Sunday, October 3, 2010

The US International Trade Commission as a patent enforcement agency

Microsoft lodged its patent infringement complaints against Motorola with a "traditional" court (namely, the US District Court for the Western District of [the State of] Washington) as well as the US International Trade Commission (USITC, or often also referred to as ITC). The USITC has in recent years also become an important forum for patent infringement disputes but many of you may not have been aware of it until recently.

You may remember that Apple's infringement action against smartphone vendor HTC, which also takes aim at Google's Android smartphone operating system, was also filed (in March) with a court plus with the USITC. In May, HTC brought its own complaint against Apple before the USITC (not in court at that point).

So why do some companies take their patent complaints to the USITC, additionally or alternatively to a court of law? What implications does this have for the patent infringement suits surrounding Android? I'll explain.

A "quasi-judicial federal agency" that can exclude infringing products from entry into the US

On its website, the USITC describes itself as an "independent, nonpartisan, quasi-judicial federal agency". The term "quasi-judicial" means that it's very similar (but not identical) to a court of law.

Its court-like functions are only a subset of the USITC's activities. The USITC also conducts studies and statistical analysis and provides advice to the President of the United States regarding trade issues. Those functions complement the work that is done by the Department of Commerce and the Department of Agriculture. The USITC itself is, unlike those government departments, not a policy-making body, nor does it negotiate trade agreements with other countries.

The USITC describes its quasi-judicial role as follows:

The USITC makes determinations in investigations involving unfair practices in import trade, mainly involving allegations of infringement of U.S. patents and trademarks by imported goods. If it finds a violation of the law, the USITC may order the exclusion of the imported product from the United States.

The last sentence shows that the USITC really has teeth: it can order an import ban on products infringing patents (or trademarks, but let's focus on patents here).

The effect of such a ban is that any further attempt to import the relevant products can be stopped. Banned products can be seized at customs or after already having entered the market.

A fast track for US patent holders -- subject to certain requirements

If you're a US patent holder and meet certain requirements, the USITC can save you a lot of time when you seek an injunction against an infringer. In a court of law it will take you several years from filing to (all going well for you) an injunction. How many years depends on many factors, but it's most often a much longer time than the roughly 18 months within which you can prevail in front of the USITC.

If you meet the USITC's requirements, you can lodge a complaint with it in addition to a court proceeding. This makes sense, especially since the USITC isn't a full-fledged court. If it orders an import ban, such decision has an effect similar to an injunction ordered by a court. But a court of law can do more, such as ordering the payment of damages.

Similarly to a first-instance court, an USITC decision can also be appealed. Patent infringement matters can be brought before the Court of Appeals for the Federal Circuit (CAFC).

I said before that an import ban is similar to an injunction. The key difference is that it only relates to imports of goods from other countries. Unlike an injunction, it doesn't affect vendors who manufacture their products (or have them manufactured) within the US. In a market such as smartphone, in which almost everyone (even a household US name like Motorola) manufactures outside the US for cost reasons, an import ban is almost as powerful as a court injunction. By contrast, in a market like enterprise software, production either takes place in the US or could be relocated there easily in order to circumvent an import ban.

Not only can a USITC proceeding relate only to imported goods but a complainant also has to prove competitive harm. This means in particular that you must show that you actually practice, in the US market, the inventions protected by the patent claims you assert (such as by selling products that make use of them), and you must show that you compete with the infringer.

The USITC's role in the three patent infringement cases involving Android

I mentioned before that Apple was the first one to bring an Android case before the USITC. The patents Apple is asserting in a Delaware court are an entirely different group from the ones used in its complaint with the USITC. Microsoft, however, is asserting identical sets of patents in either forum, which is the most forceful method to begin with.

In between Apple's and Microsoft's filings, Oracle initiated its patent infringement suit against Google in a California court. That one relates to Dalvik, the virtual machine on which all (or almost all) Android apps run.

Unlike Apple and Microsoft, Oracle did not lodge a complaint with the USITC. It's not that Oracle lacks determination. While Apple and Microsoft assert their rights against vendors of Android-based smartphones, Oracle decided to pursue Google itself. Under patent law, Google can indeed be held responsible for all infringements resulting from its publication of Android. Oracle goes straight to the source (from a free and open source software point of view, that's actually scary). But it's also possible to pursue vendors. Theoretically, even commercial users of infringing goods could be sued.

For the USITC, however, Google wouldn't be an acceptable target because it isn't (anymore) a vendor of imported Android-based phones. If Oracle wanted to, it could additionally lodge complaints against vendors importing Android-based phones. I wouldn't be too surprised if that happened. Assuming that Google doesn't work things out with Oracle in the near term, that would be a way for Oracle to increase the pressure.

The Open Invention Network wouldn't have access to the USITC

Finally, let's also look at the Open Invention Network (OIN) in connection with the USITC. Since both Oracle and Google are OIN licensees, many people have begun to realize that the OIN doesn't serve its stated purpose of protecting Linux against patent infringement assertions.

The OIN previously made completely unconvincing claims about having deterred Microsoft from enforcing patents in a Linux context. The fact that such companies as, and TomTom announced that they pay royalties to Microsoft is yet another indication that the OIN just doesn't work.

Now in connection with Microsoft vs. Motorola, the question of the OIN's effectiveness will be brought up again. It's worth noting that the OIN, a patent-holding company that doesn't practice its inventions, wouldn't be able to satisfy the USITC's domestic industry requirement. The OIN grants licenses but without generating revenues, likely without significant expenses in general, and it doesn't litigate. According to recent ITC jurisprudence, a licensing company needs to prove expenses in connection with licensing, and litigation expenses are considered an essential type of expenses for that purpose.

Given that the USITC is the fastest track to an injunction, this further limits the OIN's effectiveness.

In a court of law, the OIN wouldn't be able to obtain an injunction either. Under the Supreme Court's eBay vs. MercExchange ruling (which I discussed in this posting on Paul Allen's patent infringement action), the OIN would not be able to pass a critical four-factor test. It could seek indemnities, but it couldn't disrupt an opponent's business.

So there are also procedural reasons, in addition to other explanations, for which the OIN is unable to change the calculus of major right holders like Apple, Oracle and Microsoft. The USITC and its recent popularity is part of that consideration.

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