuickSet investments related specifically to the Samsung televisions identified as practicing the patent.
Additionally, Roku argues the ITC failed to evaluate whether UEI’s software investments were “substantial” in the context of the complete Samsung television products — the suggested approach made by the Federal Circuit in Lelo Inc. v. ITC, 786 F.3d 879 (Fed. Cir. 2015) (stating that the substantiality of investment must judged “relative to [the] overall investment with respect to the articles at issue”).
In deciding the case, the Federal Circuit gave deference to the ITC’s interpretation of the statute under Chevron. The brief explains the new Loper Bright approach requires de novo review where ““[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024).
Broader Implications: The ITC has historically received flack from many sides of the political spectrum. Free market conservatives argued that Section 337 should be repealed (along with all other trade barriers). See, K. William Watson, Still a Protectionist Trade Remedy: The Case for Repealing Section 337, CATO INST. POLICY ANALYSIS (2012). Liberals who might favor protectionism have expressed concerns that the protection is for U.S. Industry rather than U.S. People. Of course, over the past 10 years international trade politics has become quite confusing, and the old political divides have shifted.
I enjoyed reading Professor Jorge Contreras’ new article titled “Reconsidering the Patent Jurisdiction of the International Trade Commission,” forthcoming in the Harvard Journal of Law & Technology. As the title suggests, Contreras provides a comprehensive critique of the ITC’s patent jurisdiction, echoing many of the concerns raised in Roku’s petition. He argues that the ITC’s patent jurisdiction has “outgrown its original purpose” and now largely duplicates the work of federal courts while creating inefficiencies and unpredictability in the patent system — such as
- Duplication of proceedings: Contreras notes that 83% of ITC cases involve patents that are also being enforced against the same defendants in district court. This leads to parallel litigation and relitigation of the same issues, increasing costs for parties and the government.
- Inconsistent remedial standards: Contreras points out that while district courts grant permanent injunctions in about 75% of patent cases post-eBay, the ITC issues exclusion orders in virtually 100% of cases where infringement is found. This discrepancy is even more pronounced for patent assertion entities (PAEs), which have a 100% success rate in obtaining exclusion orders at the ITC, compared to only 16-26% success in obtaining injunctions in district courts. Because Contreras generally supports the eBay equitable hurdle, he suggests that ITC’s approach is a problem.
Contreras proposes several reforms, including limiting the ITC’s jurisdiction to cases where federal courts lack personal jurisdiction over the parties. However, he ultimately concludes that abolishing the ITC’s patent jurisdiction entirely would be the most effective solution. He suggests that the small number of cases involving foreign manufacturers beyond U.S. court jurisdiction could be addressed by allowing federal courts to obtain in rem jurisdiction over infringing articles and advise Customs and Border Protection (CBP) to seize them at the border.
An important aspect the system missing from Prof. Contreras paper is a more detailed discussion of how CPT operates, and particularly the Exclusion Order Enforcement Branch of US Customs (EOE Branch). In a substantial number of cases exclusion order cases, the adjudged infringer will present EOE branch (or at times the ITC itself) with a design-around product and seek approval to continue importing with the design change that avoids infringement. This is what happened in Masimo v. Apple in early 2024 and also what happened for Roku in this case. The petition explains:
Roku has designed around the ’196 patent and obtained affirmative rulings of non-infringement from U.S. Customs and Border Protection, which has allowed Roku’s business to continue uninterrupted while it pursues its appeal of the ITC’s erroneous decision.
The commonality of this outcome is important and substantially undermines the narrative that an exclusion order is equivalent to a hold-up. Rather, what we have is a dynamic process that continues beyond the initial ITC determination that permits adjudged infringers to like Roku and Apple to continue their operations by implementing technical changes that avoid infringement, even after an exclusion order has been issued.
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The recent House Judiciary Subcommittee hearing on “IP Litigation and the U.S. International Trade Commission” echoed many of the concerns raised in Roku’s petition and Professor Contreras’ article — noting that testimony was largely one-sided. Tara Hairston, representing the Alliance for Automotive Innovation, highlighted her lobbying organization’s concern that non-practicing entities regularly bring Section 337 complaints to the ITC “with the intent to gain unfair leverage against an automotive company and force a company to settle pending litigation in another venue.”
Sam Korte of Garmin International emphasized the duplicative nature of ITC proceedings, noting that “Section 337 Investigations today almost always have counterpart litigation in federal court and therefore involve disputes that could be—and already are—heard in federal court.” This observation supports the concern raised by Professor Contreras about the inefficiency and increased costs associated with parallel litigation in multiple forums. Professor Jorge Contreras, in his testimony, reiterated his critique of the ITC’s patent jurisdiction. He pointed out that “in 2022 and 2023, only 6% of ITC patent cases were brought against foreign manufacturers that were allegedly beyond the jurisdictional reach of U.S courts.”
However, Professor Michael Doane offered a contrasting perspective, emphasizing the ITC’s importance for small innovators and startups. He argued that “Section 337 provides U.S. intellectual property rights owners unique and effective relief against infringing products imported into the United States.” Doane highlighted how the ITC can be particularly valuable in addressing “patent holdout” scenarios, where large, well-funded infringers might otherwise ignore patent claims from smaller entities.