The ITC Is Dead, Long Live the ITC

Overview of the Decisions

Suprema v. ITC

Suprema appealed an ITC decision, which found that Suprema had induced infringement of asserted method claims. Suprema manufactured and imported hardware and software for scanning fingerprints. Another company, Mentalix, imported Suprema's scanners and integrated them with its own software in the United States. The ITC found that Mentalix directly infringed a method claim in the patent-at-issue upon execution of its software when integrated with Suprema's imported scanners, and found that Suprema induced that infringement.

On appeal, the Federal Circuit held that infringement is measured at the time of importation. A method claim can only be infringed when the method is performed in the United States. And there is no induced infringement until there has been direct infringement. Thus, the Federal Circuit held that '337 cannot extend to the induced infringement of method claims since the acts of underlying direct infringement occur post-importation. That is, there are no “articles that ' infringe” prior to the commission of any direct infringement for purposes of induced infringement.

The 841 Commission Decision

In the 841 investigation, the ITC relied on two recent Federal Circuit decisions to conclude that a complainant must show articles protected by the asserted patents to establish a licensing-based domestic industry. Previously, if a complainant alleged a domestic industry based on licensing activities under '337(a)(3)(C), the ITC did not require a complainant to show protected articles. The complainant only had to prove substantial investments in its efforts to license the asserted patent.

The two cases the ITC relied on were InterDigital and Microsoft. In InterDigital Communications, LLC v. ITC, 707 F.3d 1295 (Fed. Cir. 2013), the Federal Circuit held that the “substantial investment in [the patent's] exploitation, including engineering, research and development, or licensing” must be “with respect to the articles protected by the patent, which means that the engineering, research and development, or licensing activities must pertain to products that are covered by the patent that is being asserted.” In Microsoft Corp. v. ITC, 731 F.3d 1354 (Fed. Cir. 2013), the Federal Circuit held that Microsoft was obligated to show that its substantial investments in research and development (under '337(a)(3)(C)) related to an article protected by the patent, regardless of where the product was manufactured.

The 794 Commission Decision and USTR Disapproval

In the 794 investigation, the ITC found that Apple infringed two Samsung patents and issued an exclusion order against infringing articles. The Samsung patents had been declared to the European Telecommunications Standards Institute (ETSI) as essential to the 3G standard, and Samsung committed to license those patents on fair, reasonable, and non-discriminatory (FRAND) terms. Apple argued that an exclusion order was inconsistent with that FRAND commitment, but the ITC decided an exclusion order was appropriate given the facts of the case.

After the ITC issued its exclusion order, the President, through the office of the USTR, evaluated the remedial orders in view of overarching policy considerations. After that review, the USTR determined to veto the remedial orders. The USTR recognized concerns raised in a policy statement from the Department of Justice (DOJ) and United States Patent and Trademark Office (PTO), including the potential harms that can result from owners of standards-essential patents (SEPs) who have made a voluntary commitment to offer to license SEPs on FRAND terms gaining undue leverage and engaging in patent hold-up (i.e., obtaining a higher price for use of a patent than would have been possible without standard), and that can result from technology implementers causing harm by engaging in reverse hold-up (i.e., refusing to negotiate or pay FRAND terms).

Standards, and particularly voluntary consensus-based standards set by standard development organizations, have come to play an increasingly important role in the U.S. economy, and important policy considerations arise in the enforcement of those patents incorporated in the standards without which such standards cannot be implemented as designed. The USTR determined that licensing SEPs on FRAND terms is an important element of the Administration's policy of promoting innovation and economic progress.

Although the USTR vetoed the remedial orders in the 794 investigation based on policy considerations, the USTR instructed the ITC in future cases involving SEPs subject to voluntary FRAND commitments to: 1) examine public interest issues at the outset of the proceeding and when determining whether a remedy is in the public interest; and 2) seek to have the parties develop a comprehensive factual record related to these issues, including information on the standards-essential nature of the patent-at-issue, if contested by the patent holder, and the presence or absence of patent hold-up or reverse hold-up.

Impact of the Decisions

There have been extensive discussions in the ITC bar about the impact of each of these decisions. Although the legal importance of each decision is substantial, the practical impact is much less than the controversy suggests.

Suprema v. ITC

Although the decision may have broader ramifications, the direct impact of Suprema is limited to allegations of induced infringement of method claims. No case in the last three years, however, has involved only allegations of induced infringement. Some complaints have alleged only induced infringement against certain respondents, and Suprema may cause those claims to fail, but there is no complaint that would have been entirely precluded based on Suprema.

Roughly 74% of the complaints filed between 2011 and 2013 involved induced infringement claims. Of those, roughly 68% involved allegations of induced infringement of method claims. Only about five of the 143 total complaints (roughly 3%), however, included only method claims asserted for induced infringement. Thus, there may have been no viable inducement claim in about five cases since 2011 under the holding of Suprema. Yet even in those cases, the patent owner potentially had direct and/or contributory infringement claims to fall back on.

In sum, Suprema would have, at most, precluded induced infringement claims in 3% of all ITC complaints filed in the last three years, but even those cases were not entirely foreclosed.

The 841 Commission Decision

The 841 decision requires a complainant to show that a covered article related to a licensing-based domestic industry. The 841 decision did not impact non-licensing-based domestic industries, since the ITC has always required an article for non-licensing domestic industry.

Roughly 16% of the complaints since 2011 have alleged a domestic industry based on licensing activities. Of those, each complainant usually also alleged domestic industry alternatively based on the activities of its licensee, with the numbers alleging multiple bases rising each year to 100% in 2013. Indeed, in the last three years, only about nine complaints (6% of all cases) alleged domestic industry based solely on licensing activities of the complainant. And in two of those nine complaints, the complainant also alleged that there were articles protected by the patents.

While having to show articles adds some burden, it is not an insurmountable one. The 841 decision would have, at most, precluded roughly 5% of all ITC complaints in the last three years, based on the complaints. But even in those cases, the complainant would likely have been able to amend the complaint to include the proper allegations of articles in view of the 841 decision.

The USTR Disapproval of the 794 Remedial Orders

The USTR's disapproval of the 794 remedial orders was the first use of the Presidential veto since 1987. The veto was based on policy considerations and not necessarily on the merits of the argument. Although the veto calls into question the viability of asserting SEPs in the ITC, only about 6% of all ITC complaints since 2011 asserted patents alleged to be standards essential.

Conclusion

There is no dispute that these decisions have important legal consequences for patent owners to consider before seeking relief in the ITC. Their practical impact on patent owners' ability and desire to use the ITC, however, may be minimal. While Suprema has perhaps the largest impact by closing the door for now on certain induced infringement claims, the decision would not have caused any investigation in the last three years to have been dismissed entirely had it been decided earlier. The 841 decision requires complainants to show articles for licensing-based domestic industry, but nearly all complainants already attempt to make this a showing either by alleging additional bases for domestic industry or by showing a protected article. Lastly, the USTR disapproval in the 794 investigation potentially affects only SEPs with FRAND or RAND obligations, and relief at the ITC may nevertheless still be available where the patent owner can show that, e.g., the licensee refused FRAND terms or refused to negotiate.

In short, although these decisions are important, they are not nails in the ITC's coffin. The number of cases that would be precluded at the outset based on these decisions is low, and the ITC remains a viable and valuable option for those seeking to enforce their IP rights.

Elizabeth A. Niemeyer is a Partner, and C. Brandon Rash is an Associate, in the Washington, DC, office of Finnegan, Henderson, Farabow, Garrett & Dunner. Niemeyer represents and advises international and domestic clients, both large and small, facing patent litigation in the electrical arts before the U.S. International Trade Commission (ITC) and in federal district courts. She can be reached at [email protected]. Rash practices all aspects of patent-related work, including litigation before federal district courts and the ITC. He can be reached at [email protected].

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The U.S. International Trade Commission (ITC) administers U.S. trade laws, including Section 337 investigations concerning allegations of unfair competition based on alleged infringement of intellectual property rights. In the last decade, the ITC has been an increasingly popular forum for litigating IP rights, largely because it offers a quick and forceful remedy in the form of an exclusion order, which can exclude infringing products from the U.S. market. In recent months, several important decisions have caused some to question the continuing vitality of the ITC as forum. A review of complaints filed since 2011, however, reveal that patentees had already begun modifying their allegations, greatly minimizing the actual impact of these recent decisions.

This article examines three recent ITC-related decisions. First, in Suprema, Inc. v. International Trade Commission, No. 2012-1170 (Fed. Cir. Dec. 13, 2013), the Federal Circuit held that '337 measures infringement at the time of importation, which precludes a finding of a violation based on allegations of induced infringement of a method claim. Next, in Computers and Computer Peripheral Devices, Investigation No. 337-TA-841 (Jan. 9, 2014), the ITC held that a complainant alleging the existence of a domestic industry based on licensing must show the existence of articles covered by the patents-at-issue. Lastly, in Certain Electronic Devices, Investigation No. 337-TA-794, the United States Trade Representative (USTR) vetoed an ITC exclusion order based on a finding that Apple had violated '337 by infringing FRAND-encumbered, standards-essential patents.

Each of these decisions has important legal consequences that patent owners should consider before filing a complaint at the ITC. A review of the 143 patent infringement complaints filed in the last three years (2011-2013), however, shows that the practical impact of these decisions may be significantly less than reported.

Overview of the Decisions

Suprema v. ITC

Suprema appealed an ITC decision, which found that Suprema had induced infringement of asserted method claims. Suprema manufactured and imported hardware and software for scanning fingerprints. Another company, Mentalix, imported Suprema's scanners and integrated them with its own software in the United States. The ITC found that Mentalix directly infringed a method claim in the patent-at-issue upon execution of its software when integrated with Suprema's imported scanners, and found that Suprema induced that infringement.

On appeal, the Federal Circuit held that infringement is measured at the time of importation. A method claim can only be infringed when the method is performed in the United States. And there is no induced infringement until there has been direct infringement. Thus, the Federal Circuit held that '337 cannot extend to the induced infringement of method claims since the acts of underlying direct infringement occur post-importation. That is, there are no “articles that ' infringe” prior to the commission of any direct infringement for purposes of induced infringement.

The 841 Commission Decision

In the 841 investigation, the ITC relied on two recent Federal Circuit decisions to conclude that a complainant must show articles protected by the asserted patents to establish a licensing-based domestic industry. Previously, if a complainant alleged a domestic industry based on licensing activities under '337(a)(3)(C), the ITC did not require a complainant to show protected articles. The complainant only had to prove substantial investments in its efforts to license the asserted patent.

The two cases the ITC relied on were InterDigital and Microsoft. In InterDigital Communications, LLC v. ITC, 707 F.3d 1295 (Fed. Cir. 2013), the Federal Circuit held that the “substantial investment in [the patent's] exploitation, including engineering, research and development, or licensing” must be “with respect to the articles protected by the patent, which means that the engineering, research and development, or licensing activities must pertain to products that are covered by the patent that is being asserted.” In Microsoft Corp. v. ITC, 731 F.3d 1354 (Fed. Cir. 2013), the Federal Circuit held that Microsoft was obligated to show that its substantial investments in research and development (under '337(a)(3)(C)) related to an article protected by the patent, regardless of where the product was manufactured.

The 794 Commission Decision and USTR Disapproval

In the 794 investigation, the ITC found that Apple infringed two Samsung patents and issued an exclusion order against infringing articles. The Samsung patents had been declared to the European Telecommunications Standards Institute (ETSI) as essential to the 3G standard, and Samsung committed to license those patents on fair, reasonable, and non-discriminatory (FRAND) terms. Apple argued that an exclusion order was inconsistent with that FRAND commitment, but the ITC decided an exclusion order was appropriate given the facts of the case.

After the ITC issued its exclusion order, the President, through the office of the USTR, evaluated the remedial orders in view of overarching policy considerations. After that review, the USTR determined to veto the remedial orders. The USTR recognized concerns raised in a policy statement from the Department of Justice (DOJ) and United States Patent and Trademark Office (PTO), including the potential harms that can result from owners of standards-essential patents (SEPs) who have made a voluntary commitment to offer to license SEPs on FRAND terms gaining undue leverage and engaging in patent hold-up (i.e., obtaining a higher price for use of a patent than would have been possible without standard), and that can result from technology implementers causing harm by engaging in reverse hold-up (i.e., refusing to negotiate or pay FRAND terms).

Standards, and particularly voluntary consensus-based standards set by standard development organizations, have come to play an increasingly important role in the U.S. economy, and important policy considerations arise in the enforcement of those patents incorporated in the standards without which such standards cannot be implemented as designed. The USTR determined that licensing SEPs on FRAND terms is an important element of the Administration's policy of promoting innovation and economic progress.

Although the USTR vetoed the remedial orders in the 794 investigation based on policy considerations, the USTR instructed the ITC in future cases involving SEPs subject to voluntary FRAND commitments to: 1) examine public interest issues at the outset of the proceeding and when determining whether a remedy is in the public interest; and 2) seek to have the parties develop a comprehensive factual record related to these issues, including information on the standards-essential nature of the patent-at-issue, if contested by the patent holder, and the presence or absence of patent hold-up or reverse hold-up.

Impact of the Decisions

There have been extensive discussions in the ITC bar about the impact of each of these decisions. Although the legal importance of each decision is substantial, the practical impact is much less than the controversy suggests.

Suprema v. ITC

Although the decision may have broader ramifications, the direct impact of Suprema is limited to allegations of induced infringement of method claims. No case in the last three years, however, has involved only allegations of induced infringement. Some complaints have alleged only induced infringement against certain respondents, and Suprema may cause those claims to fail, but there is no complaint that would have been entirely precluded based on Suprema.

Roughly 74% of the complaints filed between 2011 and 2013 involved induced infringement claims. Of those, roughly 68% involved allegations of induced infringement of method claims. Only about five of the 143 total complaints (roughly 3%), however, included only method claims asserted for induced infringement. Thus, there may have been no viable inducement claim in about five cases since 2011 under the holding of Suprema. Yet even in those cases, the patent owner potentially had direct and/or contributory infringement claims to fall back on.

In sum, Suprema would have, at most, precluded induced infringement claims in 3% of all ITC complaints filed in the last three years, but even those cases were not entirely foreclosed.

The 841 Commission Decision

The 841 decision requires a complainant to show that a covered article related to a licensing-based domestic industry. The 841 decision did not impact non-licensing-based domestic industries, since the ITC has always required an article for non-licensing domestic industry.

Roughly 16% of the complaints since 2011 have alleged a domestic industry based on licensing activities. Of those, each complainant usually also alleged domestic industry alternatively based on the activities of its licensee, with the numbers alleging multiple bases rising each year to 100% in 2013. Indeed, in the last three years, only about nine complaints (6% of all cases) alleged domestic industry based solely on licensing activities of the complainant. And in two of those nine complaints, the complainant also alleged that there were articles protected by the patents.

While having to show articles adds some burden, it is not an insurmountable one. The 841 decision would have, at most, precluded roughly 5% of all ITC complaints in the last three years, based on the complaints. But even in those cases, the complainant would likely have been able to amend the complaint to include the proper allegations of articles in view of the 841 decision.

The USTR Disapproval of the 794 Remedial Orders

The USTR's disapproval of the 794 remedial orders was the first use of the Presidential veto since 1987. The veto was based on policy considerations and not necessarily on the merits of the argument. Although the veto calls into question the viability of asserting SEPs in the ITC, only about 6% of all ITC complaints since 2011 asserted patents alleged to be standards essential.

Conclusion

There is no dispute that these decisions have important legal consequences for patent owners to consider before seeking relief in the ITC. Their practical impact on patent owners' ability and desire to use the ITC, however, may be minimal. While Suprema has perhaps the largest impact by closing the door for now on certain induced infringement claims, the decision would not have caused any investigation in the last three years to have been dismissed entirely had it been decided earlier. The 841 decision requires complainants to show articles for licensing-based domestic industry, but nearly all complainants already attempt to make this a showing either by alleging additional bases for domestic industry or by showing a protected article. Lastly, the USTR disapproval in the 794 investigation potentially affects only SEPs with FRAND or RAND obligations, and relief at the ITC may nevertheless still be available where the patent owner can show that, e.g., the licensee refused FRAND terms or refused to negotiate.

In short, although these decisions are important, they are not nails in the ITC's coffin. The number of cases that would be precluded at the outset based on these decisions is low, and the ITC remains a viable and valuable option for those seeking to enforce their IP rights.

Elizabeth A. Niemeyer is a Partner, and C. Brandon Rash is an Associate, in the Washington, DC, office of Finnegan, Henderson, Farabow, Garrett & Dunner. Niemeyer represents and advises international and domestic clients, both large and small, facing patent litigation in the electrical arts before the U.S. International Trade Commission (ITC) and in federal district courts. She can be reached at [email protected]. Rash practices all aspects of patent-related work, including litigation before federal district courts and the ITC. He can be reached at [email protected].

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