New ITC Patent Investigation Exemplifies All That is Wrong With Section 337

Most patent cases filed at the ITC under Section 337 are redundant additions to ongoing court litigation, and complainants are more likely to come from licensing companies looking for excessive remedies they cannot legally secure in court than from domestic industries seeking relief from unfair competition.

According to the law's legislative history, the ITC is supposed to "adjudicate trade disputes . . . on behalf of an industry in the United States," and Congress wanted the domestic industry requirement to "preclude holders of U.S. intellectual property rights who have no contact with the United States other than owning such intellectual property rights from utilizing section 337." 

Occasionally, a patent complaint is filed at the ITC that perfectly highlights just how far Section 337 has strayed from its intended purpose.

One of those is a newly instituted investigation—Data Transmission Devices, Components Thereof Associated Software, and Products Containing the Same (Inv. 1150)—that exemplifies the worst sort of Section 337 case.  The complainant in this cases is a foreign non-practicing entity seeking to ban three major American companies from importing billions of dollars worth of high-tech consumer products based on patents that are allegedly infringed when those companies offer services over the internet.

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Data Scape is a patent-licensing company based in Ireland that acquired a series of Sony patents in 2017 in order to launch an international litigation campaign against various tech companies offering cloud storage and music streaming services.  The patents asserted in Data Scape's numerous lawsuits relate to "the transfer of selected data from one device to a second device" and describe copying music files from a CD onto a hard drive.  The patents apparently cover any process for synching files between two devices.

The respondents named in the ITC complaint are Apple, Amazon, and Verizon.  Although Data Scape is seeking to block imports of smartphones and tablets (including iPhones, iPads, Fire Tablets, and Kindles), the alleged infringement is based entirely on the respondents' online services (iCloud, iTunes, Amazon Music, Amazon Kindle, etc.) that can be utilized through the devices.  In other words, the alleged infringement is completely incidental to the importation of the devices, which have no special connection to the technology covered by the patent.  

To show the existence of a domestic industry, Data Scape is relying on the investments of two licensees.  The ITC currently allows complainants to meet the domestic industry requirement based on the activity of a third-party licensee hauled into the agency by subpoena.  This is possible even if the licensee has no contact with the current patent holder because, for example, the license is the result of a broad cross-licensing agreement the licensee made with a previous owner of the patent.

One of Data Scape's licensees is a U.S.-based software company called C-Scape that offers a service providing content for sports ticker displays in casinos.  C-Scape is voluntarily assisting in the investigation as a co-complainant.  

The other licensee is Oracle, who has not joined the complaint and will be forced under subpoena to provide evidence through discovery.  Data Scape wants to count Oracle's investments in developing and operating a remote data storage service to meet the domestic industry requirement.  

It appears that both licensees offer digital services rather than physical products practicing the patent, and neither company's service competes with the accused products from Apple, Amazon, or Verizon.

Because neither the complainant nor its licensees competes with the accused products, none of them would actually benefit from an exclusion order.  The goal of the ITC complaint is to use the threat of a potential ban on products developed in the United States and used by American consumers to extract royalties from American companies through abusive litigation.

An import ban is a trade remedy that the patent holder is not entitled to under the patent law and could not be awarded in court.  But this case is clearly not a trade dispute between an American producer and a foreign competitor.  Instead, it is a licensing dispute in which Section 337 is being "utilized on behalf of" a foreign patent licensing company that has "no contact with the United States other than owning such intellectual property rights."