Reflections on Recent Developments of Statutory Public Interests in Patent-based Section 337 Proceedings (English article)
After the recent amendments in 2011 and 2013 of the Rules of Practice and Procedure by the International Trade Commission (ITC), at least from the procedural perspective, complainants presently have been burdened with an increased cost of collecting adequate information concerning statutory public interests even before putting forward the complaint, in order to justify the desired remedy by virtue of indicating no harm to statutory public interest. This reflects the ITC’s aspiration to make the final determination more precise and equitably justified on the analysis of public interest issues, so as to ultimately protect relevant domestic industries in terms of curbing intellectual property infringements in imports simultaneously without unduly sacrificing certain statutory public interest. Although the actual effect of the amendments in the long run still remains to be seen, the amendments possibly will generate some desirable results: first, from the perspective of law and economics, they are conducive to decrease the possible related adverse impacts in terms of negative externalities and increase economic efficiency; second, the amendments are also favourable to curb the existing ‘patent troll’ suits, although they are currently still not severe, by means of adequate considerations concerning statutory public interests, so as to optimally achieve the ultimate legislative goal of Section 337 and third, it is evident that an interest-balanced approach, in terms of more in-depth analysis of public interest, is better than the traditional all-or-nothing approach to some extent. Accordingly, a more equitable adjudication in terms of a better interests balance can be attained by utilizing the interest-balanced approach.
Patent Holdup, the ITC, and the Public Interest
The Supreme Court's eBay decision requires district courts to weigh the equities before permanently enjoining a defendant. This is a good thing. Since eBay, the tactic of threatening injunctions to, in the Court’s words, “extract exorbitant fees” has declined. It's now harder for a patent assertion entity (PAE), or patent “troll," and in certain cases, operating companies, to win an injunction. But eBay’s discretionary test doesn’t apply at the ITC. This has had the unintended consequence of driving those who seek to circumvent eBay's ruling to the ITC, where the odds of getting an injunctions are better. In this paper, we document that trend, which is dramatic. Increasingly, cases filed at the ITC are filed by PAEs against an entire industry, often information technology. Practicing entities too have turned to the ITC to seek injunctions district courts won't give them, for example on patents covering industry standards. Because the ITC can’t award damages, it has granted injunctions as a matter of course. But as we suggest in this paper, the Commission has more power to adjust the remedy it grants than previously recognized. We think it should use that flexibility to limit exclusion orders when competitive conditions demand it. A PAE may not be any more justified to receive an exclusion order from the ITC under its public interest analysis than to receive an injunction from a district court applying eBay. Even practicing entities should be denied the power to exclude in some circumstances, for example when the patents are standards-essential and/or encumbered by a RAND license, there is no evidence of bad faith, and the patentee can seek damages in the district court. When exclusion orders are issued, delays in their implementation and grandfathering in existing products can reduce holdup. Bond and penalty provisions could be used to ensure that patentees are compensated for ongoing infringement during these transition periods. Using its discretion wisely, the ITC can administer the statute to fairly and efficiently give patentees their due while minimizing harm to the public interest.
Expanding Patent Law's Customer Suit Exception
Recent years have seen a marked increase in patent suits filed primarily for nuisance value. Non-practicing patent holders like Innovatio, ArrivalStar, Lodsys, PACid, and many others have collectively sued thousands of alleged patent infringers in cases that generally settle for less than the cost of mounting even the slightest defense. Suits like these overwhelming target the numerous resellers and end users of allegedly infringing products, rather than the accused products’ original manufacturer. More individual defendants means more lawyers, more discovery, and, thus, more litigation costs to inflate settlement amounts. We propose a solution to this problem: resurrecting and expanding a forgotten patent law doctrine known as the “customer suit exception.” When the requirements of this doctrine are satisfied, courts can stay patent suits filed against “customer” defendants pending the outcome of litigation between the patentee and the accused technology’s manufacturer. Doing so drastically reduces patentees’ ability to impose litigation costs and, moreover, hands the reins of defense to the party best suited to challenge and value the patent-in-suit. Unfortunately, case law applying the exception has become increasingly rigid over time and, today, is incredibly difficult to satisfy. This article explores the history and evolution of the customer suit exception, explains why the doctrine is so rarely invoked and applied today, and argues that courts should stay customer suits more frequently in order to promote litigation outcomes that reflect the value of asserted patents, not the cost of defense.