November 2016
Intellectual Property Magazine
The U.S. International Trade Commission (ITC) has historically been a popular, albeit niche, forum for litigating intellectual property disputes and trade violations. The 'smartphone wars' (circa 2010-2013), which saw a dramatic increase in the number of complaints filed and threatened to exclude many smartphones from the U.S. market, certainly raised the ITC's profile to a broader audience. The number of Section 337 complaints filed in the ITC had been steadily rising from around 17 complaints in 2000 to around 40 complaints in 2008. But in 2010, the number of new complaints jumped to 56 and then skyrocketed in 2011 to a record 72.
Many of the complaints in those record years involved battling smartphone companies. Perhaps not coincidentally, as the smartphone wars cooled, the ITC’s docket also shrank and in 2013, 2014, and 2015, the filing rate headed back to 2008 levels.
Although a few issues from the smartphone wars linger, for the most part the attorneys have gone home, the corporate giants have settled their accounts, and those involved can look back and ask, "What are the long-term effects of the ITC smartphone wars?"
One of the most significant legal developments during the wars was learning whether a party could assert a standard essential patent (SEP) at the ITC. SEPs present unique issues and unique defences. The owner has generally declared the SEP to a standards body and promised to license it on (fair,) reasonable, and non-discriminatory ((F)RAND) terms. The question, as many will recall, was whether a patentee could obtain an injunction (the only remedy available at the ITC) for infringement of a patent the holder had agreed to license.
In Inv. No. 337-TA-794, the Commission held that an injunction was available and appropriate in that case. The U.S. president, however, through the U.S. Trade Representative, disapproved of the Commission's remedial orders in that case based on policy considerations surrounding SEPs; consequently they were never implemented.
Although that question had been percolating for several years before the smartphone wars, it had not gained much traction or attention until the smartphone wars where the issue came to head. The decision in the 794 investigation put the question to rest for a while, but patentees have been reluctant to assert SEPs in the ITC since the presidential disapproval.
Another important legal development was the Commission's determination to tailor its remedial orders to the circumstances of a case. In Inv. No. 337-TA-710, the Commission issued remedial orders against the respondent, but partially delayed a limited exclusion order by two years to give the market time to adjust. Although it remains uncommon for the Commission to tailor its remedial orders, the smartphone wars demonstrated a willingness to do so where the ITC finds it appropriate.
The ITC's core mission is to protect domestic industries from imported goods that are competing unfairly, which in most ITC cases is proven by showing that those imported goods infringe one or more patents. This conjures up visions of home-grown U.S. companies filings complaints against foreign entities. And indeed, many ITC cases fit that basic scenario.
But a company filing a complaint in the ITC does not have to be headquartered in the U.S. It need only have a "domestic industry," a requirement that can be satisfied with sufficient operations in the United States. In addition, ITC cases have two fundamental characteristics, which are not always available in district courts—a fast time to trial (usually around nine months) and injunctive relief (exclusion orders and cease-and-desist orders). Combine those three factors—the need to show some U.S. operations, a fast time to trial, and a looming injunction at the end—and one begins to see how an ITC case may be particularly attractive as a strategic component in a larger battle between multi-national companies fighting over products in a fast-paced market, not as a more targeted effort to protect a U.S.—based industry from unfair foreign competition.
The smartphone wars took full advantage of this type of strategic use of ITC cases. Indeed, the companies involved in most of these cases—for example Apple, HTC, Samsung, Motorola, and Nokia—all manufacture their products overseas. They are all large companies distributed around the world with at least some operations in the U.S. There were no uniquely U.S. or uniquely foreign players in the smartphone wars. Each was a complainant, and each was a respondent. It appeared that the ITC cases were calculated primarily to create a litigation path that would move to a potential judgment and injunctive remedy quickly in the hope of creating a "silver bullet" that would spur resolution of a much larger dispute.
Further, the smartphone wars proved that when one competitor files a complaint against another, the target is likely to respond in kind. There were a significant number of "retaliatory" ITC complaints filed during the smartphone wars. Indeed, that is one reason why the number of complaints filed during that time period was so high—it was rare that a given dispute involved only one complaint. Many disputes involved two, three, or four complaints.
The question remains whether these strategies actually worked. A review of the many smartphone war cases reveals that almost no exclusion were orders issued. In the few that did issue, they often contained exceptions or applied only to older products that, in the fast-paced mobile phone business, were nearly obsolete by the time even a speedy ITC case was over. So it could be fairly asked whether the helter-skelter rush to the ITC by these warring parties ended up producing any decisive business advantages.
The smartphone wars had two significant developments on the legal profession, both of which stem from the number of investigations being litigated and, in turn, the number of attorneys involved. First, junior and mid-level attorneys are expected to have significant amounts of trial experience. Secondly, more attorneys are now intimately familiar with the similarities and differences between litigating in the ITC and district court—although the rules and obligations are similar, they are not identical.
Before the smartphone wars, because of the number of cases that settled during discovery and that were never tried to conclusion, few attorneys had significant experience deposing fact and expert witnesses and examining witnesses at trial. The smartphone wars generated a significant number of trials, often with large trial teams, in a relatively short window of time. The number of attorneys involved on behalf of all the parties, in all the cases numbered in the hundreds. Afterwards, attorneys could compare the number of depositions, witnesses, and trials they had been through and what they learned from the experience.
Although the smartphone wars are now largely over and the ITC filings have returned to more typical levels, attorneys are still expected to have the level of experience earned during an unusual spike in patent litigation. This creates a conundrum for junior and mid-level attorneys: how to get experience when there is limited experience to be had. Smart attorneys are resourceful (for example, many participate in pro bono programmes to hone their skills while serving the community rather than waiting for a patent trial), but the opportunities to hone one’s skills in the patent arena are much more limited.
The wars attracted a significant number of new attorneys and new firms to the ITC, who needed to learn its rules. District court and commission rules are similar, but they are not identical. For example, in a district court, the parties will often spend weeks or months negotiating a protective order for the handling of confidential information during discovery. In the ITC, the presiding administrative law judge almost immediately issues a one-tier protective order for the handling of confidential business information—only outside counsel who have subscribed to the protective order may access confidential information.
The threat of sanctions for violating a protective order is present in all cases, but the threat in an ITC case can be particularly high, since its sanctions have been considered particularly stringent. In one case during the smartphone wars, an apparently junior attorney sent confidential information to in-house counsel (which was prohibited under the applicable district court and ITC protective orders). Motions for sanctions were filed in both the district court and ITC proceedings for the violation, but the district court was first to reach a decision on the issue.
The district court ordered the guilty firm (1) to repay the parties' whose confidential information had been improperly disseminated for any fees or costs related to the violation and (2) to seek approval before sharing any redacted documents with their client. The ITC subsequently addressed the motion for sanctions, and, in a public notice, determined the district court sanction largely addressed the issue and simply issued a public reprimand. In that instance, the guilty firm violated the protective orders in both forums, but being aware of the different terms and complying with overlapping, but not coextensive, obligations can create a tricky path to navigate.
Before the smartphone wars, an investigative staff attorney with the Office of Unfair Import Investigations (OUII) was assigned to every Section 337 case as a representative of the public. The number of cases in the smartphone wars, however, created a greater demand than OUII could meet (i.e., OUII did not have enough people to be substantively involved in every investigation). Consequently, OUII changed its policy in 2011 (in the middle of the smartphone wars) such that a staff attorney would not automatically participate in all investigations, and some might only participate on specific issues.
Although many attorneys involved in the smartphone wars were extremely experienced with the ITC as a forum, staff attorneys (although a separate, independent party) can provide a vital resource and help a case proceed smoothly. The loss of the participation of a staff attorney in each Section 337 investigation was a significant change and continues to have a significant impact on cases. Although each case is different, as are the dynamics between the parties, staff attorneys can help minimize the number of disputes and resolve disputes without judicial assistance. The loss of a staff attorney in each case is an unfortunate byproduct of an extraordinary demand on Commission resources.
The biggest, and trickiest, question is how the companies look back on the smartphone wars. Among the various competitors, a lot of confidential settlements were reached and corporate structure and ownership changed hands, but no clear victor emerges. The combatants have different market shares, but it is unclear how much of that is tied to the smartphone wars in the courtrooms verses the smartphone wars in the marketplace and evolving customer preferences. For example, in 2009 the smartphone market in the U.S. was largely dominated by Apple, Blackberry, and Motorola. In 2014, the smartphone market in the U.S. was largely dominated by Apple and Samsung. The role of the investigations in those evolving market positions cannot be ignored, but it would be difficult to quantify their role.
The smartphone wars was a period of intense, heated litigation among some of the biggest companies in the smartphone market. Its impact on the market is hard to measure, but its impact on the law, law firm practice, and the Commission is unmistakable. Practitioners expect all of these issues to continue to evolve, as will the smartphone and consumer electronics market. It will be interesting to see where we go from here.
Originally printed in Intellectual Property Magazine in November 2016. 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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