Another front in the war against patent infringement

By Tam Harbert, Contributing Editor -- 1/30/2008

The International Trade Commission (ITC), an independent federal agency determining import injury to US industries, is fast becoming the new battleground for many high-tech patent infringement cases.

The ITC investigates unfair practices in import trade under Section 337 of the Tariff Act of 1930. Over the last four years, the number of Section 337 cases has doubled, from 18 in 2003 to 35 last year (see table 1 below). Much of that increase is from high-tech companies. And the increase seems to be accelerating. In fact, nine technology companies filed charges at the agency just in the last eight weeks (see table 2 below).

“It’s the electronics industry that’s really taking advantage of the ITC,” said Robert Greene Sterne, founding director of Sterne, Kessler, Goldstein & Fox PLLC, which is among the top 10 patent law firms in the United States. “This is a huge topic of discussion behind closed doors, either with investors or senior management at electronics companies.”

Why the sudden rush to the ITC? There are several reasons, according to high-tech patent attorneys.

For one thing, the increasing globalization of the electronics industry has made more patent infringement cases eligible for a hearing at the ITC. To be eligible to file a Section 337 complaint, companies must meet certain minimum requirements concerning how much of their operations are in the United States. That requirement no longer excludes many foreign-owned companies, which 10 years ago may only have had a sales office in the United States, but which now have more substantial operations, including R&D and perhaps even manufacturing, in this country. On the flip side, many U.S. companies now outsource much of their manufacturing overseas, so their products are subject to import rules. 

“With the increased globalization of manufacturing and software development, more companies are eligible to use the ITC as a forum for adjudicating IP protection issues,” said Carolyn Bostick, VP and general counsel Trend Micro Inc, a provider of security software and hardware. The company, which has its global headquarters in Tokyo and its North American headquarters in Cupertino, Calif., recently filed a Section 337 complaint against Barracuda Networks of Campbell, Calif., and Panda Software International of Spain. The complaint accuses the two companies of importing anti-virus software and hardware that infringe on Trend Micro patents.

Another factor pushing high-tech companies to the ITC is a 2006 Supreme Court decision. In EBay versus MercExchange, the court made it more difficult for “non-practicing entities,” i.e. companies that license technology but do not build their own products, to obtain injunctions against the sale of infringing products. But under Section 337, the ITC can issue an exclusion order, which prohibits the importation of the infringing products. And, better still, the ITC can apply the injunction not only to the companies named in the complaint, but also to any other companies that import the product and even companies that incorporate the infringing component in their product.

“An in rem exclusion order applies to everybody that was infringing the patent, even if they were not part of the ITC case,” noted Sterne. “So you can go after three cell phone companies and potentially take out the whole cell phone industry.”

Indeed, Broadcom demonstrated the power of ITC exclusion orders when it won its Section 337 case against Qualcomm last year. In its order, the ITC banned the importation of several cell phone models that contain the infringing Qualcomm chips. That victory was a watershed and drew worldwide attention to the power of ITC rulings, said Sterne.

What’s more, ITC judges are generally considered to be experts in patent infringement issues because they deal almost exclusively with such cases. Thus, high-tech companies feel they have a better chance at a fair hearing at the ITC than at a district court, where the judge may not be as familiar with patent law and where the case may be decided by a jury.

Section 337 cases also move faster than typical patent-infringement cases in US district courts. While court cases can drag on for years, the ITC has a history of completing investigations and making a ruling within 12 to 18 months. Such speed not only obtains relief for the complainant quicker, it can also mean a lower legal bill for such cases, said Sterne.

Such speed also can be an advantage for the company that brings the complaint, he added. “This is a huge amount of financial and time pressure to exert on a competitor, particularly if the competitor doesn’t see it coming,” noted Sterne.

In addition to the legal preparation, accused companies typically launch a defensive design effort. “An importation ban is such a huge penalty that most of them will immediately starting designing a work-around in case the ITC ruling goes against them,” said Sterne. “So it costs the respondent a major amount of lost revenue and lost opportunity costs” even if they are ultimately successful in proving that their product does not infringe.

But Trend Micro’s Bostick said that speed can also be a disadvantage, even for the complainant, because it leaves only a few months for the discover process. Although the legal team can do a certain amount of preparation before filing the complaint, “you can’t get the nitty-gritty details of the other side’s hardware and software, you can’t depose the engineers and find out how things really operate,” until after the filing, she noted.

Table 1: Steady rise in Section 337 ITC cases

Year	Number of cases
2003	18
2004	26
2005	29
2006	33
2007	35

Source: ITC


Table 2: High-tech rush on the ITC
Section 337 cases filed by high-tech companies, Dec. 1, 2007, to Jan. 18, 2008

Complainant	Respondents
Tessera	more than 10 companies
Knowles Electronics	Mems Technology Berhad
IBM	ASUSTeK Computer
Seoul Semiconductor	Nichia
Bose	Six companies
Trend Micro	Barracuda Networks and Panda Software
FormFactor	Four companies
SanDisk	More than 30 companies
Acer	Hewlett-Packard

Source: ITC

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