Tuesday, December 12, 2006

The Land That eBay Forgot - Patent Infringement Cases Before the International Trade Commission

In light of the Supreme Court's eBay decision, something that didn't get immediate attention was the effect the ruling would have on Section 337 actions before the International Trade Commission (ITC). Unlike district courts, who have a wide range of legal and equitable remedies at their disposal, the ITC is equipped to do only one thing when it comes to patent infringement: grant or deny injunctive relief in the form of exclusion orders to keep infringing products from being imported into the United States.

The ITC has become a favored venue for patent holders, since (1) jurisdiction is derived from the mere act of importation, (2) time for discovery is very limited, which strongly favors a well-prepared complainant that files against an unsuspecting respondent, and (3) cases are all on a "rocket-docket" schedule, concluding in 12-18 months. In the last 10 years, the number of ITC cases has doubled, and it is expected that they will rise further in the years to come.

There are additional reasons to like the ITC if you are a patent holder, according to Robert Hahn, who is co-founder and executive director of the AEI-Brookings Joint Center for Regulatory Studies - the ITC rules in favor of the patent holder in higher proportions than the district courts, and provide injunctive relief 96% of the time when infringement is found (as opposed to 20% in the district courts). This could be critical for many industries, such as electronic component companies, where products are manufactured almost entirely overseas.

In a "hot off the press" paper published just yesterday, Hahn finds that a pro-patent bias exists in patent infringement cases before the ITC, and proposes either removing jurisdiction from the ITC in most patent cases or imposing the same standard for issuing injunctions as applies in the district courts

Unlike district courts, under Section 337(d), the ITC is will issue an exclusion order when it finds that an infringer has violated Section 337 unless, “after considering the effect of such exclusion upon the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such articles should not be excluded from entry." As an empirical matter, a determination that an exclusion order is "not in the public interest" is rare: the ITC has found an injunction to be inconsistent with the public interest in only three of 113 patent cases studied.

More interestingly, Hahn found that recent ITC rulings that favored the respondent were affirmed in the CAFC at a rate of 74%, while rulings in favor of the complainant were affirmed in only 52% of the cases. However, in the small number of "parallel cases" that were filed (where ITC and district court cases are chained together), an ITC decision in favor of the complainant resulted in the same outcome in a parallel case in a district court 55 percent of the time, whereas an ITC decision in favor of the respondent resulted in the same outcome in a parallel case in a district court 46 percent of the time. Notes Hahn:

these results are striking: no matter how the ITC rules, the federal district court rules the same way only about half of the time. We treat the district court decisions as the appropriate baseline because federal district court patent decisions take legal precedence over the decisions of the ITC. Thus, notwithstanding the limitations on the available data, the results of my research raise further questions about the reliability of ITC decision making: by being right only half the time, the ITC does no better than a coin toss.
Hahn also acknowledges the "trolling potential" of the ITC in light of the eBay ruling:

[A]fter a finding of infringement, the ITC offers injunctive relief about five times more often (96 percent versus 21 percent) than do the district courts. This difference would likely have a large impact on the negotiations between a patent holder and an accused infringer. When a patent case is before the ITC, the patent holder can more credibly threaten to pursue injunctive relief to extract a higher royalty rate. This greater bargaining leverage may induce “patent trolls” to file claims at the ITC in the first instance.

A "must read" for any patent litigator dealing with ITC-related issues. Download or read the article here.

See earlier ITC study (1992) by Sheldon Meyer and Mark Miller here.

See also John Mutti & Bernand Yeung, Section 337 and the Protection of Intellectual Property in the United States: The Complanaints and the Impact, 78 REV. ECON. & STAT. 510-520 (1996) (registration required)

3 Comentários:

Anonymous said...

But aren't patent trolls supposed to be people that don't make any products? So how can they use the ITC if they don't market anything?

Anonymous said...

I see, I see...

Another "study" saying "let's curb patent enforcement"
Small patent holders are already in deep shit after Ebay and all of that "patent troll" nonsense PR campaign paid for by serial infringers.
I am wondering who pays for such "studies" ?

Small patent holder

Two-Seventy-One Patent Blog said...

The ITC isn't as much concerned about the activites of the patent holder, but instead focuses on preventing the importation of products that infringe U.S. patents. It's a form of trade protectionism that stemmed from the 80's, when U.S. industry precieved themselves as more vulnerable to foreign competition.

The reason why "trolls" didn't turn to the ITC prior to eBay was because, frankly, there was no money in pursuing an exclusion order. This, however, may change after eBay and potentially drive the cost of litigation even further . . .

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