Wednesday, July 16, 2008

Rethinking the Role of the ITC In Patent Cases

When Section 337 of the 1930 Trade Act was enacted, its original purpose was to protect US businesses against unfair foreign competition. Coupled with government subsidies, tariffs and seizures, US businesses were provided with potentially potent weapons for stifling foreign encroachment on US business interests. However, with ongoing growth in free trade, protectionist measures such as subsidies and tariffs have fallen into disfavor. IP, on the other hand, has gained popularity as a form of trade regulation.

It is not surprising then, that the ITC has become a successful venue for patent holders who want to block foreign competition through the use of 337 actions. But the court's success has prompted some to question whether the venue is overly protectionist, in violation of international law, and biased in favor of patent plaintiffs.

In a recent paper, Colleen V. Chien, Professor of Law at the Santa Clara University School of Law, published a draft paper titled "Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission," which looks at these issues. While her findings suggest that the ITC is neither "protectionist" nor "pro-plaintiff", professor Chien thinks that the role of the ITC needs to be changed.

The paper analyzed nationalities of complainants (plaintiffs) and respondents (defendants), and found that instances of "purely domestic" actions against "purely foreign" respondents were quite rare. Instead, it was most likely that a domestic complainant would file actions against a "mixed bag" of domestic and foreign entities:

Section 337 cases have been brought against purely foreign defendants in only a small minority (14%) of recent cases. Complainants initiated investigations against a combination of foreign and domestic defendants more often than they did against just foreign defendants (72% foreign and domestic defendants vs. 14% foreign defendants). Cases were equally likely to be brought against purely domestic defendants and purely foreign ones (15% domestic defendants vs. 14% foreign defendants).

On the other hand, US entities overwhelmingly initiated Section 337 investigations. Domestic complainants brought 79% of the cases in the dataset with only 15% of the cases initiated by foreign complainants. (Table 2) Thus, while purely foreign respondents were uncommon, so were purely foreign complainants. However, the relatively low rate of foreign plaintiffs is not limited to the ITC: 87% of district court patent cases are brought by domestic plaintiffs, and only 13% by foreign plaintiffs, despite roughly equal rates of patenting.
With regard to being "pro-plaintiff" the paper notes that, in 65% of ITC cases, there is a parallel proceeding in the district courts. While "pure" ITC proceedings favor plaintiffs more so than district courts (58% vs. 35%), cases having parallel proceedings drops the gaps considerably (54% vs. 50%).

Also, analysis of the parallel proceedings provided some other interesting statistics. ITC litigants are less inclined to settle: only 70% of district court cases settle, compared to 42% of ITC investigations. Comparing parallel proceedings, the paper found that ITC investigations were nearly six times more likely to be adjudicated (41% adjudication rate) than their district court counterparts (7% adjudication rate).

Nevertheless, there is increasing overlap between ITC proceedings and district court cases. In some cases, litigants use both venues to relitigate the same issues. Accordingly, the paper provides some recommendations for reducing duplication: (1) Reduce overlap between the venues, and (2) Harmonize the venues.

Read/download the paper here (link).

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