MBHB Snippets: Review of Developments in Intellectual Property Law - Winter 2013 - Volume 11, Issue 1: InterDigital Communications v. ITC: (Some) Non-Practicing Entities are Welcome

by McDonnell Boehnen Hulbert & Berghoff LLP
Contact

On January 10, 2013, the Federal Circuit in InterDigital Communications v. ITC denied a combined petition for panel rehearing and for rehearing en banc, holding that InterDigital’s patent licensing alone met the domestic industry requirement of § 337 of the Tariff Act of 1930, 19 U.S.C. §§ 1337(a)(2) and 1337 (a)(3).1 On its face, this decision seems to open the floodgates for non-practicing entities (NPEs) to file lawsuits in the International Trade Commission (ITC). However, a close reading of the Court’s opinion and the legislative history of § 337 indicates that this is not the case.

InterDigital v. ITC

To initiate a proceeding before the ITC, the patent owner must establish the existence of a domestic industry “relating to the articles protected by the patent...”2 Evidence of domestic industry may be satisfied by (A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.3 The issue before the Federal Circuit was whether InterDigital’s licensing activities fell within the scope of § 337(a)(3)(C).

Nokia argued that the ITC and the Federal Circuit panel misconstrued the statutory language “relating to the articles protected by the patent” in § 337(a)(2) and “with respect to the articles protected by the patent” in § 337(a)(3).4 Nokia contended that this statutory language meant that the only licensing activity that matters, for purposes of establishing domestic industry, is activity “with respect to the articles protected by the patent.” Nokia further argued that this licensing activity must be tethered to a tangible good and that the technology covered by the patent must be put into practical use.5

The Federal Circuit panel, in its August 1, 2012 opinion,6 ruled 2-1 against Nokia, explaining that the 1988 amendment to § 337 allowed InterDigital’s domestic licensing activities to give the company standing to file a complaint with the ITC.7 The Court held that it is not necessary that the party manufacture the product that is protected by the patent, nor is it necessary that any other domestic party manufacture the protected article.8 As long as the patent covers the article that is the subject of the exclusion proceeding and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337.”9

“Substantial Investment” Requirement

The key phrase in the Federal Circuit’s analysis of § 337(a)(3)(C) is “substantial investment.”10 In this case, InterDigital invested a total of approximately $7.6 million in salaries and benefits for employees engaged in its licensing activities, had 24 revenue producing licensees, and received almost $1 billion in revenues from portfolio licenses (including the patents in suit). This clearly showed a “substantial investment.” However, this begs the question: where is the line for “substantial investment” drawn?

Unsurprisingly, the answer is not a bright-line rule. In performing the “substantial investment” analysis, the ITC has adopted a flexible approach. The type of efforts that are considered a “substantial investment” under § 337(a)(3)(C) will vary depending on the nature of the industry and the resources of the complainant.11 Some factors that might be relevant in determining whether or not a complainant’s investment is substantial are (1) the existence of other types of “exploitation” of the asserted patent such as research, development, or engineering, (2) the existence of license-related ancillary activities such as ensuring compliance with license agreements and providing training or technical support to its licensees, (3) whether complainant’s licensing activities are continuing, and (4) whether complainant’s licensing activities are those that are referenced favorably in the legislative history of §337(a)(3)(C).12

Does this Decision Open the Floodgates for NPEs?

If substantial investment in licensing meets the domestic industry requirement, has the Federal Circuit opened the floodgates for NPEs to obtain relief at the ITC? While there is no commonly held definition of an NPE, the ITC has attempted to separate NPEs into two categories.13

Category 1 NPE:

• Manufacturers whose products do not practice the asserted patent

• Inventors who may have done research and development, but do not make a product covered by the asserted patents

• Research institutions, such as universities and laboratories

• Start-ups that possess IP rights but do not yet manufacture a product that practices the patent

Category 2 NPE:

• Companies whose business model primarily focuses on purchasing and asserting patents.

The Federal Circuit’s decision in InterDigital v. ITC centered on Congress’ intent to make relief in the ITC available only to Category 1 NPEs.

Prior to 1988, § 337 of the Tariff Act of 1930 required proof of the existence (or prospect) of a domestic industry manufacturing the articles protected by intellectual property before the ITC could bar the import of infringing products.14 Objections were raised that § 337 “did not provide protection for innovators who did not actually produce goods in this country, but who were injured by the importation of goods that incorporated the technology that they had invented or sought to license.”15  Congress proposed to expand the coverage of § 337 to protect American industries “that did not manufacture products but were engaged in engineering, research and development, or licensing of the technology that others used to make products.”16 Those proposals resulted in the current language of § 337(a)(3)(C), which makes relief in the ITC available to a patent owner despite not actually producing goods relating to the patent, provided there has been a “substantial investment in its exploitation, including engineering, research and development, or licensing.”17

Congress’ intent to open up the ITC to the Category 1 NPEs listed above is specifically reflected in the comments of Representative Kastenmeir who noted that the change to § 337 will “enable universities and small businesses who do not have the capital to actually make the good in the United States to still have access to the ITC forum for the protection of their rights.”18 In contrast, Congress specifically drafted the current language of § 337(a)(3)(C) to avoid the use of the ITC by “foreign patent holders” to exclude foreign or American competitors from obtaining access to the U.S. market.19 Only those foreign patent holders who had made a substantial investment in facilities or activities including research and development, licensing, sales, and marketing would fall within the scope of the statute.20 While the legislative history does not directly mention the Category 2 NPEs listed above, an analogy can be drawn between those Category 2 NPEs and the “foreign patent holders” specifically excluded from § 337(a)(3)(C). This analogy is reflected in the ITC’s application of § 337(a)(3)(C).

The ITC has held that revenue-driven licensing activities should be given less weight in the “substantial investment” analysis than production-driven licensing activities.21  The ITC defined production-driven licensing activity as activity “which encourages adoption and use of the patented technology to create new products and/or industries,”22 and revenue-driven licensing activity as activity “which takes advantage of the patent right solely to derive revenue by targeting existing production.”23 This is known as the “production/revenue dichotomy.”

The “production/revenue dichotomy” weighs against Category 2 NPEs. The business model of Category 2 NPEs suggests that the entity will typically assert patents against existing industry and products.24 This is especially so at the ITC, given that the ITC cannot award money damages directly.25 At the ITC, a Category 2 NPE’s best chance to recoup their investment in the lawsuit would be to target mature products with which the respondents have the most to lose, and then extract settlement payment with the imminent threat of an exclusion order.26 The ITC’s “production/revenue dichotomy” will continue to have a deterrent effect on such rent-seeking activities.27

Conclusion

For Category 1 NPEs, like InterDigital, the Federal Circuit’s decision has affirmed that the ITC is an open and available forum. For Category 2 NPEs, the Court has firmly held the door shut.

Endnotes

1 InterDigital Commc’n., LLC v. Int’l Trade Comm’n, No. 2010–1093, 2013 WL 124064 (Fed. Cir. Jan, 10, 2013).

2 19 U.S.C. § 1337(a)(2).

3 19 U.S.C. § 1337(a)(3).

4  InterDigital Commc’n., LLC,2013 WL 124064, at *3.

5 Id.

6 InterDigital Commc’n., LLC v. Int’l Trade Comm’n, 690 F.3d 1318 (Fed. Cir. 2012).

7 InterDigital Commc’n., LLC,2013 WL 124064, at *6.

8 Id.

9 Id.

10 Id. at *2.

11 Certain Multimedia Display and Navigation Devices and Systems, Components Thereof, and Products Containing Same (“Multimedia Display and Navigation Devices”), Inv. No. 337-TA-694, USITC Pub.4292, Comm’n Op., at 15(Nov. 2011).

12 Id at 16.

13 FACTS AND TRENDS REGARDING USITC SECTION 337 INVESTIGATIONS 2 (2012), available at http://www.usitc. gov/press_room/documents/featured_ news/337facts.pdf.

14 See, e.g., Certain Miniature, Battery-Operated, All-Terrain, Wheeled Vehicles, Inv.No. 337-TA-122, USITC Pub. 1300 (Oct. 1982), aff’d, Schaper Mfg. Co. v. U.S. Int’l Trade Comm’n, 717 F.2d 1368 (Fed. Cir. 1983).

15 InterDigital Commc’n., LLC,2013 WL 124064, at *3.

16 Id.

17 19 U.S.C. § 1337(a)(3)(C).

18 InterDigital Commc’n., LLC,2013 WL 124064, at *4.

19 Id.

20 Id.

21 Multimedia Display and Navigation Devices at 25.

22 Id. at 25 n.20.

23 Id.

24 Wei Wang, Non-Practicing Complainants at the ITC: Domestic Industry or Not?, 27 Berkeley Tech. l.J. 409, 439 (2012).

25 Id.

26 Id.

27 Id.

Written by:

McDonnell Boehnen Hulbert & Berghoff LLP
Contact
more
less

McDonnell Boehnen Hulbert & Berghoff LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!