Yesterday, the International Trade Commission (ITC) instituted an investigation based on a complaint filed by an apparent non-practicing entity (NPE), SIPCO. The ITC, as Patent Progress has covered in the past , is intended to protect American manufacturers from unfair foreign competition.
So why did the ITC institute an investigation of American companies filed by an NPE?
NPEs Fleeing From EDTX To The ITC
After the Supreme Court’s TC Heartland decision made it harder to file suit in the notoriously NPE-friendly Eastern District of Texas, Patent Progress predicted that NPEs might try to shift venues to the ITC. This appears to be an example of exactly that. While SIPCO claims not to be an NPE, their website focuses on their patent licensing business; the ‘products and consulting services’ they claim to offer are not described in detail (unlike their patent list and licensing structure.)
The ITC is a desirable venue both because it can grant an exclusion order (effectively an injunction against any products manufactured outside of the U.S.) and because the ITC has a highly compressed case schedule, making ITC trials expensive for defendants. The combination of these two factors means that an ITC case carries more expense and more risk for defendants—making them more likely to want to settle.
I Thought The ITC Defended Against Unfair Foreign Competition
In theory, the ITC is intended to protect American industry against unfair competition from foreign entities.
In practice, the ITC frequently institutes investigations against American industries.
In this case, the ITC is taking aim at two long-standing American innovators. If an industry manufactures a portion of its products overseas, then they can have their products excluded by the ITC even if the company is American and the research and development and product design was done in the U.S. Here, important defendants include Emerson Electric (headquartered in St. Louis, MO, with a subsidiary in Bloomington, MN) and Analog Devices (headquartered in Norwood, MA, with subsidiary Linear Technologies headquartered in Milpitas, CA). Between the two, they employ over 100,000 people.1
I Thought The ITC Defended American Industries
In theory, the ITC can only institute an investigation based on a complaint from a company that can show that they create economic value within the United States—the so-called “domestic industry” requirement.
In practice, the ITC will accept just about anything as evidence of “domestic industry.” Most critically, they’ll accept licensing activity—even if the license was made under threat of litigation and didn’t actually lead to a manufactured product. This allows NPEs that make nothing and don’t contribute to innovation (more on the linked paper in a future post) to bring ITC cases.
SIPCO, unsurprisingly, relies on licensing activity. They’ve previously licensed their patents to Honeywell. Honeywell makes products. And that might just be enough for the ITC.
So the ITC, in theory a defender of American industry against unfair foreign competition, is actually allowing NPEs to target American manufacturers. How do we fix it?
Fixing The Problem
One option would be to pass the “Trade Protection, Not Troll Protection” Act (TPNTP) introduced by Rep. Cárdenas and co-sponsored by Rep. Issa. TPNTP would require that any licensing activity used to prove domestic industry must show how the licensing led to the product, rather than allowing a license taken after the product was released under threat of litigation to suffice. TPNTP would also require that the licensee join in the ITC case. Given that SIPCO relies on an assertion that their licensees make products—an assertion that is questionable at best, and only weakly tied to the patents—they would be far less likely to be able to successfully bring an ITC suit if TPNTP were law.
The second option is far simpler. Bar ITC jurisdiction over patent cases where a defendant is subject to the jurisdiction of the U.S. district courts. Return the ITC to its proper role—handling unfair competition from entities that aren’t subject to the U.S. district courts—and let the district courts handle infringement cases, the way that the courts have done since the first Patent Act in 1790.
- Emerson Electric is over a hundred years old and its history includes being a leading defense manufacturer during World War II; Analog Devices is a bit younger—only fifty—but has been a leading American innovator in semiconductors, including being a premiere manufacturer of the analog-digital converters that take signals out of our analog world and make them into digital data that computers and smartphones can manipulate. ↵