ITC: The New Venue of Choice for Patent Litigation?

Question: what parts of the US government are most concerned with patents? Easy answer: the USPTO. Extra credit if you named the Federal District Courts, the venue for patent disputes. In the past, those might have been the only answers, but you'll now get an extra star on your test paper if you mention the International Trade Commission.

The ITC has been grabbing far more headlines than the USPTO, at least in the technology and business sections. Most recently, it's the back-and-forth between Motorola Mobility and Microsoft.
In Dec 2011, Microsoft brought Motorola to the ITC over a lapsed Exchange ActiveSync license, which earned the offending products an import ban, followed by a 60-day review, and -- just this past week -- a new appeal. 

Back in Nov 2010, Motorola went after Microsoft over certain patents used in the Xbox 360, and the preliminary findings supported the claim of infringement. Before the ITC made the jump to banning Xbox 360 imports, however, the Commission decided to remand the decision until at least August. The sticking point was the issue of Fair, Reasonable, and Non-Discriminatory (FRAND) use, the "standards-based" patents which the ITC admits is someone else's specialty. "The opinion of one ITC judge on a FRAND defense is, in my opinion, far less meaningful than what federal courts and antitrust regulators say." 

Indeed, the distinction between the ITC and the "classic" patent assertion / litigation venues have become blurred. Many people -- including a number of corporate leaders and US Congressmen -- feel that this is the result of opportunism by patent trolls and other entities looking to escalate the already raging patent wars.

Who is the ITC?

The International Trade Commission has been around for nearly a century, although for the first 60-odd years it was known as the US Tariff Commission. Indeed, tariffs still form a central part of the agency's mission, and the main role is to advise the President and Congress on matters of international trade.

Even the header of the official ITC website puts "independent" in quotes, indicating, at the very least, that the site designer has a taste for irony. The more pertinent term is "quasi-judicial" (the quotes in this case are mine alone), meaning that the ITC is not a court per se, but has dedicated administrative law judges who conduct multi-party administrative hearings. It is not only for simplicity's sake that we can regard an ITC ruling as carrying the same judicial weight as a District Court decision.

Winning in a District Court results in an injunction and/or an award of damages; winning at the ITC results in an import ban. Perhaps the fact that the ITC cannot award damages is a rationale for the "lower bar," meaning that getting an ITC decision is almost always a comparatively quicker and easier process. In other words, "ITC cases are 10 times more likely to go to trial than a district court patent infringement case."  

"Double dipping?"

Many companies (an estimated two-thirds) which seek an ITC ruling on patent disputes have also taken the more "traditional" route of filing suit in District Courts over the very same alleged infringement. This is not a result of the redundancy of bureaucracy, but rather an overlap of jurisdiction -- and one that is potentially suited for abuse.

The ITC's power to impose a ban on the import of a product could be a potential death sentence for tech with a short consumer lifespan, especially mobile devices. While a company scrambles to remove, replace, or license the patented function in question, the interruption in supply could have catastrophic effects on sales and consumer interest.

In the case of Motorola, the affected models are largely candidates for the legacy and discount end of the product spectrum, so the company probably feels that they've already imported as many as they'll need (perhaps one of the "protective measures" that Motorola referred to). On the other hand, the ruling will make Motorola think twice about newer and more high-profile products that could depend upon ActiveSync, or some other Microsoft license.

An import ban is powerful leverage for a company that is primarily seeking a settlement rather than a decision. Even the threat of conducting separate defenses for District Court and the ITC may be enough to convince a defendant who may be otherwise confident in their case but concerned about resources.  This makes the ITC a very attractive venue for companies whose only goal is to create revenue from patent holdings -- in other words, patent trolls.

The Congressional Objections

Senate Judiciary Committee Chairman Patrick Leahy (D-VT) called a July 11 committee hearing over the issue, which was attended by members of the Department of Justice and the Federal Trade Commission -- but, oddly enough, not from the ITC. "I am concerned that the recent trend of seeking exclusion orders from the International Trade Commission, rather than negotiating and seeking license fees, may have the opposite effect." Leahy wrote.

The Senate hearing specifically addressed standards-based FRAND patents, but the July 18 hearing by the House of Representatives Subcommittee on Intellectual Property, Competition and the Internet was more broad in scope. Ford and Cisco were among the corporate entities called to argue against the current use of the ITC in IP disputes, and the hearing also paid specific attention to the topic of patent trolls (or non-manufacturing entities, if you want to be nice).

Subcommittee Chairman Bob Goodlatte (R-Va.) made specific mention of the increase in ITC cases brought by patent trolls, as well as the number of defendants that are named in such cases. "This begs the question of whether certain parties are flocking to the ITC in the wake of the stricter joinder rules and other provisions enacted as part of the America Invents Act," Goodlatte said.

So What Comes Next?

Interestingly, at the House hearings, Rep. Darrell Issa (R-Cal) turned the question around, saying that the ITC surge could also be addressed by improving the efficiency of case handling by the District Courts. In other words, make the appropriate venue better, rather than only worrying about how to limit access to the inappropriate venue. While this would certainly be a sensible approach to deal with the perceived advantage of the ITC's speedy decisions, it does not directly address the question of abuse -- among other things, a speedier Federal court is the last thing that a company wants if they're trying to pressure their opponent to settle.

The ITC is certainly aware of a need for change, but its own most recent proposals [pdf] seem to value even more expediency via a more strict limit on the total number of depositions. This would make the ITC even more attractive to companies looking for a faster and less-informed ruling, putting even more pressure to bear on opponents in the more thorough and concurrent District Court cases.

Patent litigation isn't exactly the "sexiest" issue in front of the voting population, but it's safe to expect that something significant will occur just before or just after the November elections. This could take the form of a change in ITC policy, a chance in Congressional policy, or merely a more strict application of existing guidelines. For the time being, however, the patent wars will continue to escalate, and the ITC battleground will see more casualties and victors than ever before.