With the American republic having just had its 245th birthday, let’s take a look at an agency that’s charged with regulating trade with foreign countries, encouraging American industries, and protecting American labor.
I’ve previously criticized the International Trade Commission (International Trade Commission) for having gone from being a trade court protecting U.S. domestic industry to being a specialist patent court that protects patent owners, regardless of whether they’re American and regardless of whether the defendants are American. And, as I found when reviewing International Trade Commission cases, the facts show that while the “typical International Trade Commission case” is described as having “a domestic complainant [plaintiff] and a foreign respondent [defendant],” the reality is quite different.
I took a list of all International Trade Commission cases that were filed in 2020 from the ITC’s data. I then hand-coded each case for whether it had at least one U.S. complainant and/or at least one foreign complainant. (Obviously, if there’s at least one foreign complainant and no U.S. complainants, then all complainants are foreign, so this lets us detect the mix of foreign/U.S. complainants at the International Trade Commission.) I also examined if the U.S. complainants were counterparts to foreign entities. For example, Philips has a U.S. presence, but it’s a Dutch corporation, so if Philips U.S. was the complainant, this would have been coded as a yes.
Similarly, I coded the set of respondents based on whether all were U.S. owned or all were foreign. I also looked at the corporate relationships to determine if all foreign respondents had U.S. counterparts—for example, Nintendo (Japan) and Nintendo of America. This is important because those cases could have been brought in U.S. district courts against at least the U.S. entity, if not both. (And in fact, such suits are often filed in parallel to the International Trade Commission actions.)
Finally, for each case, I coded for patent-assertion entity (Patent Assertion Entity. A narrower term for trolls that focuses on the core business model rather than whether the entity is actually making use of the patented technology ("working the patent").) status. This was intentionally rigid—it omits non-practicing entities (Non-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More) like universities and operating companies who do not themselves practice the relevant patent (e.g., Nokia or Maxell). Only entities that acquire patents for the purpose of litigation were coded as yes—what the ITC itself would code as a “Category 2 Non-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More.”
There were 57 cases filed at the International Trade Commission in 2020. Of those cases, there were 3 with purely foreign respondents and 13 with purely domestic respondents, leaving 41 with a mix of respondent nationalities. So the “typical” International Trade Commission case isn’t against only foreign companies—instead, typically there’s a mix of foreign and domestic respondents. And about 23% of all cases involved solely domestic defendants—the opposite of what’s seen as a “typical” International Trade Commission case!
That leaves 41 cases where the respondents were a mix of foreign and domestic entities. If we look at those 41 cases in more detail, 29 cases had purely American complainants and mixed respondents. But of those 29 cases, in 16 of them, all foreign respondents had U.S. counterparts. For example, a case naming both LG (Korea) and LG (U.S.) as respondents is coded as mixed, but all foreign entities have a U.S. counterpart amenable to suit in U.S. district courts.
Again looking at the 41 cases, 24 cases had mixed respondents with all respondents having U.S. counterparts. (The 8 additional cases here over the 16 just described are cases with mixed complainants as well as mixed respondents.)
And looking in more detail at the 13 cases with purely American respondents, 11 of them were filed solely by American complainants. That means that the ITC—the International Trade Commission—is adjudicating cases between two American companies, cases that should have gone to a U.S. district court instead.
And the “typical” International Trade Commission case, with U.S. complainants and foreign defendants? 2 cases out of 57. I don’t think 3.5% of all cases qualifies as typical. For that matter, there were 4 cases filed by purely foreign complainants against mixed respondents—twice as many as the so-called “typical” International Trade Commission case.
Finally, with respect to Patent Assertion Entity. A narrower term for trolls that focuses on the core business model rather than whether the entity is actually making use of the patented technology ("working the patent"). status, I located 6 cases in 2020 filed by pure patent assertion entities. Those were filed by Solas (2), Neodron, DivX LLC, Q3 Networking, and Pictos. DivX LLC is a Fortress subsidiary. (You might remember Fortress as the private equity company that funded a Patent Assertion Entity. A narrower term for trolls that focuses on the core business model rather than whether the entity is actually making use of the patented technology ("working the patent"). that used Theranos patents to go after COVID-19 test technology early in the pandemic.) Q3 Networking is an IP Edge company. (They also went after COVID-19-related technology—in this case, ventilators.) And Pictos used to be called Imperium IP Holdings, headquartered in the Caymans—but they changed their name to pretend they had a connection with the company whose patents they acquired. (In reality, Pictos seems to be controlled by Vincent Capone, a private equity partner at Michaelson Capital, which appears to have heavily funded Imperium IP/Pictos.) Solas and Neodron are projects of Jerry Padian, who also operates Realtime Data, a prolific PAE, and both are headquartered in Ireland.
So that’s 6 Patent Assertion Entity. A narrower term for trolls that focuses on the core business model rather than whether the entity is actually making use of the patented technology ("working the patent"). cases. Three were filed by foreign entities and three are vehicles for private equity firms to make money. It’s unclear why the International Trade Commission claims it only saw 3 PAE-type cases in 2020—all six of these are clear cases of patent acquisition in order to assert.
The International Trade Commission doesn’t seem to be widely used for cases where a solely foreign company is going after solely American companies at the International Trade Commission. But there does seem to be a common theme: the “typical” International Trade Commission case of an American company using the International Trade Commission to protect itself against foreign companies is anything but typical.
And the International Trade Commission isn’t being used because the remedy it provides—exclusion from importation—is needed in order to reach infringement that would otherwise be impossible to redress. In half of all International Trade Commission cases in 2020, all involved parties could have been hailed into U.S. district court for the alleged patent violations. In nearly a quarter of them, there were no foreign parties involved at all. The International Trade Commission was never supposed to replace U.S. district courts, but that’s what at least some complainants appear to be trying to use it for.
And while Patent Assertion Entity. A narrower term for trolls that focuses on the core business model rather than whether the entity is actually making use of the patented technology ("working the patent"). usage of the International Trade Commission hasn’t yet become a majority of cases—unlike the Western and Eastern Districts of Texas, the other favored forums for patent assertion—they continue to make up a strong sub-component of the ITC’s caseload.
The International Trade Commission needs change. It should lose its current jurisdiction over cases that U.S. district courts could properly (and easily) handle, making sure defendants with a U.S. presence receive all of the process and remedy protections that district court cases provide.
And at the very least, especially given the focus in Congress on protecting U.S. industry, the International Trade Commission needs something like the bill introduced by Reps. DelBene and Schweikert last session. The Advancing America’s Interests Act would help ensure that PAEs and other entities that don’t have any actual U.S. presence can’t sue in the International Trade Commission. It would also bar the practice of “domestic industry by subpoena,” where a company which doesn’t have its own U.S. industry forces a company that does to take a license under the threat of litigation. Then, once that licensee has signed up, the patent owner forces the licensee to pay for lawyers and disclose technical information in the International Trade Commission, all on behalf of the same company that threatened them with litigation to get them to pay for a license in the first place. Even just ending these two practices would significantly improve the situation for U.S. industry at the International Trade Commission, limiting their exposure to PAEs funded by private equity and letting companies that take a license not worry about being hauled to the International Trade Commission to support someone else’s financial interests.
The coded data used for this analysis is available upon request.