Congress helped expand the ranks of who could seek remedies at the ITC in 1988 when it amended the "domestic industry" requirement to include "licensing" as qualification. Patent-holding companies have relied on that change ever since to justify their arguments that the taxpayer-funded ITC should ban imports of certain products on their behalf. Of course, in 1988, the patent litigation landscape was very different, and patent-holding companies—aka "non-practicing entities," or "patent trolls"—in the modern sense simply didn't exist.
Over the past two decades, the question of what constitutes a domestic industry has typically been heard by the same ITC administrative law judges who ultimately rule on the patent disputes that come before the agency. It's rare that the full commission considers the issue. On April 14, though, the full commission did weigh in on the subject, issuing a striking ruling that will make it easier than ever for patent-holding companies to enforce patents at the ITC—and put added pressure on the companies getting sued there.
Big companies that are frequent targets of holding company infringement claims have good reasons not to want the ITC to open its doors any wider to NPEs. After all, only a tiny fraction of district court infringement cases go to trial, with the typical defendant paying an estimated average of $5 million per case. By contrast, 40 percent of ITC cases go to trial and the average defendant there can expect to rack up as much as $10 million in litigation costs over a much shorter period of time. And while the ITC can't award damages for patent infringement, it can impose bans on imported goods deemed to be infringing, giving NPEs a powerful lever for extracting cash payments from their targets.
The significance of the commission's April 14 ruling in the case titled Certain Coaxial Cable Connectors and Components Thereof and Products Containing Same, ITC investigation no. 337-TA-650 is the finding that in most circumstances, merely engaging in litigation—and spending money on it—is enough to qualify an ITC complainant as an "industry" worthy of protection. In essence, the Coaxial Cable case represented the first open, public battle over who deserves to be at the ITC, pitting Big Tech on one side against NPEs on the other—and Big Tech came out the big loser. [ITC decision, PDF.]
The complainant in the case, Syracuse, NY-based PPC, Inc. has no U.S. operations that qualify it as a domestic industry under ITC rules. It argued, though, that the litigation costs it incurred while enforcing its patent-in-suit in multiple district court ligitations should earn it domestic-industry status. Its reasoning: the lawsuits resulted in a patent license. After reviewing the argument, ITC staff attorneys suggested that the full six-member commission consider the issue. The commission agreed to do so late last year, and asked for public comment from interested parties.
In January, top tech industry patent lawyers, including Mallun Yen of Cisco Systems, Michelle Lee of Google, and Verizon's John Squires, wrote to the ITC to ask that the commissioners interpret "licensing" in the appropriate historical context, and not allow non-practicing patent holders to use the ITC as a hammer to extract royalty payments.
In the view of these tech-sector commenters, the option of meeting the domestic-industry requirements via licensing should only be available to a licensor who is actually "urging the adoption of its patented technology," not just enforcing a legal right of exclusion to try to make money. "The ITC is a special forum dedicated to protecting domestic industries; the 'licensing' standard should not be expanded to admit patent holders who have done nothing more than seek to extract royalties based on others' existing products," the lawyers wrote. [Cisco/Google/Verizon comments, PDF.]
The trio's comments further argued that when Congress amended the statutes governing the ITC in 1988, its goal was for the ITC to enforce patent rights for patent-holders engaged in "affirmatively enabling and expanding use of technology." And patent trolling, the three in-house lawyers maintained, doesn't qualify: "Merely suing others who are already practicing the patent is a way of trying to stop or tax the activity, not to spread it. Such suits, accordingly, are on their face the antithesis of trying to encourage the adoption of the technology." (Five other tech companies—Hewlett-Packard, Dell, Samsung, ASUS Computer, and Transcend Information—also submitted comments containing similar arguments. PDF.)
That point of view was opposed in lengthy comments submitted by Tessera, a publicly held, California-based, patent-licensing company with 416 employees, a vocal lobbying presence in Washington on behalf of patent rights, and a heavy docket of patent suits—in district court and at the ITC—against large technology companies.
Tessera argued that the ITC should use its power on behalf of an "innovation community," which, it said, includes "universities, research institutions, small businesses, and individual inventors." The "licensing" standard, Tessera's lawyers argued, is indeed a low bar that allows many types of entities to come to the ITC—and appropriately so. Various ITC administrative law judges have already allowed Tessera to prove it meets the domestic-industry requirement based on its licensing activities, and those judges "afforded equal weight to all licensing investments"—including the money Tessera pays its patent attorneys. [Tessera comments, PDF.]
In the end, the commission ruled that PPC can indeed qualify as a domestic industry based on its legal bills, as long as they're related to patent licensing. It was a decision that embraced Tessera's argument, rejected Big Tech's, and potentially gave momentum to a trend that is already underway.
"We in the private ITC bar have been watching this [domestic industry] issue percolate, and this is the first commission decision squarely addressing whether litigation expenses count," says Brian Busey, an ITC lawyer at Morrison & Foerster who recently co-authored a paper about the Coaxial Cable ITC decision.
Busey notes that the ruling was not an unqualified win for NPEs because it specified that only litigation costs incurred as part of a larger "licensing campaign" should be a factor in determining whether a company deserves domestic industry protection. Still, given that almost every NPE patent assertion can be seen as part of a "licensing campaign," that sets the bar fairly low. It's likely, Busey says, that all an adminstrative law judge will require is that a patent-holder have one or two signed licensees prior to coming to the ITC. "While they don't explicitly say you absolutely have to have a signed license, generally that's what they're looking for," he says. The only type of patent-holder that can still expect to be barred from the ITC? An NPE that hasn't managed to secure a single license.