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Patent reforms must also include our trade courts

As Washington comes to the end of the 114th Congress, we are once again faced with the reality that patent reform might not make it across the finish line. The debate about patent litigation abuse is a big one, although not so complex it should be impossible to pass. At the same time, patent litigation abuse is also happening in the nation’s trade court, the International Trade Commission (ITC), where patent assertion entities (PAEs) are gaming and harming the legitimate patent system. At the ITC, the stakes are even higher.

As we continue to take on patent reform legislation, policymakers must also address the parallel problems at the ITC. Thankfully, there is a bipartisan bill in Congress to re-calibrate the ITC’s focus and address  patent assertion entity abuse, jointly introduced by Reps. Tony Cárdenas (D-Calif.) and Blake Farenthold (R-Texas). The bill would limit PAEs’ ability to abuse the ITC as a parallel patent litigation venue – something for which it was never intended.

{mosads}Section 337 of the Tariff Act provides the ITC with the authority to exclude imported goods that infringe on the intellectual property rights of U.S. patent holders. The Commission’s own broad interpretation of its authority to review and litigate these cases, and the potential for it to impose exclusion orders, are powerful threats that PAEs are using to extract significant monetary settlements. In recent years, PAEs have been flocking to the ITC, having discovered that it is a welcoming and effective venue for patent assertion entity cases. A recent example is the case brought against major U.S. employers Apple, HTC, LG, Samsung by Enterprise Systems Technologies of Luxembourg, requesting exclusion of 87% of smartphone suppliers.

PAEs do not participate in trade, nor do they innovate or produce any products themselves. Instead, they assert patents against products independently developed and brought to market by other entities. This business model takes advantage of the uncertainties and costs of patent litigation, both in district court and at the ITC, for the purpose of extracting payouts from existing producers under threat of expensive litigation and exclusion from the U.S. market.

ITC Investigations filed on behalf of PAEs do nothing to protect job-creating domestic industries from unfair trade practices. Quite the opposite, because of abuse, these investigations have caused significant harm to the many different innovative domestic industries and sectors that have been targeted.

These PAE cases have also caused a significant drain on the ITC’s time and resources, including the Commission’s legal and investigative staff, administrative law judges and the Commissioners, due to the increasing number of cases filed by PAEs and the ballooning number of respondents in each case in recent years.

In 2013, the ITC launched a 100 Day Pilot Program that had the potential to curb such abuses. As the Commission noted then, the program was put in place “to test whether early rulings on certain dispositive issues and some section 337 investigations could limit unnecessary litigation, saving time and cost for all parties involved.”

But the program has practically gone unused. Of the 133 investigations instituted since the pilot program began, early determination under the pilot program has been requested by Respondents in 21 cases.  However, the ITC has only directed three investigations into the 100 day program. Had it been used, the program would have provided a formalized process for dismissing warrantless cases, including PAE cases that should never have proceeded in the first place. This would improve the ITC’s efficiency and allow it to focus on the right cases.

The answers are not simple, but we have a good place to start. H.R. 4829 introduced by Cardenas and Farenthold would modernize the ITC’s domestic industry requirement by requiring a party bringing an ITC complaint to have U.S. economic interest that should be using our trade court’s resources. For example, the bill would require a PAE’s licensee to join as a complainant when the licensee’s domestic industry is relied-upon – thereby ensuring that the licensee values the protection sought by the PAE enough to join the investigation itself. It would also allow the ITC to make a public interest determination early in the process, and formalize the Commission’s 100 day rule, helping to avoid costly, resource-heavy cases that should never have proceeded in the first place.

Importantly, these reforms will do nothing to curtail the proper legal rights of any entity – whether an individual inventor or an operating company.

Efforts by Congress to reform to our nation’s patent system will one day be successful. But if these reforms are limited to federal courts, the increasingly different standards at the ITC will make it an even more likely forum for PAEs to sue entities that import products into the United States. This will have the unfortunate effect of requiring the ITC to handle a larger caseload, diverting its resources away from other trade priorities and diverting the Commission away from its intended mission.

Matt Tanielian is the Executive Director of the ITC Working Group, a coalition of companies focused on preventing abusive patent litigation before the International Trade Commission, and a co-founder of the Franklin Square Group.

The views expressed by authors are their own and not the views of The Hill.

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