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US Lawmakers Question If Patent Holders Are Abusing USITC Process

Patent licensing firms that can't get satisfactory results in patent infringement cases in U.S. courts are abusing a patent complaint process at the U.S. International Trade Commission that can lead to products made by U.S. companies being excluded from sale in the country, some U.S. lawmakers suggested Wednesday.

Several members of the U.S. House of Representatives Judiciary Committee, along with representatives of Cisco Systems and Ford Motor Co., raised concerns about the number of patent complaints being filed at the USITC in recent years. The USITC's section 337 process, intended to protect U.S. companies against foreign companies selling infringing products inside the country, is being used against U.S. companies, Colleen Chien, a law professor at Santa Clara University, said during a hearing of the committee's intellectual property subcommittee.

In section 337 cases, a company filing a patent infringement claim can seek an injunction to have the defendant's infringing products barred from import into the U.S. But in the past year-and-a-half, patent-owning companies that don't make products -- what Chien called patent "trolls" -- have brought more than 330 infringement cases at the USITC, with more than 60 percent of the cases targeting U.S. companies, she said.

"Even though you think of the ITC as wanting to protect American companies, often it's being used against them," she said.

Cisco spent more than US$13 million defending itself against a 2011 patent infringement case at the USITC brought by a Canadian company with one U.S. employee, said Neal Rubin, Cisco's vice president of litigation.

A 2006 Supreme Court decision made it difficult for patent-holding firms that don't market products to obtain product injunctions in U.S. courts, Rubin said. Instead, they're now turning to the USITC for injunctions, he said.

The USITC has continued to recognize the patent claims of firms engaged in "revenue-driven licensing" instead of the manufacture of products, he said. Those companies do not "design, develop, sell or import any products," Rubin said. "Their efforts merely raise the price of existing products."

Rubin called on Congress to limit the ability of nonpracticing patent holders to bring cases at the USITC.

A representative of the USITC didn't immediately return a message seeking comment on the House hearing.

Several members of the subcommittee voiced concerns about the USITC's section 337 process. Companies are increasingly turning to the USITC with patent complaints, said Bob Goodlatte, a Virginia Republican and subcommittee chairman. In 2010, there were 22 defendants at the USITC in cases brought by companies holding patents but not commercializing them, but in 2011 there were 232 such defendants, he said.

Tech companies seem to be engaged in a patent war playing out at the USITC, added Representative Mel Watt, a North Carolina Democrat. In recent years, large tech companies have been paying billions of dollars to expand their "patent arsenals," he said. Patent holders may be using the threat of a USITC exclusion order as an unfair negotiation tool in licensing discussions, he said.

Nonpracticing patent holders may "find the ITC a more favorable form to extract undeserved settlements," Watt said.

Watt suggested that Congress or the USITC implement a process for penalizing companies that bring unwarranted patent cases before the agency.

Not everyone at the hearing raised concerns about the USITC process. While there's been a growing number of patent cases at the agency, that reflects the growing importance of patents and not an abuse of the system, said Bernard Cassidy, general counsel at Tessera Technologies, a California micro-electronics firm.

The USITC patent process protects U.S. companies, and the agency's process shouldn't copy patent-infringement lawsuits in U.S. courts, he said. "We believe that the long-term interest of our innovation-based economy outweighs the near-term interests of a few, important companies," he said.

Cassidy questioned whether the USITC should limit patent holders from filing complaints against U.S. companies. In the modern, multinational economy, it would be difficult for the agency or Congress to draw a line between a U.S. company and a foreign one, he said.

"The world has changed," he said. "Every manufacturer, virtually, imports. We'd have to look very carefully at who is an American company and what rights come with that."

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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