June 2014
Intellectual Property & Technology Law Journal
By Stephen E. Kabakoff
Authored by Stephen E. Kabakoff and Andrew G. Strickland
In a patent-infringement action, the relevance of parties that are not the patentee or the accused infringer (i.e., third parties) typically extends to issues of discovery. For example, a third party might be subpoenaed to obtain prior art, sales, or other types of information. For patent-based investigations in the US International Trade Commission (ITC), the involvement of third parties also can affect issues relating to standing and the domestic-industry requirement, 19 U.S.C. §1337(a)(2). The ITC's rules relating to a third party's standing and domestic-industry activities present some unique strategic opportunities relative to federal district court.
A party must have standing to bring a patent-infringement action in either the ITC or federal district court. While the standing requirements in the ITC and federal court are similar, some differences exist. If a party has standing to allege patent infringement in federal court, they also have standing in the ITC. The reverse, however, is not necessarily true. A nonexclusive patent licensee, for example, can have standing in an ITC investigation, even though that licensee would not have standing in federal court. As recently highlighted in Certain ProductsContaining Interactive Program Guide and Parental Control Technology,1 and discussed further below, a party can have standing in the ITC even if it neither owns nor licenses any asserted patent, unlike in federal district court. Thus, a third party may have standing to actively participate as a party in an ITC investigation, even though that party would not have standing in federal court.
In addition, a third party's investments, research, licensing, and other activities related to an asserted patent may be more relevant in the ITC than in federal district court. Interactive Program Guide and other ITC precedent suggests that patent owners and exclusive licensees may rely on certain activities of third parties, even unlicensed third parties, to satisfy the domestic-industry requirement, provided those third parties are authorized to practice at least one claim of the asserted patent. Interactive Program Guide also suggests that it can be desirable to use the ITC's standing rule to join one or more third parties as co-complainants for purposes of domestic-industry.
Based on the ITC's rules related to third party standing and domestic-industry, ITC complainants in a patent based investigation may be able to leverage these rules to their advantage, and respondents can understand how to defend against complainants attempting to do so.
A party's standing to bring a lawsuit is rooted in Article III, clause 2, of the Constitution, which limits the jurisdiction of federal courts to "Cases" and "Controversies."2 The doctrine of standing, however, is subject to certain "judicially self-imposed limits" known as prudential limits, such as prohibitions against litigating generalized grievances or litigating the legal rights or interests of third parties.3 There can be both constitutional and prudential considerations when determining whether a party has standing to bring a patent-infringement action in federal district court.
A party has constitutional standing to bring a patent-infringement action only if it is the owner or exclusive licensee of the asserted patent.4 As a general principle, constitutional standing requires three elements: (1) the plaintiff suffers an injury-in-fact; (2) a causal connection exists between the injury and the defendant's conduct; and (3) the injury likely can be redressed by a favorable decision.5 By statute, these requirements are satisfied by a "patentee" alleging patent infringement.6 The patentee includes both the legal title owner and any successors-in-title of the asserted patent.7
A licensee that holds exclusionary rights of making, using, and selling the patented technology, for example in a given geographic region, may have standing to assert the patent in federal court.8 As a prudential principle, such an exclusive licensee must sue "in the name of, and jointly with, the patent owner" and otherwise meet the basic constitutional standing requirements.9 Thus, an exclusive licensee has standing to allege patent infringement provided that the patent owner is joined as a party to the suit.
By contrast, a nonexclusive licensee does not have standing to bring a patent-infringement action in federal district court. A nonexclusive licensee holds nothing more than a promise that the patentee will not sue the licensee for practicing the patented technology and suffers no legal injury from infringement of the patent.10 As explained in Western Electric Co. v. Pacent Reproducer Corp.:
In its simplest form, a license means only leave to do a thing which the licensor would otherwise have a right to prevent. Such a license grants to the licensee merely a privilege that protects him from a claim of infringement by the owner of the patent monopoly. He has no property interest in the monopoly of the patent, nor any contract with the patent owner that others shall not practice the invention. Hence the patent owner may freely license others, or may tolerate infringers, and in either case no right of the patent licensee is violated. Practice of the invention by others may indeed cause him pecuniary loss, but it does him no legal injury.11
Unlike an exclusive licensee, a nonexclusive licensee cannot satisfy the standing requirements by simply joining the patent owner as a prudential matter, because the nonexclusive licensee itself does not satisfy constitutional standing requirements.
A nonexclusive licensee's lack of standing can affect the types of available damages in a patent-infringement action. In Spine Solutions, for example, Spine Solutions, Inc. (SSI) was the assignee of the asserted patent but did not make or sell any device covered by the patent.12 The only entity that made and sold products practicing the patent was a sister corporation related to SSI through a parent corporation.13 To assert damages theory based on lost profits, SSI amended its complaint to join its parent and sister corporations as co-plaintiffs,14 reasoning that the defendants' infringement resulted in sales by the defendant that otherwise would have been attributed to SSI's sister corporation.15 After a trial, the jury awarded lost profit damages to SSI.16
The Federal Circuit vacated the jury's damages award in Spine Solutions, finding that neither of SSI's sister or parent corporations had standing as co-plaintiffs.17 The court found that "by allowing [SSI's sister corporation] to practice the claimed invention, SSI has granted it at most a bare license."18 The court held that without a right to exclude others from practicing the patent, the nonexclusive ("bare") licensee sister corporation did not have standing.19 Because the parent corporation likewise was neither an owner nor exclusive licensee of the patent, it also lacked standing as a co-plaintiff.20 Unable to amend its complaint under the federal standing requirements to add its sister and parent corporations, SSI could not rely on its lost profits damages theory. Under the ITC standing rule, a different outcome would have been reached regarding the standing of SSI's sister and parent corporations.
Patent infringement complaints are filed in the ITC based on Section 337 of the 1930 Tariff Act.21 The standing requirements for a Section 337 investigation overlap with, but are not coextensive with, the federal standing requirements. The ITC standing rule requires, in relevant part, that "[f]or every intellectual property based complaint (regardless of the type of intellectual property right involved), [the complaint shall] include a showing that at least one complainant is the owner or exclusive licensee of the subject intellectual property."22 In determining whether at least one patent owner or exclusive licensee has standing, the ITC rule is coextensive with federal standing requirements.23 The Commission has stated, for example, that it "see[s] little basis for inferring a different standing requirement under section 337 than the courts have established in patent infringement cases."24 In many cases, a party will assert the same patent-infringement claims in both the federal court and the ITC, and allege the same facts to support its standing in each forum.25
The ITC standing rule, however, differs from the requirement in federal courts that every co-plaintiff must have standing to bring a patent infringement action.26 Instead, Commission Rule 210.12(a)(7) only requires "at least one" complainant be the owner or exclusive licensee of the asserted patent. As a consequence, a nonexclusive licensee that otherwise would not have standing in federal district court can have standing in an ITC investigation, so long as the legal owner or exclusive licensee of the asserted patent is a co-complainant. Unlike in federal court, "[t]he Commission has not precluded those who have no legally recognizable rights in the patent from appearing as a coparty complainant."27 For example, in Catalyst Components, the Commission determined that the complainant was a field-of-use licensee and not the legal owner of the asserted patent.28 While the Commission determined that the complainant independently lacked standing, it further held that the complainant nonetheless could proceed with the investigation if the patent owner was joined as a co-complainant.29 By allowing parties that are not patent owners or exclusive licensees to participate in Section 337 investigations, the ITC standing rule broadens the scope of permissible parties relative to the federal standing rules. Not only does this difference permit a third party to actively participate in an ITC investigation, it also can be relevant for purposes of the ITC's domestic-industry requirement.
A Section 337 violation based on patent infringement can be found "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."30 This often is referred to as the domestic-industry requirement. The domestic-industry requirement consists of an economic prong, requiring certain activities, and a technical prong, requiring that those activities relate to the asserted patent.31 The economic activities can be demonstrated by significant investment in plant and equipment, significant employment of labor or capital, or substantial investment in exploitation of the patent, including engineering, research and development, or licensing.32 To satisfy the technical prong based on articles protected by the asserted patent, the complainant must establish that it practices at least one claim of the asserted patent.33 The burden is on the complainant to show by a preponderance of evidence that each prong of the domestic-industry requirement is satisfied.34
Clearly, a patent owner can rely on its own domestic-industry activities. The patent owner cannot rely on the activities of an alleged infringer to prove the existence of its own domestic-industry. But what about alleged domestic-industry activities by third parties between these two extremes? While ITC decisions indicate that activities of a patent owner's licensees, contractors, subsidiaries, or parent companies may satisfy the domestic-industry requirement, the ITC has not provided a specific test for determining when alleged domestic-industry activities are sufficiently related (or too unrelated) to practicing or exploiting the asserted patent. As discussed below, it appears that the domestic-industry activities must at least satisfy the requirement that they were authorized by the patent owner or exclusive licensee.
The domestic-industry requirement is not confined to activities of the patent owner or exclusive licensee. For example, a patentee may rely solely on the activities of its licensees to satisfy the domestic-industry requirement.35 Similarly, "work performed by contractors and subcontractors hired by a complainant may be considered as part of an investment in the domestic-industry."36 An ITC complainant also may rely on domestic-industry investments made by its wholly owned subsidiaries.37
A domestic industry also may be based on activities by a patent owner's parent corporation, as illustrated in Interactive Program Guide. In that investigation, there were five co-complainants that were related through their organizational structure. Three of the complainants owned at least one of the asserted patents.38 The other two complainants, Rovi Corp. and Rovi Guides, Inc., were parent companies of the complainants that owned the patents.39 Neither of these parent companies was an owner or licensee of any asserted patent.40
Although the parent companies in Interactive Program Guide were neither owners nor licensees of the asserted patents, the administrative law judge (ALJ) nonetheless found that "the activities of Rovi Corporation and Rovi Guides, Inc. are relevant in establishing a domestic industry in the asserted patents," and that these companies contributed to the investments satisfying the domestic-industry requirement.41 The ALJ cited testimony indicating that one of the parent companies (Rovi Guides, Inc.) administered the licensing program for the asserted patents, and any investments relating to the patents were recorded on the books of the other parent company (Rovi Corp.).42 In allowing the complainant patent owners to rely on domestic-industry activities of their unlicensed parent companies, the ALJ reasoned that "[u]nder Commission precedent, a complainant may rely upon investments by related corporate entities (or even unrelated licensees) to prove the existence of a domestic industry."43
Interactive Program Guide and other ITC precedents suggest that a complainant may rely on alleged domestic-industry activities of a third party, if those activities were authorized by the patentee.44 For instance, as discussed above, such domestic-industry activities may be authorized expressly in a license or other contractual agreement, or authorized implicitly via corporate relationships with parent or subsidiary entities.
There may be other scenarios of alleged domestic-industry activities by third parties that have not yet been considered by the ITC, such as activities of customers, suppliers, investors, partners, sublicensees, parties sharing common interests, etc. For example, it is unclear whether the complainant patent owners in Interactive Program Guide could have relied on the activities of their parent companies if the parent companies had not provided accounting and licensing services related to the asserted patents. In future scenarios when a complainant attempts to rely on domestic-industry activities of a third party, evidence that the activities were expressly or implicitly authorized by the patent owner or exclusive licensee may determine whether such activities can satisfy the domestic-industry requirement.
It may be desirable to use the ITC's standing rule to join one or more third parties as co-complainants with a patent owner or exclusive licensee, for example, to reduce the discovery burden and facilitate proof of an authorized domestic industry.
By joining third parties as co-complainants to the ITC investigation, the patentee may be able to reduce the time and expense of procuring relevant third-party discovery. In Interactive Program Guide, for example, because the parent companies were named as co-complainants, the complainant patent owners did not need to apply for, and possibly seek enforcement of, subpoenas to adduce evidence of the parent companies' domestic industry activities. If the parent companies had not been named as co-complainants, it may have been more time consuming and expensive to procure the desired domestic-industry discovery through an ITC subpoena process.
Another potential benefit of joining a third party as a complainant in a patent-based ITC investigation can be to help evidence that the third party's activities were directed to an authorized domestic industry. For example, naming a third party as a co-complainant may provide an inference that the patent owner or exclusive licensee authorized that third party to practice or exploit the asserted patent. Such a strategy can be beneficial when there is no license between the third party and the patent owner. In Interactive Program Guide, for example, the ALJ found that the patent owners could rely on activities of their co-complainant parent companies for domestic industry, even though those parent companies were not licensed under the asserted patent.
There are several litigation strategies that may be available based on a third party's standing and domestic-industry activities in a patent-based ITC investigation. For example, although nonexclusive licensees and unlicensed third parties do not have standing to enforce patents in federal district court, they can have standing at the ITC, giving them an opportunity to participate in a patent dispute that they otherwise could not litigate in federal court. In addition, patent owners and exclusive licensees that cannot establish a domestic industry based on their own activities can potentially leverage the authorized domestic-industry activities of third parties by naming them as co-complainants. That authorization is not limited to activities of third party licensees, and may include authorization based on other types of relationships, such as the parent-subsidiary relationships in Interactive Program Guide. By naming the third party as a co-complainant, the patent owner or exclusive licensee can strengthen its position that it authorized the third party to practice or exploit the asserted patent. Also, the patent owner or exclusive licensee may reduce its discovery burden by eliminating the need for subpoenas directed to the third party co-complainants.
ITC respondents also may glean strategies for defending against third parties that are named as co-complainants for purposes of domestic industry. While standing for nonexclusive licensees is clear, the question of whether a party is "authorized" to practice an asserted patent is less so. Respondents can, for example, leverage the facts of Interactive Program Guide to argue that although activities of parent companies may be relied on to establish a domestic industry in certain situations where the parent companies administer a licensing program and provide accounting for investments related to asserted patents, there may be other scenarios where alleged domestic-industry activities of unlicensed parent companies would not be sufficient. By understanding the ITC's rules for standing and domestic industry of third parties, respondents can make strategic decisions of whether it is worth the time and expense to contest the joinder of a named third party or a complainant's reliance on alleged domestic-industry activities of a third party.
Endnotes
1 Certain Products Containing Interactive Program Guide and Parental Control Technology, Inv. No. 337-TA-845.
2 Wiav Solutions LLC v. Motorola, Inc., 631 F.3d 1257, 1264 (Fed. Cir. 2010).
3 Intellectual Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1348 (Fed. Cir. 2001).
4 See, e.g., Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc., 620 F.3d 1305, 1317 (Fed. Cir. 2010).
5 Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561 (1992).
8 See, e.g., Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1031 (Fed. Cir. 1995).
9 Intellectual Prop. Dev., 248 F.3d at 1348.
10 Wiav Solutions, 631 F.3d at 1265.
11 Western Electric Co. v. Pacent Reproducer Corp., 42 F.2d 116, 118 (2d Cir. 1930); see also Ortho Pharm., 52 F.3d at 1031.
12 Spine Solutions, 620 F.3d at 1309.
13 Id. at 1318.
14 Id. at 1309.
15 Id. at 1319.
16 Id. at 1309.
17 Id.
18 Id. at 1318.
19 Id.
20 Id. at 1317-18. See also Abraxis Bioscience, Inc. v. Navita LLC, 625 F.3d 1359, 1367 (Fed. Cir. 2010)("Common corporate structure does not overcome the requirement that even between a parent and subsidiary, an appropriate written assignment is necessary to transfer legal title from one to the other").
21 19 U.S.C. §1337.
22 19 C.F.R. §210.12(a)(7).
23 Certain Electronic Devices with Communication Capabilities, Components Thereof, and Related Software, Inv. No. 337-TA-808, 2012 WL 2584887, at *3 (June 8, 2012).
24 Certain Catalyst Components and Catalysts for the Polymerization of Olefins, Inv. No. 337-TA-307, Commission Opinion, 1990 WL 710614, at *15 (June 7, 1990).
25 The district court action is typically stayed pending a final ITC determination pursuant to 28 U.S.C. §1659.
26 But, a complainant having standing in the ITC may not have standing to appeal to the Federal Circuit, which requires Article III standing. See, e.g., Hollingsworth v. Perry, 133 S. Ct. 2652, 2661 (2013).
27 Certain Diltiazem Hydrochloride and Diltiazem Preparations, Inv. No. 337-TA-349, Order No. 35, 1994 WL 930265 at *2 (Sept. 2, 1994).
28 Catalyst Components, 1990 WL 710614, at *13.
29 Id. at *17. In Catalyst Components, the investigation was eventually terminated because the legal title owner would not join as a co-complainant. Id. at *1. The ITC does not have a rule analogous to Fed. R. Civ. P. 19 for involuntary joinder of indispensable parties. See Certain Point of Sale Terminals and Components Thereof, Inv. No. 337-TA-524, Order No. 31, 2005 WL 1262059 at *4 (Feb. 7, 2005).
30 19 U.S.C. §1337(a)(2).
31 Interactive Program Guide and Parental Control Technology, Inv. No. 337-TA-845, Final Initial Determination, 2013 WL 3463385 at *14 (Jun. 7, 2013).
32 19 U.S.C. §1337(a)(3)(A-C).
33 Alloc, Inc. v. Int'l Trade Comm'n, 342 F.3d 1361, 1375 (Fed. Cir. 2003).
34 Interactive Program Guide, 2013 WL 3463385 at *14.
35 See, e.g., Certain Automotive Parts, Inv. No. 337-TA-651, Order No. 21, 2009 WL 622324 at *2 (Mar. 6, 2009).
36 Certain Male Prophylactic Devices, Inv. No. 337-TA-546, Order No. 22, 2006 WL 855798 at * 4 (Mar. 15, 2006).
37 See, e.g., Certain Liquid Crystal Display Devices and Products Containing the Same, Inv. No. 337-TA-631, Order No. 18, 2008 WL 4682826 at *3-4 (Sept. 23, 2008).
38 Interactive Program Guide, 2013 WL 3463385 at *171.
39 Id.
40 Id. (finding "neither of these entities [Rovi Corp. or Rovi Guides, Inc.] holds legal title to the asserted patents"); Complainants' Motion in Limine No. 1, 2013 WL 1163854 (representing that the complainants were "not claiming that Rovi Corporation or Rovi Guides, Inc., is a licensee," and there is "no issue of any licensee trying to establish standing"). Notably, while Rovi Corp. and Rovi Guides, Inc. were found to satisfy ITC standing in Interactive Program Guide, they were both dismissed with prejudice in a district court case based on a lack of Article III standing. See Dkt. 148, Stipulation and Order Dismissing Plaintiffs Rovi Corporation and Rovi Guides, Inc., Rovi Corp. v. Amazon.com, Inc., Case No. 1:11-cv-3-RGA (D. Del. June 7, 2012); Dkt. 128, Transcript of Standing Dispute, Case No. 1:11-cv-3-RGA (D. Del. May 18, 2012).
41 Interactive Program Guide, 2013 WL 3463385 at *172.
42 Id.
43 Id. at *173.
44 See, e.g., Certain Crankpin Grinders, Inv. No. 337-TA-60, 1979 WL 61157 at *25 (Sept. 26, 1979) (referring to a "domestic industry authorized to produce under the patent, namely, the facilities of the patentee and its licensees devoted to the production and sale of the patented item"). Although this case refers to a "requisite injury" to a domestic industry, which is no longer a requirement for intellectual-property based complaints, see, e.g., Certain Display Controllers and Products Containing Same, Inv. No. 337-TA-491, 2004 WL 1184745 at *11 (Apr. 14, 2004), the description of the "domestic industry authorized to produce under the patent" still applies.
Originally printed in Intellectual Property Magazine (www.intellectualpropertymagazine.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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