This morning, the U.S. Court of Appeals for the Federal Circuit heard an oral argument in the case Comcast v. International Trade Commission. Though the case itself involves niche matters of patent law, the argument revealed to me a concerning lack of interest in the proper boundaries of federal agencies, and will be an important marker for the proper role of the administration in many potential cases to come.
The case arises out of a dispute between Rovi, a successor to TiVo that holds a portfolio of patents on cloud-based DVR recording technology, and Comcast, who operates cloud-based DVR systems for its customers. Rovi accuses Comcast of “inducing” patent infringement by directing customers to use their phones to schedule DVR recordings in a way that is covered by Rovi’s patents.
While Rovi could have simply filed a case in the federal courts to vindicate its patents, Rovi instead went to a federal agency, the U.S. International Trade Commission, to seek relief. My colleague Bill Watson has described the case well in an article and a paper from last year, but the upshot of Comcast’s argument is as follows. The ITC has authority to block “importation into the United States…of articles that…infringe a valid and enforceable United States patent.” Rovi asks the ITC to block importation of Comcast’s set-top boxes in view of Rovi’s cloud DVR patents.
The problem is that the set-top boxes are not “articles that…infringe” any patents, and Comcast doesn’t perform any “importation” of those set-top boxes. The infringing “article” is the cloud-based system that is entirely run in the United States, and the importation is done by two contract companies, Arris and Technicolor, not Comcast.
Comcast’s attorney Donald Verrilli, former Solicitor General of the United States, forcefully made those two points in the argument today. As he explained, more than 99 percent of the set-top boxes that Comcast operates are used in ways totally unrelated to Rovi’s patents—scheduling a DVR recording from an on-screen menu, for example—so the ITC’s power to exclude Comcast’s set-top boxes from importation is wildly disproportionate to the infringement that actually occurs. He further explained that it was the “system”—the cloud-based servers fixed within the United States—that infringed Rovi’s patents, as distinguished from the set-top boxes that were the subject of importation and the ITC’s investigation. Given the ITC’s limited adjudicatory role over “importation” of “articles” that “infringe,” Mr. Verrilli contended that the ITC had overstepped its bounds by issuing an exclusion order against the non-infringing “staple article” of set-top boxes, since the order directed to a company that does no importation.
The lawyers for Rovi and the ITC, Jeffrey Lamkin and Sidney Rosenzweig, in contrast, argued against any such constraints on the ITC’s powers to police patent infringement. They argued that Comcast’s overall “end-to-end control” of the patent-infringing system meant that the ITC was free to inject itself into any part of that system and exercise its exclusionary powers. And while they suggested that the ITC could theoretically take steps to tailor its exclusion orders in other cases, the Rovi and ITC attorneys largely seemed to embrace an expansive view of the ITC’s authority, suggesting that the limitations of the statutory language ought to be read broadly to reach a wide range of patent infringement acts not necessarily constrained by traditional notions of importation and trade.
Two moments in particular struck me during the argument. The first was when Mr. Rosenzweig for the ITC was arguing for the aforementioned expansive view of the agency’s powers, at which point he suggested that the ITC’s job should not turn on the nuances of trade law: “it’s about preventing unfair acts.” Full stop. This is bizarre coming from a federal agency with the word “trade” in its name. And it recommits a mistake I remember from the ClearCorrect v. ITC case, where the ITC quoted a portion of legislative history saying that the Commission was tasked to deal with “unfair methods of competition,” omitting (without ellipses!) that the next words in that sentence were “in the importation of goods.” The ITC has long been trying to shove off its statutory restriction to trade cases, and the Comcast oral argument continues to exemplify a federal agency that seeks to sidestep Congress and expand its jurisdiction.
The second moment was a question posed to Mr. Verrilli in rebuttal. Judge Reyna, holding a pen as a demonstrative, remarked that it would be unfair for a company to import a product in parts (holding the pen and cap apart), and then put it together domestically, forcing the patent owner to “take its chances with the district courts.” But “taking chances with the district courts” is exactly how legal disputes are supposed to be resolved in the United States. The notion that the ITC somehow offers better odds for patent owners than the federal court system both shows that in practice the ITC goes too far and raises the question of why an administrative agency ought to be favored over the federal judiciary.
A decision in the case is likely in the next few months, and there will almost certainly be further appeals regardless of the outcome. We will continue watching and reporting as this case progresses.
Charles Duan is Director of Technology & Innovation Policy for the R Street Institute.