Another Good Bill Introduced, This Time on ITC Reform

The last couple of weeks have seen two good patent bills introduced, first the VENUE Act, and now the Trade Protection Not Troll Protection Act. This bipartisan bill closes loopholes at the International Trade Commission that patent trolls have been exploiting.

The International Trade Commission (ITC) is an agency whose main job is to protect American industries from unfair competition abroad. If a U.S. company thinks another company is importing goods unfairly produced, it can ask the ITC to investigate. If the Commission finds that the importer (called the respondent) has violated the trade laws (which include infringing U.S. patents), it can issue an exclusion order. The order instructs customs to block the products in question at the border.

The ITC handles a fair number of patent cases, because the ability to get an exclusion order is essentially the same as an injunction in district court. And that is where patent trolls come in.

Since the eBay decision, injunctions have been nearly impossible for patent trolls to get, because there’s simply no harm that can’t be cured by money. But injunctions give massive leverage; about a decade ago, a troll called NTP got an injunction against RIM (now known as BlackBerry). RIM ended up settling for $650 million, far more than they ever would have paid without the injunction.

The ITC’s ability to block imports is just too tempting a prize, and patent trolls have been using the ITC more and more in recent years.

The problem for trolls is that at the ITC, the patent owner has to prove the existence of a domestic industry that uses the patent-in-suit. An operating company can generally point to a product it sells that uses the patent, and all of the investments it made in that product. But patent trolls, by definition, sell nothing. How do they prove a domestic industry?

There’s a way to prove domestic industry in the law that’s just for research companies and universities: the complainant can rely on licensing activities. The point of this was to allow companies that just do research and then license their developments to still have access to the ITC.

Patent trolls do something I’ve heard called “domestic industry by subpoena.” Basically, the troll settles a district court suit and gives a license to a company. Then, at the ITC, the troll uses the activities of that company as its domestic industry. If the company doesn’t hand over discovery voluntarily (they generally don’t want to), the troll subpoenas the information, forcing the company to cooperate.

The Trade Protection Not Troll Protection Act fixes this loophole. First, the only licenses that count are ex ante licensing, i.e., licenses that lead to the development of something new. That means those settlements against companies for something they already do can’t be used. Second, if the complainant wants to use the activities of a licensee, that licensee has to be a party to the investigation. In the case of a research company, this shouldn’t be a problem, because it’s that company’s licensees who are being harmed. But trolls will have a tough time persuading any company to be a party.

In short, it’s a good bill, and we support it.

The bill is co-sponsored by Reps. Farenthold and Cardenas, proving that patent reform is truly a bipartisan issue.