The International Trade Commission and the secret weapon of redundant patent litigation
Despite the pandemic, patent litigation in 2020 has reached a new high. BakerHostetler’s annual review reports some 3,000 net new patent charges in district courts from the previous year, an increase of 12% from the previous year. However, some of these litigants also have access to a secret weapon by filing a corresponding Section 337 complaint with the International Trade Commission (ITC).
Section 337 investigations have become a must-have option for patent infringement claims, as they overwhelmingly favor plaintiffs. The problem is particularly acute for patent complaints related to consumer electronics, which can contain tens of thousands of patents. A quick review of ITC Annual Report since 2010 shows that about 40% of all open Section 337 cases focus on electronics disputes, and many succeed in leveraging ITC’s authority to block import , if not the sale, of products. An ITC complaint, or the threat of a complaint, is also used to militarize patent license negotiations in order to force an overpriced settlement. The protections under Section 337 were intended to protect United States-based entities and industry from unfair imports, but increasingly, plaintiffs are not based in the United States while defendants are. . This means that the Commission is working in the opposite way it was intended. A case brought by Ericsson against Samsung demonstrates the ITC’s excessive patent litigation. Moreover, it could also undermine U.S. attempts to achieve critical 5G goals such as rapid deployment, competition in the equipment vendor market, and efforts to restrict vendors aligned with the Chinese military.
Why ITC is attractive to patent litigants
The ITC offers many advantages to plaintiffs over filing in US district courts, including less stringent jurisdictional requirements, speed, and more draconian remedies. Unlike district courts, the ITC cannot award financial damages; instead, it grants patent owners an exclusion order on all imports and cease and desist orders for all sales in the United States relating to the infringed patent. A Analysis by Santa Clara law professor Colleen Chien concluded that the ITC’s benefits for plaintiffs encourage litigants to file in both courts, creating duplicate litigation and the possibility of inconsistent outcomes. Other legal scholars say the ITC’s powers are needed to prosecute foreign offenders who would otherwise escape U.S. district courts, but many observe that a large majority of ITC-related complaints are already filed in the courts of American district. In addition, these ITC measures are unfair and protectionist. Judging by the large percentage of respondents based in the United States from 2016 to 2019, it seems that the ITC was abused by litigants.
However, ITC itself does not seem to be aware of this problem and even welcomes the increase in its 337 activities. In its budget request for FY22, ITC details its growing workload, as well as the costs of technical resources that facilitate the resolution of Section 337 complaints, including improving the courtroom space, acquisition of technology for virtual evidence hearings, substantial investments in electronic documents. System, and upgrade to 337Info, the agency-wide survey database system. ITC says nothing about the problematic motivations behind the increase of 337 cases; he embraces the growth in litigation and uses his direct line with Congress to ask for more money.
In January 2021, Ericsson, the Swedish telecommunications network company, deposit a lawsuit in federal court against Samsung, of South Korea, in the Eastern District of Texas, accusing Samsung of infringing five patents used in 5G base stations. He complained shortly thereafter to the ITC. The case comes at a critical time in US technological development, as the federal government has mandated the rapid deployment of 5G, while simultaneously working to secure US national security by guarding Chinese equipment made by Huawei, the largest supplier. worldwide of telecommunications equipment, outside the United States. Another benefit of US policy is that it has opened the door for more sophisticated technology companies to help roll out 5G. For example, Samsung has become the world’s 4e the largest network equipment supplier, a welcome development in the concentrated market. However, Samsung base stations might not be available to US network providers if Ericsson succeeds in its complaint, leaving the US in deep trouble. This would be an unfortunate and unforeseen result of a policy aimed at improving security.
This is not the first time that Ericsson and Samsung have come to blows. Many companies in this space cross-license their patents. While disputes are not necessarily illegitimate, companies negotiate privately or can go to court to decide on a fair royalty. If Ericsson patents are infringed, district courts can make that decision. They can also prescribe nuanced remedies. However, when a company turns to ITC like Ericsson did, it removes the nuclear option to give it the power to negotiate privately. When hundreds of millions of dollars in license fees are at stake, a dominant supplier like Ericsson could raise prices by reducing competition.
Fortunately, Congress seems to be aware of this problem. A 2020 bipartisan House bill introduced by Suzan DelBene (WA) and David Schweikert (AZ) contains several provisions aimed at modernizing and improving the Section 337 process at ITC. This would ensure that the ITC fulfills its statutory mandate to protect the domestic industry from unfair import competition, while reducing the incentive for complainants to militarize ITC complaints. More than a generation has passed since the last major ITC update; it is high time for this reform. Hopefully the bill will be reintroduced and evolve quickly. The rollout of 5G shouldn’t be slowed down by companies wielding an ITC secret weapon, something Congress never wanted.