Dragging in the Domestic Industry

Section 337 prohibits the importation of patent-infringing products "only if an industry in the United States, relating to the articles protected by the patent . . . exists or is in the process of being established."  Complainants at the ITC usually satisfy this requirement by pointing to their own investments in designing or manufacturing a product that practices the patent. 

Satisfying the domestic industry test is more complicated for patent owners who license their rights to others instead of producing a product.  These complainants can show a domestic industry through their own domestic actions taken toward developing and licensing the technology, or they can show it through the domestic investments of a licensee that produces a product practicing the patent.  

In most cases, allowing the investments of a licensee to count for domestic industry is perfectly reasonable.  It makes no difference from a policy perspective whether a domestic industry protected by Section 337 is operated within an organization that owns the patent rights or one that licenses them from a separate business entity.  

An interesting problem arises, however, when the licensee is not a willing participant in the investigation.  This is possible because the ITC allows complainants to prove the existence of a domestic industry through subpoena.

Such is the case in LTE- and 3G-Compliant Cellular Communication Devices—a new complaint filed on September 13 by INVT SPE LLC against Apple, HTC, and ZTE.  INVT is a patent licensing company that acquired a number of patents from someone who acquired them from Panasonic who, it appears, had granted a license to Samsung. 

For domestic industry, INVT is relying on Samsung's investments toward developing 3G and 4G smartphones in the United States.  Samsung will be required by the Commission, at its own expense, to provide documents and other evidence of its investments (including confidential business information) for use by a patent troll.

Allowing complainants to establish domestic industry by subpoena against the wishes of that industry doesn't serve any recognizable trade policy goal. If a company is being harmed by unfair competition in the form of patent infringement, they can always join the patent owner as a complainant.

By forcing domestic industries to cooperate with an investigation, the ITC is acting against the interests of that industry to help non-practicing entities bypass unfavorable rules in federal court.

Because INVT is a non-practicing entity asserting standard-essential patents, there is virtually no possibility it could secure an injunction from a court applying the eBay test for equitable relief (requiring, for example, irreparable harm).

INVT is in the business of monetizing its patent rights, but the ITC can't award monetary damages or ongoing royalties—injunctive relief is the only remedy available.  The sole value of an exclusion order for INVT is in its ability to force an excessive settlement. And INVT's greatest hurdle to securing an exclusion order is the domestic industry test.

This isn't simply a question of whether non-practicing entities should be able to bring complaints at the ITC.  It's a question of whether a trade law meant to protect domestic industries from unfair competition should be a tool for NPEs to harm domestic industries.  The irony here is that the licensee is only subject to this burden because of its domestic investments in producing a domestic industry product.  

This is also just the sort of case that would be weeded out by reforms proposed in the Trade Protection Not Troll Protection Act.  Under that bill, Section 337 would require that any licensee relied on for domestic industry purposes must also join the investigation as a complainant.  This change would prevent licensing entities from abusing the domestic industry through an ITC investigation without eliminating their ability to seek relief by depending on cooperative licensees.