May 10, 2016
Law360
By Lionel M. Lavenue; R. Benjamin Cassady; Michael Liu Su; Laith M. Abu-Taleb
Authored by Laith M. Abu-Taleb, R. Benjamin Cassady, Lionel M. Lavenue, and Michael Liu Su
The Trade Protection Not Troll Protection (TPTP) Act, H.R. 4829, was introduced in the House of Representatives by Rep. Tony Cardenas, D-Calif., and Blake Farenthold, R-Texas, on March 22, 2016. The bill seeks to ensure that "the resources of the U.S. International Trade Commission are focused on protecting genuine domestic industries" by narrowing the domestic industry requirement of 19 U.S.C. § 1337.1
Because § 1337 has its roots in trade law dating from the early 20th century, complainants at the ITC are currently statutorily required to show the presence of a "domestic industry" to obtain relief.2This "domestic industry requirement" has two prongs: one technical and one economic. To satisfy the technical prong, a complainant must show by a preponderance of the evidence that it practices one or more of the claims of the invention.3That is to say that the asserted patent must actually be used in practice. To satisfy the economic prong, a complainant may demonstrate the requirements of any one of § 1337(a)(3)'s three subparagraphs, (A-C). Specifically, complainants must show either: "significant investment in plant and equipment,"4"significant employment of labor or capital,"5or "substantial investment" in the exploitation of the patents through "engineering, research and development, or licensing."6
However, the requirement of proving the technical prong for licensing-based domestic industries falling under § 1337(a)(3)(C) began to relax in the late 1990s and early 2000s.7Administrative law judges began to find domestic industries based on licensing without requiring the production of a patented product, effectively eliminating any tangible-product aspect to the technical prong for licensing-based domestic industries.8In 2008, the ITC went as far as eliminating the technical prong requirement for licensing-based domestic industry complainants, reasoning that "[t]he domestic industry analysis under subsection (C), 'subsumes within it the technical prong aspect' and thus, only the economic prong needs to be proven."9This paved entry for many nonpracticing entities to satisfy the domestic industry requirement by showing evidence of the presence of domestic licenses or court settlements.
Coinciding with the relaxation of the domestic industry requirement, NPEs brought 39 percent of patent investigations at the ITC between 2006 and 2012.10This mirrored a rise in NPE litigation in district courts.11In order to swing the pendulum back, Congress (and the courts, some have theorized) has made multiple attempts to curb NPE litigation, with varying degrees of success. Since late 2013, Congress has proposed more than a dozen bills on patent reform in district courts.12Likewise, the U.S. Supreme Court has issued decisions, expressly and implicitly aimed at deterring perceived litigation abuses by NPEs. For example, in Octane Fitness LLC v. ICON Health & Fitness Inc.,13the Supreme Court lowered the standard for awarding attorneys' fees to a prevailing party, and in Alice Corp. Pty. Ltd. v. CLS Bank Int'l,14the court made it easier to invalidate patents to so-called "abstract ideas."15
But these reforms did not necessarily reach the ITC, where NPE litigation was also seen by some commentators as antithetical to "the goals of protecting American industry." Indeed, according to the TPTP Act's sponsors, NPE practice "is at odds with the ITC's core purpose—to protect domestic industry from abusive trade practices by companies importing foreign goods."16This is partly because NPEs do not make, use, or sell actual products: By definition, NPEs do not practice the subject matter of their patents. Enter the TPTP Act, with provisions expected to curb NPE use of the ITC.
Reps. Cardenas and Farenthold introduced a variation of this TPTP Act in 2014, although it failed to make it out of the Committee on Ways and Means. But this more recent bipartisan effort has gained considerable steam already, as four additional congressmen17have co-sponsored the current version, presenting Congress the opportunity to substantially amend § 1337 for the first time since 1988.18In addition to these changes specifically targeting NPE practice, the bill also seeks to codify the 100-day pilot project related to expediting fact-finding regarding the domestic industry requirement, as well as amend § 1337 to safeguard the public health, welfare and U.S. economy.
At the ITC, a party cannot bring a complaint simply because that party owns a patent. As indicated above, parties must also show both a technical and economic "domestic industry." Specifically, the current version of § 1337 requires that ITC complainants demonstrate the presence of an economic domestic industry by showing (1) significant investment in plant and equipment, (2) significant employment of labor or capital, or (3) substantial investment in its exploitation, including engineering, research and development, or licensing.19Therefore, under subsection (3) of this provision, NPEs today can bring an infringement complaint if they license the technology to others within the U.S. or invest in attempts to license, even if they do not make anything using the technology themselves. Qualifying licenses can include settlements from district court actions, thereby allowing an NPE to bring suit, settle, and then turn around and use that very same settlement as proof of the domestic industry needed to bring a case at the ITC. On April 15, 2016, for example, Paice LLC used the activities of specific licensees, to allegedly show a domestic industry and bring suit at the ITC.20Paice had recently sued its licensees, and had later settled with the parties.21
In response to this current status of the law, the TPTP Act primarily seeks to add another requirement to discourage complainants who base their domestic industry on licensing alone. Namely, under the proposed legislation, complainants would have to show a vested interest in the patent, including development of a product described by the patent. The bill would therefore require complainants to not only show the existence of a licensing agreement, but to also show the adoption and development of articles that incorporate the intellectual property right within that licensing agreement. This creates the necessity of an actual product that uses the technology, as opposed to a simple showing of a district court settlement or domestic license.
However, under the proposed legislation, not all is lost for complainants hoping to use domestic licenses to enter the ITC. An article or product incorporating the asserted intellectual property right need not come from the complainant itself—it may come from the licensee's activities. But in that situation, the licensee would have to be a party to the ITC investigation. Thus, this requirement, for example, would not completely prevent research institutions who license patents to product-development firms or partners in true joint ventures from bringing ITC complaints, as the parties in those scenarios are likely to cooperate to protect their joint investment in their intellectual property rights. But this change may not be the case for many NPEs, whose "licensees" may be adverse to third parties who were recently themselves the subject of their licensors' patent enforcement activities. Convincing a party on the other end of a district court case that ended in a settlement or adverse judgment to join an ITC investigation is a tall order, and therefore may effectively strip complainants of the option to file suit at the ITC following a district court settlement if that is the primary source of their domestic industry.
Codification of the 100-Day Pilot Program
Introduced in 2013, the 100-day pilot program was aimed at reducing unnecessary litigation by granting ALJs the authority to identify potentially dispositive issues and fully resolve such issues within 100 days. Under the pilot program, the Commission may identify investigations that present a potentially dispositive issue, and then, the Commission may direct the ALJ to open and close discovery, hold hearings, and rule on that issue within 100 days.22Since the introduction of the program, the ITC has considered its codification. Though available in every investigation after June 2013, the pilot program's first use was in March 2015, where the ITC instituted a 100-day investigation regarding the domestic industry requirement of the complainant.23The codification of the pilot program is expected to facilitate an increase in the program's use, thereby arguably saving resources by reducing costly and unnecessary litigation.
One of the ways that the codification of the 100-day program will affect parties is in the preparation of their case. Because the Commission may order the ALJ to rule on a dispositive issue within 100 days, the parties should be prepared to argue certain dispositive issues almost upon the filing or responding to a complaint. The domestic industry issue is a likely target of the 100-day program, which means that parties should be prepared to argue on this issue at all times during the case. This will likely temper litigious parties filing complaints with the intention of settling, because although the responding party may not have the funds to argue an entire ITC case, it may have the funds to last 100 days before the ruling on the potentially dispositive issue.
Public Interest Determinations
Under § 1337, the commission must consider certain public interest factors in deciding to issue exclusion orders. Specifically, the ITC must weigh a proposed exclusion order against the effect it would have upon the four public interest factors: "[1] the public health and welfare, [2] competitive conditions in the United States economy, [3] the production of like or directly competitive articles in the United States, and [4] United States consumers."24Although the ITC has traditionally solicited public comments on the public interest factors before issuing a final determination,25the current version of § 1337 only allows for the public interest factors to be considered at the end of an investigation.26
Under the TPTP Act, the proposed legislation would give the ITC more flexibility to ensure that continuing an investigation is in the best interest of the United States at any point during the investigation, and not just at the investigation's conclusion. It remains unclear whether the ITC will invite public comment on the factors throughout the entirety of the investigation, though.
At any point during the investigation, then, the TPTP Act would allow the ALJ the ability to determine whether the exclusion of articles under investigation or the continuation of the investigation is in the best interest of the public health, welfare and the U.S. economy. This provision will enable ALJs to end litigation immediately upon that determination, as opposed to the current law where the investigation must continue until a final determination is made.
If passed, the TPTP Act would result in a fundamental change of patent litigation at the ITC. As the most significant change, the TPTP Act would effectively eliminate the ability of NPEs to utilize settlements and licenses alone as evidence of a domestic industry for bringing cases at the ITC—and remember that NPEs brought 39 percent of patent investigations at the ITC between 2006 and 2012. Thus, such a fundamental change in ITC practice would necessitate development of actual products from those licenses to establish a domestic industry, or, alternatively, establishing or maintaining a healthy enough relationship between licensor and licensee, such that the two parties would agree to be co-complainants.
The other two proposed elements of the TPTP Act, namely the codification of the 100-day program and the increase in flexibility in public interest determinations, will make it easier to terminate investigations early in the proceedings. This will likely represent a barrier to those NPEs teetering on the domestic industry requirement, as well as those NPEs seeking exclusion orders on actual articles beneficial to the public health and welfare of the United States.
So far, the TPTP Act has some strong support, with corporations, such as Google Inc., Cisco Systems Inc., Dell Inc., Ford Motor Co.27and the Electronic Frontier Foundation,28among others, strongly advocating for the bill. On the other side, organizations favoring easier enforcement of patents, such as the American Innovators for Patent Reform, argue against the TPTP Act, suggesting that it unfairly hinders patent holders from utilizing the ITC.29
With both strong support and with strong opposition, the path from bill to law for the TPTP appears difficult. Indeed, recent history indicates that passage will be difficult, as all of the more than a dozen patent reform bills introduced—since the 2011 America Invents Act—have stalled or completely failed in Congress, despite initial bipartisan enthusiasm and even presidential urging. Indeed, inclusion of the divisive and ill-defined word "troll" in the name of the act itself indicates that the bill may have political motivations, in addition to its legitimate policy proposals for meaningful reform. Nonetheless, the bill's focus on protecting American industry may garner sufficient support in the current political climate, and if it passes, the impact on ITC practice would be significant.
1 H.R. 4829, 114th Cong. (2015-16).
2 19 U.S.C. § 1337(a)(2) (2012); see also Laith Abu-Taleb & Sonja Sahlsten, Technically, There Are Two
Prongs: Recent Developments in Domestic Industry at the ITC, Vol. 38 Section 337 Reporter, 84, 85 (Nov. 2014).
3 See S. Alex Lasher, The Evolution of the Domestic Industry Requirement in Section 337 Investigation before the United States International Trade Commission, 18 U. Balt. Intell. Prop. L.J. 157, 171 (2010); Thomas Yeh, The International Trade Commission and the Nonpracticing Entity: Reviving the Injury Requirement for Domestic Industries Based on Licensing, 80 Geo. Wash. L. Rev. 1574, 1589 (2012).
419 U.S.C. § 1337(a)(3)(A).
5 § 1337(a)(3)(B).
6 § 1337(a)(3)(C).
7 Abu-Taleb & Sahlsten, Recent Developments at the ITC, supra note 2, at 85.
8Id., see also Certain Digital Satellite Sys. (DSS) Receivers and Components Thereof, Inv. No. 337-TA-392, USITC Pub. 3418, at 10 (Oct. 20, 1997) (Initial Determination); Certain Semiconductor Chips with Minimized Chip Package Size and Prods. Containing Same, Inv. No. 337-TA-432, Order No. 13, at 12 (Jan. 24, 2001) (Initial Determination) ("[A]ctual production of the article in the United States is not required if a complainant has made a substantial investment in licensing the patent (or patents) at issue in an investigation.").
9Abu-Taleb & Sahlsten, supra note 2; see also Certain Short-Wavelength Light Emitting Diodes, Laser Diodes and Prods. Containing Same, Inv. No. 337-TA-640, Order No. 16, at 18 n.3 (June 18, 2008) (Order) (quoting Certain Light Emitting Diodes and Prods. Containing Same, Inv. No. 337-TA-512, USITC Pub. 3944, at 134 (May 10, 2005) (Initial Determination)).
10Elizabeth Peace, Press Release: Cárdenas, Farenthold Protect American Companies From 'Patent Trolls' (Mar. 22, 2016), https://farenthold.house.gov/news/documentsingle.aspx?DocumentID=399413.
11Gary Sperling, Taking on Patent Trolls to Protect American Innovation, (June 4, 2013), https://www.whitehouse.gov/blog/2013/06/04/taking-patent-trolls-protect-american-innovation.
12Lionel Lavenue, R. Benjamin Cassady, Michael Liu Su, 2015 Is Almost Over - What Happened To Patent Reform?, Law360 (Dec. 18, 2015), http://www.law360.com/articles/738706/2015-is-almost-over-whathappened-to-patent-reform.
13134 S. Ct. 1749, 1755 (2014).
14134 S. Ct. 2347, 2350 (2014).
15Lionel Lavenue, R. Benjamin Cassady, Christopher Moulder, De Facto Patent Reform In The Eastern District Of Texas, Law360 (Jan. 29, 2016), http://www.law360.com/articles/750017/de-facto-patent reform-in-the-eastern-district-of-texas.
16Peace, supra note 10.
17Steve Chabot (R-OH), Michael Honda (D-CA), Michael McCaul (R-TX), and Eric Swalwell (D-CA).
18Thomas Yeh, The International Trade Commission and the Nonpracticing Entity: Reviving the Injury Requirement for Domestic Industries Based on Licensing, 80 Geo. Wash. L. Rev. 1574, 1590-91 (2012).
19§ 1337 (a).
20Amended Complaint of Paice LLC and Abell Foundation, Inc. at 44, 45, In the Matter of Certain Hybrid Electric Vehicles and Components Thereof (April 15, 2016).
21See Paice LLC v. Hyundai Motor Co., C.A. No. 1:12-cv-00499 (D. Md.). The parties entered into a settlement agreement in December 2015.
22Pilot Program Will Test Early Disposition of Certain Section 337 Investigations, https://www.usitc.gov/press_room/featured_news/pilot_program_will_test_early_disposition_certain.htm.
23Certain Audio Processing Hardware and Software and Products Containing Same, ITC Inv. No. 337-TA-949, Complaint (Feb. 9, 2015).
2419 U.S.C. § 1337(d)(1); see also Andrew Riley, Examining the Evolving Role the Public Interest Plays at the ITC, Landslide September/October 2013).
25Id.
26 Id.
27See supra note 10.
28Elliot Harmon, Keep Trolls out of Trade, (Apr. 8, 2016), https://www.eff.org/es/deeplinks/2016/04/protecting-trade-trolls.
29Tammy Facey, Anti-Patent Troll Bill Seeks ITC Reform, IP Pro Patents (Apr. 5, 2016)
Originally printed in Law360 (www.law360.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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