Lawmakers question patent complaint process at ITC

Some witnesses call for Congress to change the way the agency hears patent disputes

The U.S. Congress should limit the ability of patent holders that don't make products to file infringement complaints at the U.S. International Trade Commission because of a huge increase in cases there, representatives of some companies told lawmakers Tuesday.

Patent assertion entities (PAEs), companies that own patents but don't make products, are using the patent complaint process at the ITC to "coerce settlements" from other companies, said Russell Binns Jr., associate general counsel at networking vendor Avaya. In many cases, PAEs -- often called patent trolls -- don't want the ITC to use its power to bar the importation of infringing products, but instead, they want to use the ITC to drive settlements in corresponding court cases, he said.

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Patent complaints are costing U.S. companies billions of dollars, Binns told the U.S. House of Representatives Judiciary Committee's intellectual property subcommittee.

"PAEs have discovered that the much lower bar for obtaining exclusion orders at the ITC gives them tremendous leverage to demand outrageous licensing fees -- even as they pursue cases in federal court," he said. "This often leads to companies being left with little choice but to give in to PAE demands, resulting in truly wasted capital, higher costs for consumers, and barriers to American innovation."

The number of so-called section 337 complaints filed at the ITC during the past decade is triple the number from decades before, said Rep. Howard Coble, a North Carolina Republican. "The cost to defend [a patent complaint] far outweighs the cost to accuse," he said.

The ITC can unleash the "ultimate punishment" against alleged infringers by barring their products from import into the United States, Coble said.

More than 90 percent of patent infringement cases at the ITC in 2012 had a corresponding court case elsewhere, added Colleen Chien, an intellectual property law professor at the Santa Clara University School of Law.

"The freedom of PAEs to litigate has created serious issues for the patent system," she said. "Scads of entities that have nothing to do with the patent system -- retailers, bakeries, funeral homes, advertising firms, and even politicians -- are getting sued and receiving demand letters."

Some subcommittee members suggested they are looking for ways to limit the number of patent complaints filed at the ITC. Chien called on Congress to prohibit companies from having patent infringement lawsuits in court while they have an active complaint at the ITC. Congress should limit patent infringement complaints against users of potentially infringing technologies, she added.

Other witnesses called on Congress or the ITC to tighten the definition of companies eligible to file ITC complaints. PAEs should not qualify as domestic industries that can file the complaints, he said.

But other witnesses questioned whether major changes are needed. Since 2006, the ITC has issued 50 exclusion orders to keep infringing products out of the United States, and only four of those orders came on behalf of companies that could be classified as PAEs, said Deanna Tanner Okun, former chairwoman at the ITC. The agency has taken several steps to reduce abuses of the complaint process, she added.

The ITC "provides an effective remedy to combat the pervasive problem of infringing imports, thereby providing essential protection" to U.S. companies, she said.

Kevin Rhodes, chief intellectual property counsel at 3M, agreed. A focus on the PAE business model overlooks patent abuses by companies that make and sell products, he said.

The labeling of patent holders as PAEs runs "the risk of penalizing independent inventors, universities, startups, technology licensing firms, and others legitimately seeking to exploit their patent rights through litigation of entirely meritorious claims," he said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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