Parallel ITC Investigation and District Court Proceedings: Be Careful What You Ask For.

Since the Supreme Court’s decision in eBay made it more difficult to obtain injunctive relief in district court proceedings, patent owners have given more attention to the International Trade Commission ("ITC") and have used parallel district court litigation and ITC investigations to pursue both money damages and injunctive relief.  A recent initial determination terminating the ITC investigation In the Matter of Certain Video Displays, 337-TA-828, highlights a potential pitfall with this approach. 337-TA-828, Order No. 9, August 1, 2012. 

In Certain Video Displays, complainant Mondis sought an exclusion order from the ITC against certain TV’s and Video monitors.  The asserted patents were previously asserted successfully against the respondents in the ITC action in an earlier district court case, Mondis Technology Ltd. v. LG Electronics, Inc. et al., 07-CV-565 (E.D. Tex.).  In this district court action, a jury found that the defendants willfully infringed Mondis’ patents and awarded damages.  In a post-trial motion, Mondis sought equitable relief in the form of ongoing royalties but did not seek an injunction from the district court.  After motion practice, the district court ultimately ordered the defendants to pay on ongoing royalty to Mondis for continued sales of the accused products.  Respondents’ motion before J. Essex at the ITC argued that the payment of the court ordered ongoing royalty was effectively a license and that sales subject to that royalty were not an act of infringement.  Judge Essex agreed, stating that “the ALJ finds that the ongoing royalty order constitutes a license authorizing CMI to use the asserted patents’ claimed inventions for the products covered by that the [sic] ongoing royalty order.”  Order at 21.  

This result sends a cautionary message to plaintiff/complainants that are pursuing parallel proceedings.  If injunctive relief is an ultimate objective of patent enforcement, it may be beneficial to run with the ITC investigation ahead of the district court case.  (Since ITC actions are typically significantly faster than district court litigation, this generally occurs by default when the actions are filed simultaneously, as is often the case).  As J. Essex noted, “in this case, the order [of cases] does matter,” since the district court’s ongoing royalty order effectively stripped the ITC of jurisdiction.  Order at 20.   If, for strategic reasons, the district court case does proceed first, the nature of any post trial relief from the district court needs to be given significant consideration.  For example, the plaintiff may forego ongoing royalties entirely or it may be possible to fashion the scope of the ongoing royalty Order in a way that would not foreclose a subsequent ITC action and exclusion order.  For example, the plaintiff may seek a short “sunset” royalty that only allows the defendant to continue sales for a short period of time and then expires.  Alternatively, the plaintiff may seek a provision in the district court order that discontinues ongoing royalty payment obligations in the event an ITC action is initiated and during the pendency of any ITC action.  

ITC on 337 Cases – No NPE Problem Here?

In the wake of substantial lobbying by many companies in the tech sector to limit ITC jurisdiction to prevent non-practicing entities (NPEs) from initiating 337 actions, the ITC published a press release, Facts and Trends Regarding USITC 337 Investigations.  This "fact sheet" presents some interesting data on recent trends in ITC 337 investigations and spins it in a way that suggests that there is no NPE problem at the ITC (and implying that no remedial action by Congress is required.)   

The data illustrates a clear uptick in the ITC’s case load, including NPE activity, since the Supreme Court’s 2006 EBay decision.  It also shows that, while perhaps not dominating the docket, NPE activity represents a significant portion of the ITC’s docket.  In fact, since 2006, 18% of ITC investigations were brought by NPEs, with what the ITC refers to as “category 1” NPEs (such as universities) accounting for 10% and “category 2” NPEs (patent investors/enforcers, sometimes called the not-so-nice term “trolls”) accounting for 8% of the ITC's 337 case load.  This doesn’t seem too imbalanced at first blush.  But, when one considers all of the enforceable IP rights in the U.S. that could form the basis of an ITC complaint, Category 2 NPEs must own or control some minuscule percentage of those rights.  As a percentage of IP ownership, it can certainly be argued that Category 2 NPEs do in fact represent a disproportionate share of the ITC docket.

With respect to settlements, the ITC data illustrates that on average, about 50% of all 337 investigations are terminated by settlement or consent order prior to completion of the investigation.  Category 2 NPEs show a somewhat higher settlement percentage, at 61 %.  This should not be too surprising, though, since the Category 2 NPE business model is one that ultimately seeks monetary compensation from patent enforcement efforts.  Injunctive relief, such as an exclusion order, only has value to a Category 2 NPE as a source of leverage in maximizing a financial return, not as the ultimate relief obtained.  

The ITC data is nicely presented in a short (four page) fact sheet and is worth a look, even if you don’t agree with the ITC’s spin on the data.  The data is certainly not so compelling as to prove that there is no NPE problem at the ITC or otherwise end the debate as to whether the ITC's domestic industry requirement should be limited in such a way as to foreclose NPE access to the ITC.