Businesses Involved in Patent Litigation

So, what is the ITC and what does it mean for your business? The ITC is a federal agency with investigative powers whose objective is to protect against improper foreign trade into the United States (such as unlawful importation of articles backed by U.S. patents). Understanding the ITC, how it can affect a general counsel's business, and any pending patent dispute in which it may be embroiled can spell the difference between the ultimate financial success or failure in the general counsel's business after the dispute is resolved.'

Patent litigation at the ITC is procedurally similar to conventional patent litigation, but with several differences. To begin an investigation, a party must file a complaint. If the complaint is deemed valid, it moves before an administrative law judge and the accused responds. The ITC has jurisdiction to begin an investigation regarding patent infringement when the plaintiff shows that a defendant has unlawfully imported an article with U.S. patent protection into the United States (i.e., infringement) and that a link exists between that infringement and “substantial” economic activity in the United States.

Remedies

One key difference in ITC investigations and conventional litigation involves remedies. The ITC can only grant injunctions, whereas district courts may grant money damages and injunctions. The injunction available in ITC investigations is known as an exclusion order. This authorizes U.S. Customs and Border Protection to block articles from being imported into the United States. At its discretion, the ITC can grant an exclusion order once patent infringement is established. By contrast, to obtain similar relief in district court, a party would have to satisfy the much-maligned four-pronged eBay test. The ITC, however, is not bound by eBay (since confirmed by the Federal Circuit). Because a plaintiff must only establish infringement to obtain an exclusion order, the standard to obtain an injunction in the ITC is lower.

Discovery

Discovery in ITC investigations is aggressive and without bounds. For example, where the district court requires a party to respond to discovery orders in 30 days, discovery begins 10 days after ITC investigations commence. Further, there are few limits on what can be requested in ITC investigations. Inevitably, this leads to a deluge of valuable information that must be supplied in a short period of time by the accused.

Because evidentiary hearings typically begin six months after the investigation commences and are decided in less than a year, settlement negotiations tip noticeably in favor of plaintiffs. Plaintiffs can methodically prepare before filing their complaints whereas defendants suffer from surprise. Consequently, a general counsel's business will suffer from this surprise and its attendant costs without a developed plan in place to respond to ITC complaints. Conversely, in-house counsel may consider filing an ITC complaint at a comparatively lower cost once they've identified infringement of their company's protected goods.'

Damages

Because most patent suits terminate in settlement, the absence of damages in ITC cases may be overlooked given the value of an exclusion order in settlement negotiations. This value increases exponentially when viewed in conjunction with the speed of ITC investigations. In-house counsel should be aware that even after an ITC investigation has commenced, it is possible to settle in order to terminate the investigation. However, any settlement terminating an ITC investigation will be public record and must be approved by the ITC.

The final significant difference in the ITC is how multiple defendants can be joined in one suit. Prior to the AIA, joining multiple parties in patent suits was governed under “the same transaction or occurrence” standard in the Federal Rules. In an effort to make it more difficult for nonpracticing entities (NPEs) to join multiple defendants and stop forum-shopping, Congress promulgated 35 U.S.C. ' 299. Under ' 299, multiple patent defendants can be joined under “the same transaction or occurrence” standard but multiple defendants may no longer be joined “based solely on allegations that they each have infringed the patent or patents in suit.” Before the AIA, NPEs could join parties under “the same transaction or occurrence” by alleging that each party infringed the same patent. The AIA makes this impossible absent waiver in district courts. Yet, because the ITC is not bound by the AIA, instead of discouraging NPEs from joining multiple defendants, ' 299 may have unintentionally redirected NPEs to the joinder-friendly venue at the ITC.'

In-house lawyers should be aware that their businesses can be involved in district court litigation at the same time as an ITC investigation. For example, an NPE can sue a company for patent infringement and, thereafter, file an ITC complaint alleging much of the same from its original complaint. Parties can seek to stay district court proceedings until the ITC reaches a final determination, but once the ITC does decide, the company could be involved in two simultaneous patent infringement suits: 1) an appeal of the ITC decision before the Federal Circuit; and 2) a proceeding in a U.S. district court. This underscores the importance for in-house counsel to be aware of the interplay between NPEs, patent litigation in district courts, and ITC investigations so that they can develop a plan beforehand and more effectively represent their companies should a scythe-wielding NPE contact their businesses.

Conclusion

The difficult standard under eBay or joinder under ' 299 may discourage NPEs from joining multiple defendants and/or pursuing equitable remedies in district court. It may also send NPEs elsewhere. While too early to tell whether ' 299 is that watershed moment that thwarts NPEs, it bears mentioning that NPEs have filed only 20% of ITC investigations since eBay. Moreover, of the 20%, only four prevailed with exclusion orders. Low numbers notwithstanding, for plaintiffs ' including NPEs ' wishing to join multiple defendants who may not satisfy ' 299 or who seek injunctions, but may not satisfy eBay, the lenient standards and efficiency of the ITC renders it an attractive alternative for businesses involved in patent litigation.

Christopher Franich is a registered patent attorney in the Carlsbad, CA, office of Gordon & Rees, and a member of the firm's Intellectual Property Practice Group.

'

Many would-be corporate patent plaintiffs may not be aware that the U.S. International Trade Commission (ITC) is a viable alternative to patent litigation.

The criticism of conventional patent litigation is legion: too slow and costly, restrictive discovery, difficult-to-prove standards (see eBay v. MercExchange) and, since the enactment of the America Invents Act (AIA), joining multiple defendants has become more difficult. That's why in-house counsel may find that the ITC's speed and less-restrictive standards render it an attractive alternative when their companies may be involved in patent disputes. Moreover, in-house counsel must familiarize themselves with the ITC to develop a plan in the event their company is accused of patent infringement and thereafter subject to an ITC investigation.

The ITC and What It Does

So, what is the ITC and what does it mean for your business? The ITC is a federal agency with investigative powers whose objective is to protect against improper foreign trade into the United States (such as unlawful importation of articles backed by U.S. patents). Understanding the ITC, how it can affect a general counsel's business, and any pending patent dispute in which it may be embroiled can spell the difference between the ultimate financial success or failure in the general counsel's business after the dispute is resolved.'

Patent litigation at the ITC is procedurally similar to conventional patent litigation, but with several differences. To begin an investigation, a party must file a complaint. If the complaint is deemed valid, it moves before an administrative law judge and the accused responds. The ITC has jurisdiction to begin an investigation regarding patent infringement when the plaintiff shows that a defendant has unlawfully imported an article with U.S. patent protection into the United States (i.e., infringement) and that a link exists between that infringement and “substantial” economic activity in the United States.

Remedies

One key difference in ITC investigations and conventional litigation involves remedies. The ITC can only grant injunctions, whereas district courts may grant money damages and injunctions. The injunction available in ITC investigations is known as an exclusion order. This authorizes U.S. Customs and Border Protection to block articles from being imported into the United States. At its discretion, the ITC can grant an exclusion order once patent infringement is established. By contrast, to obtain similar relief in district court, a party would have to satisfy the much-maligned four-pronged eBay test. The ITC, however, is not bound by eBay (since confirmed by the Federal Circuit). Because a plaintiff must only establish infringement to obtain an exclusion order, the standard to obtain an injunction in the ITC is lower.

Discovery

Discovery in ITC investigations is aggressive and without bounds. For example, where the district court requires a party to respond to discovery orders in 30 days, discovery begins 10 days after ITC investigations commence. Further, there are few limits on what can be requested in ITC investigations. Inevitably, this leads to a deluge of valuable information that must be supplied in a short period of time by the accused.

Because evidentiary hearings typically begin six months after the investigation commences and are decided in less than a year, settlement negotiations tip noticeably in favor of plaintiffs. Plaintiffs can methodically prepare before filing their complaints whereas defendants suffer from surprise. Consequently, a general counsel's business will suffer from this surprise and its attendant costs without a developed plan in place to respond to ITC complaints. Conversely, in-house counsel may consider filing an ITC complaint at a comparatively lower cost once they've identified infringement of their company's protected goods.'

Damages

Because most patent suits terminate in settlement, the absence of damages in ITC cases may be overlooked given the value of an exclusion order in settlement negotiations. This value increases exponentially when viewed in conjunction with the speed of ITC investigations. In-house counsel should be aware that even after an ITC investigation has commenced, it is possible to settle in order to terminate the investigation. However, any settlement terminating an ITC investigation will be public record and must be approved by the ITC.

The final significant difference in the ITC is how multiple defendants can be joined in one suit. Prior to the AIA, joining multiple parties in patent suits was governed under “the same transaction or occurrence” standard in the Federal Rules. In an effort to make it more difficult for nonpracticing entities (NPEs) to join multiple defendants and stop forum-shopping, Congress promulgated 35 U.S.C. ' 299. Under ' 299, multiple patent defendants can be joined under “the same transaction or occurrence” standard but multiple defendants may no longer be joined “based solely on allegations that they each have infringed the patent or patents in suit.” Before the AIA, NPEs could join parties under “the same transaction or occurrence” by alleging that each party infringed the same patent. The AIA makes this impossible absent waiver in district courts. Yet, because the ITC is not bound by the AIA, instead of discouraging NPEs from joining multiple defendants, ' 299 may have unintentionally redirected NPEs to the joinder-friendly venue at the ITC.'

In-house lawyers should be aware that their businesses can be involved in district court litigation at the same time as an ITC investigation. For example, an NPE can sue a company for patent infringement and, thereafter, file an ITC complaint alleging much of the same from its original complaint. Parties can seek to stay district court proceedings until the ITC reaches a final determination, but once the ITC does decide, the company could be involved in two simultaneous patent infringement suits: 1) an appeal of the ITC decision before the Federal Circuit; and 2) a proceeding in a U.S. district court. This underscores the importance for in-house counsel to be aware of the interplay between NPEs, patent litigation in district courts, and ITC investigations so that they can develop a plan beforehand and more effectively represent their companies should a scythe-wielding NPE contact their businesses.

Conclusion

The difficult standard under eBay or joinder under ' 299 may discourage NPEs from joining multiple defendants and/or pursuing equitable remedies in district court. It may also send NPEs elsewhere. While too early to tell whether ' 299 is that watershed moment that thwarts NPEs, it bears mentioning that NPEs have filed only 20% of ITC investigations since eBay. Moreover, of the 20%, only four prevailed with exclusion orders. Low numbers notwithstanding, for plaintiffs ' including NPEs ' wishing to join multiple defendants who may not satisfy ' 299 or who seek injunctions, but may not satisfy eBay, the lenient standards and efficiency of the ITC renders it an attractive alternative for businesses involved in patent litigation.

Christopher Franich is a registered patent attorney in the Carlsbad, CA, office of Gordon & Rees, and a member of the firm's Intellectual Property Practice Group.

'