California Congressman Floats Draft Legislation That Would Make Fundamental Changes To Intellectual Property Litigation At The U.S. International Trade Commission By Patrick Togni

by King & Spalding
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Congressman Devin Nunes (R-CA) has prepared draft legislation that would make significant changes to intellectual property litigation at the U.S. International Trade Commission. Such proceedings are conducted pursuant to Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, as amended. Litigation in this forum is commonly referred to as “Section 337” litigation.

The draft legislation is designed to address what Congressman Nunes characterizes as increased use of Section 337 by “patent assertion entities” (“PAEs”)” that are a “burgeoning industry, increasingly comprised of attorneys who acquire patents for the sole purpose of asserting them against companies to financially profit from their products.”

Congressman Nunes’s draft legislation seeks to address the high frequency of PAE-driven Section 337 litigation in two fundamental ways. First, the draft legislation would modify a threshold requirement that must be met by any plaintiff (known as the “complainant” in Section 337 parlance) in a Section 337 case. The statute requires that relief under Section 337 is available “only if an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work or design concerned, exists or is in the process of being established.” This so-called “domestic industry” prong of the statute may be met “with respect to the articles protected by” the intellectual property at issue by showing “significant investment in plant or equipment;” significant employment of labor and capital;” or “substantial investment in its exploitation, including engineering, research and development, or licensing.” Id. at §§ 1337(a)(2)(A)-(C).

Congressman Nunes believes that PAEs have inappropriately demonstrated domestic industry through the third prong of the statute because those entities cannot show domestic industry though significant expenditures in plant, equipment, labor, or capital. Accordingly, PAEs typically base their domestic industry case on licensing activity. As a result, Section 1(a)(B) of the Nunes’s proposal would permit “substantial investment in the exploitation” of the IP at issue to be shown through licensing only where the activity by licensees “is carried out before “adoption of the claimed patented invention.” This is a significant departure from the current statute, which permits the inclusion of licensing revenues or activity by a Section 337 complainant’s licensees which occurs after the patent’s issuance to be considered for purposes of analyzing whether a domestic industry “exists or is in the process of being established.”

Second, the draft Nunes bill would incorporate into the statute the holding from the landmark Supreme Court decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S. Ct. 1837 (2006). In eBay v. MercExchange, the Supreme Court held that “the traditional four-factor test applied by courts of equity” in analyzing whether to award permanent injunctive relief “applies to disputes arising under the Patent Act.” This proposal addresses a fundamental aspect of Section 337 litigation, because the principal form of relief is to permanently exclude the infringing articles from entry into the United States. Specifically, the Nunes proposal would subject exclusion orders available under Section 337 to the same four-factor test that the U.S. Supreme Court held applied to permanent injunctions sought by patent holders in Federal Court.

The traditional four-factor test applied by courts in equity requires a plaintiff to demonstrate (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate compensation for the injury; (3) that, a balance of the hardships between the plaintiff and the defendant warrants such a remedy; and (4) that the public interest would not be disserved by a permanent injunction. See id. Section 1(a)(2) of the Nunes proposal would require the Administrative Law Judge to which a Section 337 case is assigned “to hear evidence and make a recommendation” to the full Commission concerning “the equitable principles applied by the courts in granting permanent injunctions.” Any final determination regarding application of the traditional four-factor test would be made by the full International Trade Commission. Finally, the draft proposal states that the amendments would apply to Section 337 investigations commenced on or after the date of enactment of the bill.

Congressman Nunes has indicated that his proposed legislation is “a vehicle to begin the discussion of a solution.” Thus, it is possible that the legislation could be modified substantially prior to any formal introduction of the bill to Congress.


The content of this publication and any attachments are not intended to be and should not be relied upon as legal advice. Submit comments or questions to editors at manufacture@kslaw.com.

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