The U.S. International Trade Commission (ITC) is an attractive forum for patent holders. Although the ITC cannot award monetary damages for infringement, it is relatively speedy compared to federal district courts, its judges have specialized knowledge regarding patent infringement, and it can exclude goods from importation into the United States. An exclusion order, which is akin to an injunction, does not require a showing of actual harm to the patent holder. This standard for obtaining an exclusion order is in contrast to a patent holder’s other U.S. forum – federal district courts. The Supreme Court’s 2006 opinion in eBay v. MercExchange L.L.C., 547 U.S. 388 (2006), has made it more difficult for companies that do not practice their own patents to obtain injunctions in federal court. In eBay, the Supreme Court reversed the Federal Circuit’s holding that patent holders may obtain injunctions merely by showing that a patent is valid and infringed. Rather, the Court explained, a plaintiff seeking an injunction in a patent case must satisfy the traditional four-factor test for the issuance of a permanent injunction, including showing that it has been irreparably harmed. While the Court suggested that patent holders who exploit their patents via licensees rather than directly should still qualify for injunctions, it may be difficult for some patent holding companies to show irreparable harm, particularly if their licensees have yet to exploit their patents, or if they have yet to acquire any licensees.
Last month the ITC voted to investigate a complaint filed in December by Saxon Innovations LLC alleging that electronic products imported by six companies—including Nokia and Panasonic—infringe its patents. (The complaint is available at http://edisweb.usitc.gov/edismirror/337-667/Violation/316153/405944/11d9/a6b219.pdf.) This case could take the ITC one step further toward becoming the forum of choice for patent holding companies (also known as non-practicing entities and, less charitably, as patent trolls) seeking to use litigation to bring alleged infringers to the table.
Saxon’s complaint alleges that it “focuses its business on acquiring, licensing, and enforcing patented technology in the consumer electronics and communications industry.” The patents involved in its ITC complaint are three among 180 Saxon acquired in 2007; since that time, Saxon alleges that it has invested heavily in exploring licensing opportunities and litigating to enforce its patent rights, with four of its five employees dedicated to developing this licensing business.
The ITC has authority to enforce Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, which aims to protect domestic industries by prohibiting the importation of, among other things, products that infringe U.S. patents. However, an infringing product violates § 1337 only if “an industry in the United States, relating to the articles protected by the patent . . . exists or is in the process of being established.” § 1337(a)(2).
The Tariff Act sets the criteria for when a domestic industry exists or “is in the process of being established.” It provides:
For purposes of [the domestic industry requirement], an industry in the United States shall be considered to exist if there is in the United States, with respect to articles protected by the patent . . . concerned:
(A) significant investment in plant and equipment;
(B) significant employment of labor or capital; or
(C) substantial investment in its exploitation, including engineering, research and development, or licensing.”
(19 U.S.C. § 1337(a)(3) ( emphasis added).
In the 1997 case In re Certain Digital Satellite System Receivers, No. 337-TA-392 (Int’l Trade Comm. Oct. 20, 1997) (Initial Determination), aff’d in part (Int’l Trade Comm. Dec. 4, 1997) (Final Determination), the Commission interpreted § 1337(a)(3)(C), to be satisfied “if [a] complainant has invested a substantial amount of money in a licensing program.” There the complainant had five employees, six patents, and four licenses.
Saxon’s complaint, and the ITC’s decision to investigate it, have caught the attention of the patent bar because the complaint does not allege that Saxon has actually concluded any licenses. Saxon is thus attempting to open the door fully to non-practicing entities. If the ITC finds that a non-practicing entity can constitute a domestic industry, it may be inviting a flood of similar complaints from patent holding companies seeking import bans. As important, it may result in a shift of such cases from U.S. District Court to the ITC when goods are imported. The ITC’s traditionally speedy docket could suffer from its growing popularity, an outcome that could ultimately harm all companies in need of protection from unfair import trade. The ITC would do well to keep its broader mission in mind before it throws its substantial enforcement weight into protecting companies that have yet to contribute significantly to the domestic economy. Otherwise, it might join the Eastern District of Texas in being a victim of its own success.
Order initiating an investigation: http://www.usitc.gov/secretary/fed_reg_notices/337/337-TA-667..1232050447.pdf
Vickie L. Henry
Foley Hoag LLP