Proposed Legislation Seeks to Limit Patent Trolls’ Access to ITC Investigations

by Allen & Overy LLP
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On Thursday, May 29, 2014, U.S. Congressmen Blake Farenthold (R-TX) and Tony Cárdenas (D-CA) introduced legislation aimed at reducing the ability of patent trolls to initiate ITC investigations.

The proposed “Trade Protection Not Troll Protection Act” modifies the domestic industry standard for initiating complaints, makes it faster and easier to dismiss an investigation not meeting the domestic industry standard, and permits earlier termination of investigations where an exclusion order is counter to public interest.


Despite the recent and unceremonious death of the “Innovation Act” in the Senate Judiciary Committee, an act that sought to broadly limit litigation brought by Patent Assertion Entities (“PAEs”), or “patent trolls”, new legislation introduced on Thursday demonstrates the continued support for legislative limits on PAEs.

In recent years, PAE-initiated complaints before the ITC have skyrocketed. In 2012 PAEs initiated an estimated 39% of the patent investigations before the Commission. In an effort to reverse this trend, U.S. Congressmen Blake Farenthold (R-TX) and Tony Cárdenas (D-CA) introduced the “Trade Protection Not Troll Protection Act”. The act modifies the domestic industry standard to require a PAE to have a vested interest in its patent, through an actual product, in order to initiate a complaint.

To establish a Section 337 violation, a complainant must demonstrate that there is a domestic industry in the United States for products protected by the patent. Under the current standards, this requirement may be met in three ways: significant investment in plants and equipment, significant employment of labor or capital, or substantial investment in a product’s exploitation including engineering, research and development or licensing. PAEs rely on licensing activities to meet the domestic industry requirement.

The proposed legislation alters the domestic industry standard so that a complainant “may not rely upon activities by its licensees unless the license leads to the adoption and development of articles that incorporate the claimed patent, copyright, trademark, mask work or design for sale in the United States.” Therefore, a PAE could not file a complaint in the ITC without an associated product for sale in the United States.

The proposed legislation also makes it easier for the ITC to refuse to initiate a complaint based on failure to meet the domestic industry standard. Where a complainant relies on licensing activity to meet the standard, the Commission must conduct a preliminary investigation as to whether the standard has been met. If the commission finds that there is no domestic industry, “the Commission may not initiate an investigation.”

Finally, the proposed legislation permits the Commission to determine whether it is in the public’s interest to exclude the articles under investigation. In making this determination, the Commission may expressly consider production of similar products in the United States, whether the complainant or its licensees “can meet market demand for protected articles,” and any equitable defenses. In short, the Commission will be able to take into account that a complainant is a PAE and terminate an investigation if it determines that an exclusion order is against public interest.

Should the legislation be enacted, it will likely substantially curtail § 337 complaints brought by PAEs. Where complaints are brought, it will be easier and faster for the Commission to terminate an investigation where necessary. Given the ITC’s strong policy interest in protecting U.S. trade, it is possible that where the “Innovation Act” failed, the “Trade Protection Not Troll Protection Act” will succeed.

A copy of the proposed legislation is available at: http://farenthold.house.gov/uploadedfiles/trade_protection_not_troll_protection_act_final.pdf

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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