Managing Intellectual Property
The 2006 eBay decision rejected a “general rule” that a district court should automatically issue a permanent injunction if a patent is valid and infringed. As a result, patent owners, including Patent Assertion Entities (“PAE”), have turned to the International Trade Commission (“ITC”) for exclusion orders, because they have similar injunctive effects.
In General, ITC rules favor patent owners (“Complainants.”) For example, the Complainant can spend months or years developing its case before filing the complaint. In contrast, because of the speed of the ITC investigation, the accused infringer (“Respondent”) has significantly less time to develop its case. Thus, Respondents face challenges from the start. PAEs know that an ITC investigation can give them leverage for a settlement.
PAEs often share common characteristics: they rely on licenses to establish their domestic industry, they provide broad and often inadequate infringement allegations, they may retain counsel on a contingency basis, they have no competitive product that would benefit from an exclusion order, and they have no desire to proceed through a determination on the merits. Foremost, a PAE’s objective is to obtain settlements greater than the costs of acquiring and asserting patents. Recognizing these characteristics is critical in developing effective strategies against PAEs at the ITC.
The ITC’s newly adopted patent pilot program (“Program”) allows a Respondent to take a proactive role early in an ITC investigation against a PAE. Specifically, the Program provides a mechanism through which a dispositive issue that has the potential to result in early termination of the investigation (e.g., domestic industry or importation) can be addressed early and swiftly. Under the Program, the Commission directs the ALJ to rule on the identified potentially case dispositive issue through an expedited and abbreviated hearing early in the investigation. The ALJ also has the discretion to limit or stay discovery on all other issues. Thus, the Program, if initiated, can change the early narrative in an ITC investigation against a PAE, disrupt the PAE’s financial driven strategy and potentially preserve Respondent’s resources.
Respondents should consider challenging PAEs’ alleged domestic industry. Domestic Industry has two prongs: economic and technical. These can be satisfied through licensing, but reliance on licensing raises additional hurdles. Simply identifying the existence of a license and stating that a licensed product practices the claimed invention is insufficient. In Inv. No. 337-TA-841, the ALJ ruled that the Complainant failed to establish domestic industry, because it: (1) failed to prove its licensees’ products practiced the asserted claims; (2) failed to allocate the licensing portfolio expenses to any of the asserted patents; and (3) failed to prove that its licensing program constituted a substantial investment in any of the asserted patents.
Because a PAE adopts financial driven litigation strategies, it often devotes little resources on domestic industry. Often, a PAE will provide conclusory or incorrect facts to support how a “licensed product” practices the claimed invention. Likewise, a PAE may improperly attribute value to the licensing of the asserted patents.
Challenging the sufficiency of alleged domestic industry via the Program and/or discovery will force the PAE to come forth with concrete evidence. To try to meet its burden, a PAE may need to conduct expensive and time consuming third party discovery against its own licensees, who often oppose such discovery. These potential hurdles and associated expenses may incentivize the PAE to settle early and at a lower value.
To date, the Commission has used the Program only once. In that case, it identified domestic industry as the case-dispositive issue, and found that no domestic industry existed. Currently, there is no official mechanism by which to request participation in the Program. However, a Respondent may seek inclusion in early filings, such as comments on the public interest.
By Andrew Y. Yen and Johanna Jacob
This article was originally published in Managing Intellectual Property in May 2014.