Originally posted 2016-03-10 14:36:42.

BACKGROUND:

Part of the International Trade Commission (ITC)’s job is to protect U.S. industry by monitoring foreign imports. The ITC can prevent goods from entering the country—including for infringement of IP. And it can issue only one remedy for infringements—an injunction. No money, just exclusion orders that stop violators in their tracks. And this is exactly why legitimate businesses and questionable businesses alike have raced down the road to the ITC.

What does that have to do with money-grubbing patent trolls? First, it’s good to remember that some Non-Practicing Entities (NPEs) are perfectly ethical and reasonable when it comes to protecting their library of patents. Others are not. The latter, commonly called patent trolls, buy up patents rather than developing or using them and then track down unsuspecting users—often small business owners. Using the threat of injunction, they then strong-arm or sue them into signing punishing license agreements for more money than the patents are worth (analogy: Martin Shkreli).   This “patent holdup” tactic took a hit in 2006 when the Supreme Court decided the eBay Inc. v. MercExchange case. It held injunctions should no longer be automatic for patent infringements—“money” should be the remedy. This decision resulted in a 75% decrease in awards for injunctive relief and a marked decrease in federal court filings by patent trolls. Since that ruling, there has been a lemming-like migration to the ITC and a re-emergence of injunction-wielding NPE bandits.

 

KEY ISSUE:

The ITC loophole is this: it cannot legally issue money remedies. Therefore it cannot follow eBay v. MercExchange. If not dismissed, a filed case gets some sort of exclusion order. The ITC historically rules in favor of the patentee and has no facility for determining if patents are weak or invalid—if it’s owned it gets priority for injunction. Most disturbing is some of these are RAND Patents. In the simplest of terms, RAND stands for “reasonable and non-discriminatory terms” which means anyone embracing a standard for their technology has to give good licensing terms. Associations like the Institute of Electrical Engineers (IEE), e.g., the 802.11 Wi-Fi standard in cellular phones, usually standardize these. What would happen if the patent owner of that standard got an injunction against every phone manufactured outside the United States?   Think it would be catastrophic? It’s already been happening and not just with patent trolls—see Motorola and Microsoft.    

                                        

ANALYSIS:

The amount of money to defend against an ITC infringement case is escalating. Neal A. Rubin, VP of Litigation at Cisco Systems wrote a plea for relief from ITC disputes quoting expenses exceeding $13 million for one case alone. Rubin stated that Cisco now spends half of its litigation budget on the ITC cases, which only comprise 10% of its docket. ITC cases can run simultaneously with federal court cases.

The goal of the ITC is to prevent harm to U.S. industry—not aggravate it. Affected companies, especially U.S. companies with offshore manufacturing, have no choice but to litigate because the risk of the ultimate remedy—injunction—is 100% real and capable of destroying entire product and business revenue streams. Rubin’s solution was to ban NPEs from the ITC entirely but what about the good guys in that market? Even in the post-eBay court proceedings about 26% of the patent owners are awarded injunctions. Do we bar 26% of the valid suits in the ITC just because a large number of entities are bad actors? Like it or not, revenue-driven licensors are part of the economy and deserve relief under the law.

A better option is one proposed by legal academics back in 2012. In short, they recommended letting RAND patent products into the country because infringers cannot design around a standard and expect to compete with other downstream products. There are “an estimated” 700,000 standards and technical regulations around the world,” 450 in the U.S. alone. An injunction in these cases impedes competition by preventing new products from entering the marketplace. If the infringer has not secured a license, they will do so or face a court proceeding for monetary damages.

Letting in RAND products without review would decrease some of the patent troll activity at the ITC, give unintentional infringers time to get licenses in place, and put malicious infringers where they belong—in the courts paying damages.

It’s possible to go one step further and suggest the patent office, courts, and ITC consider whether or not certain standard RAND patents have had their day and in fact have gone “generic,” as happens with popular trademarks. At one time IEEE 802.11 was unique. Once offered as the standard, however, the tech became ubiquitous. Perhaps we need a new standard of review of the nature: Wi-Fi=Kleenex. Certainly, if this ever happened, the risk of committing “genericide” would dissuade some companies from joining in RAND standard programs, but the likelihood of lucrative first-to-market and upfront gains should offset the eventual loss of patent monopoly on those products.

The ugly truth is that until a solution is found, the ITC will have to struggle with an ever-growing caseload from companies trying to bypass eBay Inc. v. MercExchange. They want those injunctions and the ITC is the way to get them. If RAND bypass is adopted it may decrease the race to the ITC courtroom—at least until the patent highwaymen find another road with a loophole at the end.

By Cher Sauer

 

 

 

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References:

1 Chien, et al, RAND Patents and Exclusion Orders: Submission of 19 Economics and Law Professors to the International Trade Commission (July 2012). (available at, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2102865).
2 Neal A. Rubin, One Hundred Twelfth Congress of the United States House of Representatives Subcommittee on Intellectual Property, Competition and the Internet Hearing. The International Trade Commission and Patent Disputes, (July 18, 2012). (available at, http://judiciary.house.gov/_files/hearings/Hearings%202012/Rubin%2007182012.pdf).
3 Ryan Davis, 3 Takeaways From 9th Circ.’s Motorola FRAND Decision. Law360, (July 30, 2015). http://www.law360.com/articles/685661/3-takeaways-from-9th-circ-s-motorola-frand-decision *
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