October 22, 2014

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October 20, 2014

Why Can't They Be FRANDs? Concerns About The International Trade Commission (ITC's) Approach to Standard-Essential Patent Cases Are Unwarranted

The recent increase in Section 337 complaints filed before the U.S. International Trade Commission ("ITC" or "Commission"), in particular the number of complaints involving wireless technology, has brought with it a number of disputes involving patents related to technological standards.   

INTRODUCTION

The recent increase in Section 337 complaints filed before the U.S. International Trade Commission ("ITC" or "Commission"), in particular the number of complaints involving wireless technology, has brought with it a number of disputes involving patents related to technological standards.[1]  These standards often are determined by standard-setting organizations ("SSOs"), entities created to establish and implement industry-wide standards, in order to allow interoperability among products and their components, reduced costs for producers and consumers and faster advancements in the technologies and products incorporating the standards.[2]  Particular patents may be essential to practicing a standard, thereby giving the owners of those patents unique leverage in licensing negotiations, as anyone wishing to practice the standard is obligated to practice that standard-essential patent ("SEP").  This leverage can cause a "patent hold-up" if the patent owner demands an unreasonably high royalty or threatens to exclude a competitor from the market.  This, in turn, has caused some government agencies, notably the U.S. Federal Trade Commission ("FTC"), to view these arrangements from an antitrust viewpoint.

SSOs often have rules to avoid patent hold-up, including disclosure rules, which obligate an SSO member to disclose patent rights that may be relevant to a proposed standard, and licensing rules, which control the amount and structure of royalties, most frequently requiring that patent holders license SEPs on "fair, reasonable, and non-discriminatory" ("FRAND") terms or "reasonable and non-discriminatory" ("RAND") terms.[3]  These FRAND commitments are intended to facilitate success for the standard and assure potential implementers that the relevant patents will be available to those willing to license them.[4]  After a patent has become part of an industry standard, it is often technologically or commercially impossible for a company to avoid using that patented technology in its products.  While requiring SEP owners to make licenses available on FRAND terms, many FRAND commitments are vague regarding what would be considered "fair, reasonable, and non-discriminatory" license terms and what remedies are available to the patent owner and potential licensee if the parties do not reach agreement.[5]  This vagueness, in part, leads to more frequent and complex lawsuits where unlicensed parties practice industry standard patents.

This paper discusses the concerns of certain government agencies and members of the patent community with how the ITC may approach FRAND-encumbered SEPS, explains how the ITC's increased focus on the statutorily mandated public interest[6] reflects its awareness of the issues raised by an exclusion order as a remedy for FRAND-encumbered SEPs and reviews ITC precedent to demonstrate how it has approached similar situations.  The paper suggests that the ITC will resolve FRAND-encumbered SEP issues as those who are concerned recommend: on a case-by-case basis taking into account the posture of each of the parties, possibly creating tailored remedies to protect both the public interest and the rights of patent holders. 

CONCERNS ABOUT THE ITC'S APPROACH TO FRAND-ENCUMBERED SEP CASES

FRAND-encumbered SEPs have become a topic of significant interest to the patent community and government agencies involved in the regulation of patents and competition, both in the United States and internationally.[7]  The FTC, U.S. Department of Justice (“DOJ”), and U.S. Patent and Trademark Office (“USPTO”) have been vocal about how they believe the ITC should approach FRAND-encumbered SEPs in light of the risk of patent hold-up caused by the threat of injunctions regarding those patents.  

The FTC has been the most active government agency in its efforts to limit injunctions regarding FRAND-encumbered SEPs.  As long ago as 2005, former FTC Chairman Deborah Majoras stated that the “most dangerous” of anticompetitive concerns regarding standard-setting activities “is the potential that a standard-setting effort will be used as a mechanism for competitors to fix prices, allocate markets, or boycott a competing firm or technology.”[8]

In 2011, the FTC issued a report, "The Evolving IP Marketplace: Aligning Patent Notice & Remedies with Competition," in which it noted that the "[a]ssertion of a patent against a standard, especially a patent subject to a RAND commitment, creates a particularly important scenario for considering the public interest in deciding whether to grant an exclusion order," and recommended that the ITC "incorporate concerns about patent hold-up, especially of standards, into the decision of whether to grant an exclusion order in accordance with the public interest elements of Section 337."[9]

Soon thereafter, the FTC established a policy project “to examine the legal and policy issues surrounding the problem of potential patent ‘hold-up’ when patented technologies are included in collaborative standards,” specifically including an examination of FRAND commitments by patent holders.[10]  In conjunction with the project, the FTC hosted a public roundtable on standard-setting issues, in preparation for which it requested comments on the relevant issues, including injunctions in district courts and exclusion orders from the ITC.[11]  It received numerous comments from interested companies and associations and posted them on its website.[12]  While the roundtable did not make any decisions regarding injunctions for FRAND-encumbered SEPs, it highlighted various viewpoints on the issue.[13]

When the House Judiciary Committee held a hearing to examine the "Oversight of the Antitrust Enforcement Agencies," FTC Chairman Jon Leibowitz testified on behalf of the FTC, stating that it "made a number of . . . contributions to the analysis of high-tech issues through [its] policy efforts addressing innovation, standard-setting, and patents," including "several cases involving anticompetitive conduct by technology companies for undermining the standard-setting process," its "Evolving IP Marketplace" report, and its standard-setting workshop.[14]  He noted that the "Commission w[ould] continue to foster an on-going dialogue with stakeholders in this important area."[15]

Similarly, when the Senate Judiciary Committee held a hearing to examine the use of SEPs in claims before the ITC, the FTC testified on the potential negative impact of exclusion orders due to the infringement of FRAND-encumbered SEPs.[16]  It emphasized the importance of the ITC’s public interest factors in determining whether to issue an exclusion order on a FRAND-encumbered SEP, warning that “an exclusion order [in this situation] can cause hold-up, distort ‘competitive conditions’ by forcing negotiation under the shadow of switching costs, impair innovation, and harm ‘United States consumers.’”[17]  It urged the ITC to incorporate those considerations into its remedy analysis to align the ITC with the district courts’ required analysis under eBay[18] and stated that these considerations affect the public interest more than normally because the situation presents different issues from patents that are not encumbered by a commitment to license.[19]  While it acknowledged that the ITC has the authority under its public interest obligations to address the FTC’s concern and limit the potential for hold-up, it openly suggested that “[i]f the ITC finds that its public interest authority is not flexible enough to prevent hold-up, then Congress should consider whether legislative remedies are necessary.”[20]

In the summer of 2012, FTC Chairman Jon Leibowitz stated that, while injunctions for SEPs would be appropriate when “a company acts in bad faith using a patent or where a company…doesn’t make a good faith…RAND offer,” generally such injunctions should be rare.[21]  The Chairman noted the FTC’s focus on the ITC, describing his agency’s efforts to “educate” the ITC on the issues and to urge the ITC to strongly consider its public interest responsibilities in this situation.[22]  He stayed on the FTC's earlier tack when he stated, “we think they have the flexibility because of the patent hold-up problems to use the public interest authority here, but if not I think Congress will probably want to think about acting on this issue.”[23]

This past year, the FTC filed complaints against and reached settlements with two companies, Robert Bosch and Motorola Mobility[24], regarding those companies' allegedly anticompetitive dealings with FRAND-encumbered SEPs.[25]  Both settlements included requirements to negotiate on FRAND terms and prohibited the companies from seeking injunctions regarding FRAND-encumbered SEPs both from any district court and from the ITC, where exclusionary relief is tantamount to an injunction.[26]

The FTC also has submitted statements in cases involving potential injunctions regarding FRAND-encumbered SEPs.  The FTC filed an amicus brief in the Apple v. Motorola case before the U.S. Court of Appeals for the Federal Circuit "to ensure that any ruling in th[e] case takes into account the competition policy issues associated with injunctions as a remedy for infringement of a standard-essential patent."[27]  In the underlying case, the district court dismissed several patent claims on the merits on partial summary judgment and dismissed the remaining claims, including one Motorola SEP, on the ground that neither party provided sufficient evidence to prove damages or an entitlement to an injunction or other relief.[28]  The FTC supported the district court's application of eBay v. MercExchange[29]to find that an injunction was not appropriate and emphasized the threat of patent hold-up and its potentially damaging effect on innovation, competition and consumers.[30]

The FTC has also submitted statements to the ITC in two recent cases involving FRAND-encumbered SEPs, describing its concerns about entry of an exclusion order in such a context and providing suggestions for how to approach the issue.[31]  In particular, it suggested the ITC find that the public interest factors support the denial of an exclusion order if the SEP holder did not comply with its FRAND commitment.[32]  In the alternative, it suggested that the ITC delay the effective date of its remedies “until the parties mediate in good faith for damages for past infringement and/or an ongoing royalty for future licensed use,” with the parties facing the risk that the exclusion order will either eventually go into effect or be vacated if they do not resolve the issue.[33]

The DOJ has also provided its perspectives on the FRAND-encumbered SEP issue.   The DOJ's Acting Assistant Attorney General for the Antitrust Division, Joseph F. Wayland, testified on its behalf to the Senate Judiciary Committee, explaining that it has been closely watching cases involving FRAND-encumbered SEPs because of the importance of standards to innovation and their effect on competition and the threat of hold-up if SEPs are used improperly.[34]  It suggested that the ITC find exclusion inappropriate under the public interest factors when infringement of an industry standard patent is found but the patent's value is small in light of the overall product and exclusion would cause the public to be deprived of the product(s) during the period of exclusion.[35]  The DOJ was particularly concerned about exclusion orders where a product implementing a standard is found to infringe a SEP.[36]  It suggested that, if the ITC determines that an immediate exclusion order is inappropriate in such a scenario, “it may be appropriate for it to determine whether it has the authority to stay the imposition of an exclusion order contingent on the infringing party’s commitment to abide by an arbitrator’s determination of the fair value of a license.”[37]

In January of this year, perhaps to balance the impact of the FTC's settlement with Motorola Mobility and Google a week earlier[38], the DOJ and USPTO jointly sent a policy statement to the ITC commenting on injunctions based on SEPs.[39]  In this statement, these Departments noted that “[t]he approach the USITC adopts in cases involving voluntarily F/RAND-encumbered patents that are essential to a standard will be important to the continued vitality of the voluntary consensus standards-setting process and thus to competitive conditions and consumers in the United States."[40]  They acknowledged the need for IP protection and appropriate compensation for the value of that IP, as well as the maintenance of incentives for participation in SSOs,[41] but “recommend[ed] caution” in granting injunctions based on infringement of FRAND-encumbered SEPs,[42] explaining that seeking an injunction based on a FRAND-encumbered SEP is inconsistent with the patent-holder’s FRAND commitment when the purpose of such efforts is to obtain higher-than-FRAND royalty rates.[43]  They emphasized that if such an injunction were to be issued, it would “degrad[e] one of the tools S[S]Os employ to mitigate the threat of such opportunistic actions by the [patent] holders.”[44]  They also suggested, as an alternative to outright denial of an exclusion order, “it may be appropriate for the USITC, as it has done for other reasons in the past, to delay the effective date of an exclusion order for a limited period of time to provide parties the opportunity to conclude a F/RAND license.”[45]

Ultimately, they took a balanced approach and explained that the issue must be evaluated on a case-by-case basis: “[a]n exclusion order may still be an appropriate remedy in some circumstances, such as where the putative licensee is unable or refuses to make a F/RAND license and is acting outside the scope of the patent holder’s commitment to license on F/RAND terms” or “if a putative licensee is not subject to the jurisdiction of a court that could award damages.”[46]

Members of the patent community have also been proactive in stating their positions on the FRAND-encumbered patent issue.  For example, in response to the ITC's request for comments in light of its determinations to review two cases involving FRAND-encumbered SEPs,[47] many companies and standard-setting organizations submitted their positions on the issue.[48]  Similarly, the FTC received a large number of responses from the patent community in its request for comments in preparation for its workshop on standard-setting issues.[49]  Most agree that the ITC should consider whether an injunction is appropriate on a case-by-case basis,[50] and only a small number believe that exclusion orders are never appropriate in connection with FRAND-encumbered SEPs.[51]

THE ITC'S INCREASED FOCUS ON PUBLIC INTEREST CONSIDERATIONS AND FUTURE OPPORTUNITIES TO WEIGH IN ON FRAND ISSUES

The ITC may soon have to address the issue of entry of an exclusion order for FRAND-encumbered SEPs.  If it does, the ITC will likely, based on public interest considerations, create a tailored remedy to address the particular case's circumstances, consistent with the recommendations of the concerned government agencies and members of the patent community.  Over the past few years, the Commission has increased its focus on the public interest and has requested and considered commentary from the public on public interest and SSO-related issues.  Furthermore, ITC precedent on public interest considerations, SSOs, and FRAND obligations, while limited, suggests that the ITC will continue to approach the issue on a case-by-case basis and act consistently with controlling case law.[52]

 The ITC's Heightened Focus on Public Interest Considerations

As part of its consideration of whether to issue an exclusion order, the Commission is required to consider its effect on "the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers."  19 U.S.C. § 1337(d)(1).  Although there are only a small number of ITC cases where the public interest has been determinative, this does not mean that the Commission has disregarded this element of the statute.[53]  The Commission considers the public interest factors each time it determines there is a violation of Section 337.[54]    Furthermore, the Commission has sharpened its focus on and actions related to the public interest in connection with recent high-stakes cases.  On its website, it notes that "[t]he Commission's section 337 caseload has grown dramatically in recent years, and many investigations have involved products of great interest to the general public, such as cellphones, computers, and other electronic consumer devices.  As a result, there has been increased attention on the Commission's 'public interest analysis' – that is, the requirement that the Commission take into account public interest factors in determining whether to issue a remedy after a finding of violation."[55]

The ITC has taken a proactive role in creating a stronger focus on the public interest.  It revamped its procedure for considering the public interest in preparing its five-year strategic plan in 2009, reflecting the interest of the United States Trade Representative in having more public interest information to consider[56] during the Presidential review period.[57]  To update this procedure, the Commission instituted a public interest pilot program in 2010, proposed updated and supplemental public interest rules, requested and considered public comment and issued final rules, effective November 18, 2011.[58]  These additional procedures reflect Commission awareness of the increased importance of public interest considerations in recent cases and its willingness to create and adjust the remedy where one is warranted.  In fact, in two recent cases, the Commission tailored the exclusion orders based on public interest concerns.  This suggests that the Commission would be open to an adjusted remedy in an appropriate case involving FRAND-encumbered SEPs.

In Certain Baseband Processor Chips, Inv. No. 337-TA-543, the Commission developed a tailored exclusion order after carefully evaluating the facts of the case in light of the public interest factors.[59]  In that case, Broadcom had sued Qualcomm for selling infringing chips and chipsets, which were incorporated into mobile communication devices that used newly established 3G telephone networks and services.  In its evaluation, the Commission noted that the investigation's public interest concerns with regard to the appropriate remedy were heighted because of the limited availability of alternatives due to the newness of the technology at issue.[60]

In determining whether and to what extent an exclusion order should be issued, the Commission considered the arguments of the parties, the Commission's staff and a variety of third parties.[61]  This private and public input highlighted the need for public safety personnel to transmit important information in emergency situations and the likely negative effect an exclusion order would have on the economy and on consumers.[62]

With respect to the factor of public health and welfare, there was evidence of increased reliance of public safety officials on 3G telecommunications networks in carrying out their duties.[63]  As a result, if certain 3G handsets were excluded from the U.S. market, the public would lose some of the health and safety benefits that stemmed from that enhanced data transmission.[64]  Regarding competitive conditions in the U.S. economy, the Commission found that exclusion would likely slow the development of telecommunications technology and the expansion of broadband internet access, which not only were important intrinsically, but also had an effect on the U.S. economy as a whole.[65]  Furthermore, because 3G technology was still developing, an exclusion order's effect on consumer and business access to related products and, in turn, on overall interest and usage, could make it more difficult for network service providers and telecommunication companies to expand or maintain relevant networks and telephone and broadband internet services.[66]  With respect to consumers' potentially limited access to related services, while the complainant argued that consumer use of such networks was simply for entertainment purposes, the Commission found that there were a variety of existing and potential services that the networks could offer and that it was "not the role of the Commission to make a value judgment regarding consumers' interests."[67]

The Commission concluded that an exclusion order extending to devices incorporating the infringing chips and chipsets would have some adverse impact on the public interest and "balance[d] the negative impact against the important public interest of protecting intellectual property rights," settling on a tailored exclusion order that allowed for the continued importation into the U.S. market of those models of the devices that had been imported into the United States for sale to the general public on or before the date of the order.[68]

In Certain Personal Data and Mobile Communications Devices, Inv. No. 337-TA-710, the Commission, after finding a violation of Section 337 by HTC smartphones, created a tailored exclusion order due to the likely negative effect of immediate and complete exclusion on the public interest.[69]

In evaluating the public interest, the Commission first made clear that its order would cover only HTC smartphones, explaining that "[i]t is either premature or erroneous to assume that an exclusion order in this investigation is tantamount to excluding from the United States all Android smartphones."[70]  The Commission also assured that, if its chosen remedy ultimately needed to be altered, it had the power to make such a change: "[s]hould the Commission exclude the smartphones of other manufacturers in future investigations, or should the district courts limit the availability of other manufacturers' Android smartphones to U.S. consumers, the Commission has established procedures that permit modification or rescission of an exclusion order, as appropriate based on a reassessment of the changed facts or public interest at such time."[71]

The Commission's main concern regarding the public interest was the effect on competitive conditions in the U.S. economy.  It noted that the President and DOJ had recently highlighted the importance of high-speed wireless technology to the U.S. economy.[72]  In particular, the DOJ's complaint to block the AT&T and T-Mobile merger "demonstrate[d] the importance of competitive conditions in wireless telecommunications services in the United States generally and T-Mobile's role within it."[73]  T-Mobile was particularly concerned with the exclusion order on HTC products because it was the only national carrier that did not offer the iPhone and thus was "particularly vulnerable to the effects of an exclusion order because of its reliance on Android smartphones," and specifically HTC smartphones.[74]

Due to the importance of high-speed wireless technology to the United States and the likely detrimental effect on T-Mobile, the Commission found that an exclusion order would not be in the public interest "to the extent an immediate exclusion of HTC Android smartphones would have a substantial impact on T-Mobile's competitiveness."[75]  It emphasized, however, that it had flexibility in its remedy options, explaining that "the Commission does not need to choose between an immediate exclusion order and no exclusion order at all."[76]  Because T-Mobile had informed the Commission that a four-month transition period would be sufficient to replace its infringing HTC smartphones with smartphones of other manufacturers, thus allowing consumers to have the same range of product and price options, the Commission opted to implement a four-month delay in its exclusion order.[77]  It believed that the transition period was both reasonable and within the Commission's power to implement and noted that it would apply to all wireless carriers, not just to T-Mobile.[78]

Regarding an exclusion order's impact on consumers, the Commission found that HTC's ultimate argument that "a limited exclusion order w[ould] reduce consumer choice among smartphone models or features," was not a sufficient basis for denying issuance of an exclusion order.[79]  In particular, HTC had not shown that its phones had unique features that had no reasonable non-infringing substitutes.  Although it found that all of HTC's arguments of uniqueness were either outdated or unsubstantiated, the Commission did agree with HTC that there would be a negative effect on consumers who needed to replace or repair a broken device under a normal two-year service contract during the time the exclusion order was in effect.[80]  The Commission, therefore, determined to allow HTC to import refurbished handsets solely as replacements under warranty or an insurance contract, for approximately one and a half years after the exclusion order became effective, to assist where a consumer would need a replacement in the middle of a contract term.[81]

The Commission also considered the other public interest factors of public health and welfare[82] and the production of like or directly competitive articles in the United States[83] and generally found HTC's arguments unsubstantiated.  This case demonstrates the Commission's ability and willingness to tailor a remedy to accommodate public interest concerns.

Most recently, in Certain Microprocessors, Inv. No. 337-TA-781, an administrative law judge ("ALJ") issued a recommended determination that the ITC tailor its relief if it finds a violation of Section 337 by delaying an exclusion order by at least nine months "so that [the respondents] would have time to adjust their manufacturing operations to incorporate non-infringing microprocessors."[84]  The recommendation was based upon the ALJ’s determination that an immediate exclusion order would cause a ripple effect of job losses in the respondents' companies and elsewhere in the economy, a loss of manufacturing work in the United States, a negative impact on government initiatives that are dependent on technological advancements, such as "healthcare reform, the Advanced Manufacturing Partnership, [and] Strategy for American Innovation . . . ," reduced competition in certain product markets, and a negative effect on consumers due to shortages of computers, workstations, and servers, as well as increased prices for products.[85]

Opportunities for the ITC to Consider FRAND Issues

The ITC's Increased Focus

In addition to its general public interest focus, the Commission has shown increased interest in FRAND and SEP issues through its notices of review of ALJ initial determinations.[86]  With the rise in cases involving SEPs, the Commission has requested comments from the parties and the public on a number of questions regarding FRAND issues and the public interest impact that ITC relief may have when SEPs are in dispute.  The number and specificity of these questions reveal the Commission's awareness and familiarity with the topic.[87]  For example, in Certain Wireless Communication Devices, Inv. No. 337-TA-745, the ITC determined to review in part an initial determination finding a violation of Section 337, and eight of its thirteen questions for briefing related to FRAND issues.[88]  The first FRAND-related question asked whether the respondent waived its right to assert that the complainant failed to offer a license on FRAND terms.[89]  Other questions related to whether a patent holder could be barred from seeking an injunction under a FRAND-encumbered patent.[90]  The Commission also asked two broader questions regarding the importance of the patents to the standard: whether there would be "substantial costs and delays associated with switching away from the standardized technology in question" and whether the patents at issue "cover relatively minor components of the accused products."[91]

Similarly, in Certain Electronic Devices, Inv. No. 337-TA-794, when the Commission determined to review the ALJ's initial determination, it specifically requested briefing on the FRAND issues.[92]  The scope of the Commission's intent to view those issues is reflected in the fact that it sought input from "interested government agencies, OUII [the ITC's Office of Unfair Import Investigations], and any other interested parties," while on other questions it sought briefing only from the parties in the case.  Three of the FRAND questions were very similar to those raised in Certain Wireless Communication Devices, but there was a "new" question asking "what framework should be used for determining whether the offer complies with a FRAND undertaking."[93]

Furthermore, in connection with these FRAND-related investigations, the ITC has accepted and acknowledged numerous submissions filed separately by stakeholders and regulators regarding the public interest effects of an exclusion order related to SEP infringements.  For example, in Certain Wireless Communication Devices, the Commission's notice of review acknowledged submissions from several non-parties, including the FTC, Business Software Alliance, Association for Competitive Technology, Retail Industry Leaders Association, Verizon, Hewlett-Packard, Microsoft and Qualcomm.[94]  Similarly, in Certain Gaming and Entertainment Consoles, Inv. No. 337-TA-752, discussed in more detail below, numerous statements were filed on the FRAND/SEP issue by non-parties, including Cisco, Apple, IBM, the FTC, and a number of Congressmen.[95]

 ITC Precedent on SSOs and FRAND Issues

While there have not been many ITC cases where the Commission has dealt with SSOs and FRAND issues, the few cases that have come to the ITC reveal that the Commission has made an assessment on a case-by-case basis, acted consistently with controlling precedent and avoided making decisions on matters when it would be inappropriate or premature to do so.

For example, in Certain Optoelectronic Devices, Inv. No. 337-TA-669, Avago filed a Section 337 complaint against Emcore.[96]  Emcore argued that it had an implied license to import and sell its accused products due to, among other reasons, both parties' participation in multi-source agreements ("MSAs") to create industry standards; in the alternative, Emcore argued that Avago was obligated to grant Emcore an express license on FRAND terms as stated in the MSAs.[97]

The ALJ followed Federal Circuit case law finding that Emcore's argument of an implied license was insufficient.[98]  He found there was no implied license based on the language of the MSAs because the agreements Emcore relied upon explicitly stated that "nothing in th[e] [a]greement [was] intended to grant any rights or licenses to either party under any patent . . . or any other intellectual property right of the other party. . . ."[99]  In addition, the ALJ found no implied license because the evidence did not establish that Avago had a duty to disclose the patent at issue.  In particular, the language of the MSAs, at most, required disclosure of essential patent claims.

Moreover, the ALJ found that the patent at issue was not essential or necessary for compliance with the MSAs by comparing the patent's requirements and the standard's requirements and because the patent did not meet the definition of an "Essential Patent Claim" in the bylaws of an SSO, which both parties agreed was an informative authority on when patent disclosure was required among that SSO's members.[100]  For the same reason, the ALJ rejected Emcore's alternative argument that it was entitled to an express license on FRAND terms due to the MSAs' requirements that the parties to the agreement license essential intellectual property on a FRAND basis.[101]  Thus, after the ALJ carefully determined that the patent was not a SEP, he could proceed to find that there was a Section 337 violation in the investigation due to infringement of the patent.

The ALJ ultimately recommended a limited exclusion order under the patent at issue, and the Commission determined not to review the ALJ's initial determination, thereby affirming the decision.[102]  The ALJ's detailed analysis and the Commission's adoption of the ALJ's determination is consistent with the perspective of those concerned with the FRAND-encumbered SEP issue, which is focused on SEPs and not on non-essential patents, for which there are alternatives.

In Certain Mobile Telephone Handsets, Inv. No. 337-TA-578, Qualcomm filed a Section 337 complaint against Nokia regarding patents that were part of a standard.[103]  Nokia responded with a number of affirmative defenses, including unclean hands and patent misuse related to Qualcomm's dealings in the relevant SSO.

The ALJ found that Nokia did not meet the unclean hands affirmative defense because it did not present specific evidence why Qualcomm's alleged conduct was material and because the facts that it did present were the same as those underlying its breach of contract defense and not appropriate under unclean hands.

The ALJ also rejected Nokia's patent misuse defense on two grounds.  First, Qualcomm's offers to license were not an impermissible broadening of the scope of its patent because it was not, as a patent owner, statutorily obligated to license the patent to Nokia.  Furthermore, even if Qualcomm had acted to broaden the scope of its patent right impermissibly, the ALJ found that Nokia had not proven that Qualcomm's actions created an anticompetitive effect.  This interpretation is consistent with precedent rejecting the patent misuse defense in SSO cases, where patent owners typically conceal the patents rather than use them in an overly-broad manner.[104]

Nokia petitioned for review of the ALJ's grant of summary determination, and the Commission determined not to review the decision, thereby adopting the ALJ's decision.[105]

In Certain Wireless Communication Devices, Inv. No. 337-TA-745, Motorola Mobility filed a Section 337 complaint against Apple for the alleged infringement of six patents, two of which were allegedly SEPs.[106]  Apple asserted an affirmative defense of estoppel/unclean hands based on Motorola's alleged failure to comply with the intellectual property right policies of the relevant SSOs, in particular, Motorola's failure to timely disclose those patents to the SSOs.[107]  In his initial determination, the ALJ found a violation of Section 337 for one of Motorola's SEPs, but not for the other.  The ITC determined to review the decision in part, raising a number of questions related to FRAND.[108]

On review, the Commission found no violation of either of the SEPs and remanded the investigation to the ALJ with respect to a non-SEP, choosing not to address the FRAND issue when it was not necessary.

 Pending ITC Cases on FRAND Issues

Two pending cases may provide the ITC an opportunity to rule on the FRAND-encumbered SEP issue.  In Certain Electronic Devices, Inv. No. 337-TA-794, Samsung filed a Section 337 complaint against Apple on four patents, two of which are SEPs.[109]  The ALJ determined there was no violation of Section 337 because he found three of the patents valid but not infringed and one patent both invalid and not infringed.  The Commission determined to review the ALJ's initial determination in its entirety and requested comments on what form of remedy, if any, it should order in light of the public interest factors and based on the FRAND issues.[110]  The Commission received a large number of submissions in response to the notice and determined to extend the target date for completing the investigation from January 14, 2013 to February 6, 2013, and then to March 7.[111]  If the Commission reverses the ALJ's finding of no violation with regard to any SEP, it necessarily will determine whether a remedy for the infringement of the FRAND-encumbered SEP(s) is appropriate.

In Certain Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Motorola Mobility sued Microsoft regarding five patents for its Xbox, four of which had been declared essential by an SSO.[112]  Microsoft argued that an exclusion order would be inconsistent with Motorola's commitment to license the asserted patents on FRAND terms and that an exclusion order should be unavailable for patents subject to FRAND licensing obligations.[113]  The ALJ rejected this position, stating that there was insufficient legal authority supporting that argument.[114]  Microsoft and Motorola filed petitions for review of the initial determination, and Microsoft and several non-parties filed statements on the public interest.  The Commission determined to review the decision after "having examined the record of th[e] investigation, including the ALJ's final I[nitial] D[etermination], the petitions for review, and the responses thereto," and remanded the case to the ALJ.[115]  Motorola withdrew two of its asserted SEPs four months later, leaving two SEPs in the case.[116]  Motorola eventually withdrew those remaining SEPs after executing a consent order with the FTC in early January that required it "to withdraw its claims for injunctive relief on FRAND-encumbered SEPs around the world," thereby leaving only one of the originally-asserted patents in the case, a non-SEP.[117]

CONCLUSION

The ITC has before it high-profile cases regarding the alleged infringement of FRAND-encumbered SEPs.  Certain government agencies and members of the patent community have raised concerns regarding the negative effect of injunctions relating to FRAND-encumbered SEPs and, as a result, have paid particular attention to these ITC cases and vocalized these concerns to the ITC.  Some have argued that exclusion orders should never be permitted with regard to FRAND-encumbered patents and others have argued that the issue should be determined based on the particular facts of a case.  Based on the Commission's past actions and recently increased focus on the public interest and FRAND obligations, the ITC will likely consider the issues on a case-by-case basis and may also use the opportunity to create a tailored remedy to accommodate public interest concerns while also protecting the rights of the patent owner, which is consistent with recommendations both from the government and members of the patent community.  While the ITC has yet to make a decision on the propriety and scope of an exclusion order as a remedy for the infringement of FRAND-encumbered SEPs, the ITC’s requests for information in pending cases demonstrate that it is quite aware of the importance of this issue and will address it in the near future.

The authors are attorneys at Adduci, Mastriani & Schaumberg, LLP, an international trade law firm in Washington, D.C. that specializes in Section 337 litigation.  Mr. Schaumberg is the editor of the firm's ABA book entitled "A Lawyer's Guide to Section 337 Investigations Before the U.S. International Trade Commission," the second edition of which was published in October 2012.


[1]  See, e.g., Section 337: Building the Record on the Public Interest, Int'l Trade Comm'n, http://www.usitc.gov/press_room/documents/featured_news/publicinterest_a... (last visited Dec. 17, 2012) [hereinafter ITC Public Interest Statement]; Certain Elec. Devices, Including Wireless Commc'n Devices, Portable Music & Data Processing Devices, & Tablet Computers ("Electronic Devices"), Inv. No. 337-TA-794, Complaint under Section 337 of the Tariff Act of 1930, as Amended (June 23, 2011); Certain Gaming & Entm't Consoles, Related Software, & Components Thereof ("Gaming & Entertainment Consoles"), Inv. No. 337-TA-752, Verified Complaint under Section 337 of the Tariff Act of 1930, as Amended (Nov. 22, 2010).

[2]  Christopher R. Byrnes, Unanswered Questions Regarding FRAND and Essential Patents in Section 337 Investigations, 34 ITCTLA 337 Reporter 47, 47 (Summer 2011); Antitrust Enforcement & Intellectual Property Rights: Promoting Innovation and Competition, U.S. Dep't of Justice & Fed. Trade Comm'n, at 6-7 (April 2007), available at http://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf.

[3]  Joseph Farrell, John Hayes, Carl Shapiro & Theresa Sullivan, Standard Setting, Patents, and Hold-Up, 74 ANTITRUST L.J. 603, 609 (2007).  The terms "FRAND" and "RAND" are used essentially synonymously.  For purposes of consistency, this paper will refer to both as "FRAND" terms.

[4] Oversight of the Impact on Competition of Exclusion Orders to Enforce Standard-Essential Patents, Hearing Before the S. Comm. on the Judiciary, 112th Cong. 5 (2012) (statement of Joseph F. Wayland, Acting Assistant Att'y Gen., Antitrust Division, Department of Justice) [hereinafter Wayland DOJ Statement].

[5]  Few SSOs define the term "reasonable and nondiscriminatory" or have mechanisms to resolve disputes about its interpretation.  Mark A. Lemley, Intellectual Property Rights & Standard-Setting Organizations, 90 Cal. L. Rev. 1889, at 1964–65 (2002).  Lemley observed that: "It is all well and good to propose that SSOs require licensing on reasonable and nondiscriminatory terms. But without some idea of what those terms are, reasonable and nondiscriminatory licensing loses much of its meaning." Id. at 1964.  The Assistant Attorney General of the DOJ noted, "Increasingly, standards development organizations are requiring 'reasonable and non-discriminatory' (RAND) licensing, which is a partial solution. A difficulty of RAND, however, is that the parties tend to disagree later about what level of royalty rate is 'reasonable.'"  R. Hewitt Pate, Ass't Att'y Gen., Antitrust Division, U.S. Dep't of Justice, Competition and Intellectual Property in the U.S.: Licensing Freedom and the Limits of Antitrust, EU Competition Workshop, at 9 (June 3, 2005), available at http://usdoj.gov/atr/public/speeches/209359.pdf (last visited Dec. 17, 2012).

[6]  In determining whether to issue an exclusion order, the Commission is required to consider the order's effect on "the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers." 19 U.S.C. § 1337(d)(1).  These considerations are often referred to as the ITC's "public interest factors."  See, e.g., ITC Public Interest Statement, supra note 1.

[7] See, e.g., The European Commission accused Samsung Electronics Co. Ltd. of abusing its market dominance by its pursuit of injunctions regarding its SEPs.  See Antitrust Commission Sends Statement of Objections to Samsung on Potential Misuse of Mobile Phone Standard-Essential Patents, European Commission Press Release (Dec. 21, 2012), available at http://europa.eu/rapid/press-release_IP-12-1448_en.htm (last visited Jan. 29, 2013).

[8] Deborah Platt Majoras, Chairman, U. S. Fed. Trade Comm’n, Recognizing the Procompetitive Potential of Royalty Discussions in Standard Setting, Remarks Preparedfor Standardization and the Law: Developing the Golden Mean for Global Trade 2 (Sept. 23, 2005), available at http://www.ftc.gov/speeches/majoras/050923stanford.pdf (last visited Jan. 29, 2013).

[9] See The Evolving IP Marketplace: Aligning Patent Notice & Remedies with Competition, U.S. Fed. Trade Comm’n, at 242-243 (Mar. 2011).  Deanna Tanner Okun, Chairman of the ITC at that time, submitted a response to this report, providing greater context of the ITC's position in the situation and noting that it would not provide a policy response to the FTC's report, but would continue to apply the statute.  See Letter from Deanna Tanner Okun to Jon Leibowitz (Jan. 24, 2012) ("[T]he USITC is, by legislative design, a quasi-judicial independent agency, not a policy-making body of the Executive Branch.  The Commission is bound by law to investigate allegations of Section 337 violations. . . . Section 337 provides that the Commission 'shall' impose the remedies specified under the statute unless the public interest factors set forth therein counsel otherwise.  We necessarily apply the statute to the record evidence on a case-by-case basis, and, unlike the Congress, we do not promulgate substantive policies to be applied in adjudicating Section 337 cases.  The only substantive policies we strive to implement are those enacted into law by Congress.").

[10] Tools to Prevent Patent “Hold-Up”: IP Rights in Standard Setting, U.S. Fed. Trade Comm’n, http://www.ftc.gov/opp/workshops/standards/index.shtml.

[11] See Fed. Trade Comm'n Request for Comments & Announcement of Workshop on Standard-Setting Issues, 76 Fed. Reg. 28036-28038 (May 13, 2011); Transcript of Tools to Prevent Patent 'Hold-Up,' U.S. Fed. Trade Comm’n Workshop (June 21, 2011), available at www.ftc.gov/opp/workshops/standards/transcript.pdf; Fed. Trade Comm’n Request for Comments and Announcement of Workshop on Standard-Setting Issues, 76 Fed. Reg. 28036-28038 (May 13, 2011) ("Should a RAND commitment preclude a patent owner from seeking in patent litigation a preliminary injunction against practice of the standard? A permanent injunction? An exclusion order in the International Trade Commission? How should courts and the ITC take a RAND commitment into account in these contexts?").  The various responses to the FTC's request can be found at www.ftv.gov/os/comments/patentstandardworkshop/.

[12] All public comments available at http://www.ftc.gov/os/comments/patentstandardsworkshop/.

[13] Transcript of Tools to Prevent Patent 'Hold-Up,' supra note 11, at 219-225.

[14] See Oversight of the Antitrust Enforcement Agencies, Hearing Before the H. Comm. on the Judiciary, 112 Cong. 98,at 11-12 (2011) (prepared statement of the Federal Trade Commission, presented by Jon Leibowitz, Chairman, Federal Trade Commission), available at http://judiciary.house.gov/hearings/pdf/Leibowitz12072011.pdf.

[15] Id. at 12.

[16] See Oversight of the Impact on Competition of Exclusion Orders to Enforce Standard-Essential Patents, Hearing Before the S. Comm. on the Judiciary, 112th Cong. 13, at 14 (2012) (prepared statement of the Federal Trade Commission, presented by Edith Ramirez, Commissioner, Federal Trade Commission) [hereinafter Ramirez FTC Statement], available at http://www.judiciary.senate.gov/pdf/12-7-11RamirezTestimony.pdf.  The FTC noted that “this approach may leave the patent holder without a remedy in the ITC, [but] a remedy in district court would remain available.”  Id. at 13.

[17] Ramirez FTC Statement, supra note 16, at 10.

[18] eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006); see also infra note 29.

[19] Ramirez FTC Statement, supra note 16, at 10.

[20] Ramirez FTC Statement, supra note 16, at 14.

[21] Melissa Lipman, Essential Patent Import Bans Should Be Rare, FTC Head Says, Law360 (July 10, 2012), available at http://www.law360.com/ip/articles/358376?nl_pk=35606bb5-4498-4f9f-8419-7f9ff97977d4&utm_source=newsletter&utm_medium=email&utm_campaign=ip.

[22] Id.

[23] Id.

[24] Google acquired Motorola Mobility on May 22, 2012.  Larry Page, We've Acquired Motorola Mobility, Google Official Blog (May 22, 2012), http://googleblog.blogspot.com/2012/05/weve-acquired-motorola-mobility.html (last visited Jan. 23, 2013).  This acquisition included a large patent portfolio.  See, e.g., Facts about Google's Acquisition of Motorola, Google, http://www.google.com/press/motorola/ (last visited Jan. 23, 2013).

[25] See In the Matter of Robert Bosch GmbH, Docket No. C-4377, FTC File No. 121-0081, Complaint (Nov. 26, 2012), available at http://www.ftc.gov/os/caselist/1210081/121126boschcmpt.pdf; In the Matter of Robert Bosch GmbH, Docket No. C-4377, FTC File No. 121-0081, Decision and Order (Nov. 26, 2012), available at http://www.ftc.gov/os/caselist/1210081/121126boschdo.pdf; Robert Bosch GmbH, FTC File No. 121-0081, Analysis of Agreement Containing Consent Orders To Aid Public Comment, 77 Fed. Reg. 71593-71599 (Dec. 3, 2012), available at http://www.ftc.gov/os/fedreg/2012/12/121203robertboschfrn.pdf; In the Matter of Motorola Mobility LLC and Google Inc., FTC File No. 121-0120, Complaint (Jan. 3, 2013), available at http://www.ftc.gov/os/caselist/1210120/130103googlemotorolacmpt.pdf; In the Matter of Motorola Mobility LLC and Google Inc., FTC File No. 121-0120, Decision and Order (Jan. 3, 2013), available at http://www.ftc.gov/os/caselist/1210120/130103googlemotorolado.pdf; Motorola Mobility LLC and Google Inc.; Analysis of Proposed Consent Order to Aid Public Comment, 78 Fed. Reg. 2398-2406 (Jan. 11, 2013), available at http://www.gpo.gov/fdsys/pkg/FR-2013-01-11/pdf/2013-00465.pdf.

[26] The FTC-Bosch and FTC-Motorola settlements both included exceptions to the provision prohibiting injunctions regarding SEPs.  In the FTC-Bosch settlement, Bosch is permitted to seek injunctive relief regarding a SEP if a court determines the SEP is being used for a purpose other than as required to comply with the relevant standards or if a third party refuses to license one or more of the SEPs on FRAND terms agreed upon by both parties or a court.  See In the Matter of Robert Bosch GmbH, FTC File No. 121-0081, Decision and Order, Section IV.E (Nov. 25, 2012).  The FTC-Motorola settlement included one exception to the prohibition of injunctions over FRAND-encumbered SEPS, allowing Google to seek injunctive relief against a firm when that firm files for injunctive relief against Google based on its FRAND-encumbered SEPs.  See In the Matter of Motorola Mobility LLC and Google Inc., FTC File No. 121-0120, Decision and Order, Section IV.F (Jan. 3, 2013) ("Notwithstanding any other provision of the Order, Respondents shall be permitted to file a claim seeking, or otherwise obtain and enforce, Covered Injunctive Relief against a Potential Licensee, if the Potential Licensee is seeking or has sought on or after the date of this Order, Covered Injunctive Relief against a product (including software), device or service that is made, marketed, distributed or sold by Respondents based on Infringement of the Potential Licensee's FRAND Patent . . . ").  The FTC's Complaint and Decision and Order are drafts open for public comment for thirty days and are subject to final approval.

[27] Brief of Amicus Curiae Federal Trade Commission Supporting Neither Party at 2, Apple Inc. v. Motorola, Inc., (Nos. 2012-1548, 2012-1549) (Fed. Cir. Dec. 4, 2012), 2012 WL 6655899 at *2.

[28] Apple Inc. v. Motorola, Inc., 869 F. Supp. 2d 901 (N.D. Ill. 2012).

[29] eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).  The eBay case established that courts must look to “traditional equitable principles” in determining whether to grant a permanent injunction after finding patent infringement and put forth four factors that a patentee must satisfy to obtain such an injunction.  Id. at 391.  In Spansion, Inc. v. Int’l Trade Comm’n, 629 F.3d 1331, 1359 (Fed. Cir. 2010), the Federal Circuit affirmed the ITC’s finding that eBay’s equitable test does not apply in its forum, as the ITC’s remedies are governed by statute and not by equitable principles.

[30]  See generally Brief of Amicus Curiae Federal Trade Commission, supra note 27.

[31] See Certain Wireless Commc'n Devices, Portable Music & Data Processing Devices, Computers & Components Thereof (“Wireless Commc’n Devices”), Inv. No. 337-TA-745, Third Party United States Federal Trade Comm’n’s Statement on the Public Interest (June 6, 2012); Certain Gaming & Entm't Consoles, Related Software, & Components Thereof ("Gaming & Entertainment Consoles"), Inv. No. 337-TA-752, Third Party United States Federal Trade Comm’n’s Statement on the Public Interest (June 6, 2012).

[32] Wireless Commc’n Devices, Inv. No. 337-TA-745, Third Party United States Federal Trade Comm’n’s Statement on the Public Interest (June 6, 2012); Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Third Party United States Federal Trade Comm’n’s Statement on the Public Interest (June 6, 2012).  FTC Commissioner Rosch separately indicated that he believes “the issuance of injunctive relief, including an ITC exclusion order, is inappropriate where the patent holder has made a RAND commitment for a standard essential patent, even if the patentee has met its RAND obligation,” as the RAND terms are a “commitment to license.”  Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Third Party United States Federal Trade Commission’s Statement on the Public Interest, at 1 n.3 (June 6, 2012); Wireless Commc'n Devices, Inv. No. 337-TA-745, Third Party United States Federal Trade Commission's Statement on the Public Interest, at 1 n.3 (June 6, 2012).

[33] Wireless Commc’n Devices, Inv. No. 337-TA-745, Third Party United States Federal Trade Comm’n’s Statement on the Public Interest; Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Third Party United States Federal Trade Comm’n’s Statement on the Public Interest.

[34] Wayland DOJ Statement, supra note 4, at 10; see also Tom Risen, Patent Infringement and Antitrust Roles Analyzed By Enforcement Officials, ABA Antitrust Fall Forum: Special Report, Policy and Regulatory Report, at 5 (Nov. 8, 2012) (explaining that the DOJ Antitrust Division Senior Counsel stated that “[t]he threat of an injunction should not be used by a patent holder that has committed to a license with FRAND…terms to obtain greater compensation for the licensing of its patents..." at the ABA’s 2012 Antitrust Fall Forum), available at http://www.debtwire.com/pdf/rosneft.pdf; Melissa Lipman, DOJ Official Pushes ITC on Standards Patent Import Bans, Law360(Nov. 8, 2012), available at http://www.law360.com/ip/articles/393031?nl_pk=35606bb5-4498-4f9f-8419-7f9ff97977d4&utm_source=newsletter&utm_medium=email&utm_campaign=ip. In 2007, the DOJ and FTC issued a publication, “Antitrust Enforcement and Intellectual Property Rights,” in which it devoted a chapter to “Competition Concerns When Patents Are Incorporated into Collaboratively Set Standards.”  Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, U.S. Fed. Trade Comm’n (Apr. 2007), available at http://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf. In that publication, it did not discuss in detail the issue of injunctions regarding FRAND-encumbered SEPs.  See id.

[35] Wayland DOJ Statement, supra note 4, at 10.

[36] Wayland DOJ Statement, supra note 4, at 11.

[37] Wayland DOJ Statement, supra note 4, at 11.

[38] See supra p. 8 and accompanying notes (describing FTC settlement with Motorola Mobility and Google).

[39] See Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments, U.S. Dep’t of Justice & U.S. Patent & Trademark Office (Jan. 8, 2013).

[40] Id. at 9.

[41] Id. at 8.

[42] Id. at 8.

[43] Id. at 6.

[44] Id. at 6.

[45] Id. at 10.

[46] Id. at 7, 9.

[47] Certain Wireless Commc'n Devices, Portable Music & Data Processing Devices, Computers & Components Thereof ("Wireless Commc'n Devices"), Inv. No 337-TA-745, Notice of Comm'n Decision to Review in Part a Final Initial Determination Finding a Violation of Section 337; Request for Written Submissions (June 25, 2012); Certain Gaming & Entm't Consoles, Related Software, & Components Thereof ("Gaming & Entertainment Consoles"), Inv. No. 337-TA-752, Notice of Comm'n Determination to Review a Final Initial Determination Finding a Violation of Section 337; Remand of the Investigation to the Administrative Law Judge, at 2-3 (June 29, 2012).

[48] See, e.g., Wireless Commc’n Devices, Inv. No. 337-TA-745, Statement of Qualcomm Incorporated on Public Interest Issues (July 9, 2012);Wireless Commc’n Devices, Inv. No. 337-TA-745, Statement of Ericsson Inc. and Its Related Companies on Public Interest Issues (July 9, 2012); Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Statement of Apple Inc. on Public Interest Issues (June 8, 2012); Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Statement of Nokia Corporation on Public Interest Issues (June 8, 2012).

[49]See Fed. Trade Comm'n Request for Comments & Announcement of Workshop on Standard-Setting Issues, 76 Fed. Reg. 28036-28038 (May 13, 2011); see also supra pp. 5-6.  All public comments available at http://www.ftc.gov/os/comments/patentstandardsworkshop/.

[50] See, e.g., Wireless Commc’n Devices, Inv. No. 337-TA-745, Statement of Research In Motion Corporation on Public Interest Issues, at 7 (July 9, 2012) (“The appropriateness of an exclusion order depends upon the facts and circumstances of each case, and whether a patent covers a standard is just one of many considerations relevant to deciding whether an exclusion order should issue.”); Wireless Commc’n Devices, Inv. No. 337-TA-745, Statement of Interdigital Communications, at 4 (July 9, 2012) (“Each case will raise unique factual circumstances that should be considered by the Commission on a case-by-case basis.  It would not be appropriate…to adopt a per se rule that the Commission lacks jurisdiction to enter exclusion orders in all cases where a standards-essential patent is asserted.”).

[51] Wireless Commc'n Devices, Inv. No. 337-TA-745, Statement of Microsoft Corporation on Public Interest Issues, at 2-3 (July 9, 2012) (“Microsoft submits that the RAND obligation by itself precludes exclusionary relief”) (emphasis in original); Wireless Commc'n Devices, Inv. No. 337-TA-745, Comments of Verizon Communications Inc., Cisco Systems, and Hewlett-Packard Company on Public Interest Issues, at 1-2 (July 9, 2012) (“[I]n our view, issuing an exclusion order in a case involving a standard-essential patent subject to a RAND commitment will always be contrary to the public interest.”); Wireless Commc'n Devices, Inv. No. 337-TA-745, Comments of AT&T, at 2-3 (June 8, 2012) (“AT&T respectfully submits that the public interest precludes issuance of an exclusion order for a FRAND-committed standards-essential patent.”).

[52] The Commission also encourages the resolution of ITC cases by its recently developed mediation program to facilitate the settlement of disputes.  See, e.g., Mediation Program for Investigations Under Section 337 of the Tariff Act of 1930, U.S. Int'l Trade Comm'n, http://www.usitc.gov/intellectual_property/mediation.htm; Section 337 Mediation Program, 3d Update, USITC Pub. No. 4329, U.S. Int'l Trade Comm'n (Aug. 2012), available at http://www.usitc.gov/intellectual_property/documents/MediationBrochure_August_2012_UpdatePub4329.pdf.

[53]  The ITC has stated in the past that it "has consistently held that the benefit of lower prices to consumers does not outweigh the benefit of providing complainants with an effective remedy for an intellectual property-based Section 337 violation."  Certain Digital Television Prods. & Certain Prods. Containing Same & Methods of Using Same, Inv. No. 337-TA-617, Comm'n Op. (Pub. Version), at 16 (Apr. 23, 2009).

[54] See, e.g., Certain Baseband Processor Chips & Chipsets, Transmitter & Receiver (Radio) Chips, Power Control Chips, & Prods. Containing Same, Including Cellular Tel. Handsets, Inv. No. 337-TA-543, Comm'n Op. on Remedy, the Public Interest, & Bonding (Pub. Version), at 136 (June 19, 2007) ("Having formulated a remedy . . . we must now examine whether that remedy would have an adverse impact with respect to the statutory public interest factors and, if so, we must balance the patent holder's rights and the public interest in enforcing intellectual property rights against the impact on these other enumerated public interests.")

[55]  ITC Public Interest Statement, supra note 1.

[56]  If the Commission affirms an ALJ's finding of a violation of Section 337 and issues an exclusion order and/or a cease and desist order, this decision is effective on the date of its publication in the Federal Register, but is not final until after the U.S. Trade Representative has had 60 days to notify the Commission of his or her disapproval.  19 U.S.C. § 1337(j).  This 60-day period is often referred to as the "Presidential review period."  In 2005, the President delegated the authority to disapprove Commission determinations regarding exclusion orders and CDOs to the U.S. Trade Representative.  70 Fed. Reg. 43,251 (July 26, 2005).

[57]  See ITC Public Interest Statement, supra note 1.

[58]  ITC Public Interest Statement, supra note 1; Rules of Adjudication and Enforcement, 76 Fed. Reg. 64,803-64,810 (Oct. 19, 2011).  Under the new public interest rules, the Commission receives information regarding potential public interest issues from the parties and possibly the public before initiating an investigation, which helps it to determine whether earlier examination of public interest information would be helpful to the case.  19 C.F.R. §§ 210.8(b), 210.8(c)(1).  Many third parties, since the time of the notice of proposed rulemaking, have taken advantage of the opportunity to file comments on the public interest.  See, e.g., Certain Auto. Navigation Sys., Components Thereof, & Prods. Containing Same, Inv. No. 337-TA-817, Letter from European-American Business Council in Response to the ITC's Invitation to File Comments on Public Interest Issues Raised by the Complaint (Nov. 2, 2011); Certain Hydroxyprogesterone Caproate & Prods. Containing the Same, Docket No. 2919, Letter from The March of Dimes in Response to the ITC's Invitation to File Comments on Public Interest Issues Raised by the Complaint (Nov. 8, 2011).  If it finds that the information would be helpful to the case, the Commission can direct the ALJ to conduct discovery on the public interest factors, and the respondents are required to submit a statement on the public interest factors and participate in discovery on the issue.  19 C.F.R. § 210.14(f).  Furthermore, once an ALJ's recommended determination on remedy and bonding is issued, the public is encouraged to comment on how the proposed remedy may affect the public interest.  19 C.F.R. § 210.50(a)(4).  In addition, the Commission continues its earlier practice of encouraging briefing from the parties, government agencies, and the public on the public interest when it decides to review an ALJ's initial determination on violation.  19 C.F.R. § 210.50(a)(4).

[59]  Certain Baseband Processor Chips & Chipsets, Transmitter & Receiver (Radio) Chips, Power Control Chips, & Prods. Containing Same, Including Cellular Tel. Handsets, Inv. No. 337-TA-543, Comm'n Op. (Pub. Version), at 136-154 (June 19, 2007).

[60]  Id. at 150.

[61]  Id. at 146-147.  These third parties included intervenors, other federal agencies (Federal Communications Commission and Federal Emergency Management Agency), and other public interest witnesses, such as a representative from the District of Columbia, representatives of emergency response associations, a representative of a public safety communications officials association and a member of the academic community.  Id.

[62]  Id. at 150-151.

[63]  Id. at 148.

[64]  Id. at 148.

[65]  Id. at 149.

[66]  Id. at 149.

[67]  Id. at 149.

[68]  Id. at 150. The Commission order in Baseband Processor Chips was vacated in partby the Federal Circuit in Kyocera Wireless Corp. v. Int'l Trade Comm'n, 545 F.3d 1340, 1359 (Fed. Cir. 2008).  That decision, however, dealt with the scope of limited exclusion orders and not with the application of the public interest factors in Section 337.

[69]  Certain Personal Data & Mobile Commc'ns Devices & Related Software ("Personal Data & Mobile Commc'ns Devices"), Inv. No. 337-TA-710, Notice of the Comm'n's Final Determination Finding a Violation of Section 337, at 3 (Dec. 19, 2011).

[70]  Personal Data & Mobile Commc'ns Devices, Inv. No. 337-TA-710, Comm'n Op., at 68 (Dec. 29, 2011).

[71]  Id. at 68 (citing 19 C.F.R. § 210.76(a)(1)).

[72]  Id. at 80-81.

[73]  Id. at 80-81.

[74]  Id. at 78.

[75]  Id. at 81.

[76]  Id. at 81.

[77]  Id. at 81.

[78]  Id. at 81.

[79]  Id. at 69.

[80]  Id. at 72.

[81]  Id. at 72-73.

[82]  The Commission rejected HTC's argument that the exclusion of its devices would affect the public health and welfare, as there was no evidence that HTC devices played a distinct role in that respect compared to other Android devices.  Id. at 73.  It clarified that, while "'mobile phones' may play a critical role in public health and safety[, it] does not mean that HTC Android smartphones play a critical role in public health and safety that other smartphones cannot."  Id. at 74. (emphasis in original).  The Commission further rejected HTC's and T-Mobile's comparisons of the situation to Baseband Processor Chips, explaining that it developed a tailored exclusion order in that case because it was unable to exclude the infringing articles completely, as the 3G network was still developing and there were insufficient alternative products.  Id. at 75-76.  T-Mobile had submitted a statement regarding the public interest in response to the Commission's notice of its determination to review in part the ALJ's initial determination.  Personal Data & Mobile Commc'ns Devices, Inv. No. 337-TA-710, Third-Party T-Mobile USA, Inc.'s Statement Regarding the Public Interest (Oct. 6, 2011).

[83]  The Commission found that issuance of an exclusion order would not result in a deficiency in the production of like or directly competitive articles in the United States as there was no evidence of domestic infringing HTC smartphone production.   Personal Data & Mobile Commc'ns Devices, Inv. No. 337-TA-710, Comm'n Op. at 77.  Furthermore, in response to third-party Google's argument that an exclusion order against technologies resulting from Android, "the only open and generative mobile computing platform developed and distributed in the U.S.," could leave U.S. consumers without access to those technologies, the Commission reiterated that the exclusion order was only against infringing HTC devices.  Id.  In addition, the Commission "d[id] not believe that open-source projects should be conferred special status or immunity from infringement allegations" and noted that other smartphone operating systems are developed in the United States.  Id.

[84] Certain Microprocessors, Components Thereof, & Prods. Containing Same, Inv. No. 337-TA-781, Initial Determination (Pub. Version), at 374 (Jan. 15, 201

[85] Id. at 366-372.  This recommendation is currently subject to Commission review.

[86] The Commission may determine to review an ALJ's initial determination sua sponte or based on a party's petition for review.  See 19 C.F.R. § 210.43(a).  If the Commission does not determine to review an initial determination, it becomes the determination of the Commission 45 days after the date of service.  19 C.F.R. § 210.42(h).

[87]  The questions do not necessarily suggest what the outcome will be, but it is worth noting the Commission's  increased attention to public interest and to SSO-related theories that could result in denial of an exclusion order in spite of a finding of violation.  The Commission's awareness can even be seen in the commentary of individual Commissioners.  For example, in Personal Data & Mobile Commc'ns Devices, Commissioner Pinkert made it a point to "emphasize that the existence of substitutes for the infringing devices does not obviate consideration of the likely impact of exclusion on the range of choices available to consumers in the smartphone marketplace. Such impact may warrant more searching inquiry in other investigations."  Inv. No. 337-TA-710, Additional Views of Comm'r Pinkert on Remedy and the Public Interest, at 1 (Dec. 29, 2011).

[88]  Certain Wireless Commc'n Devices, Portable Music & Data Processing Devices, Computers & Components Thereof ("Wireless Commc'n Devices"), Inv. No 337-TA-745, Notice of Comm'n Decision to Review in Part a Final Initial Determination Finding a Violation of Section 337; Request for Written Submissions (June 25, 2012).

[89]  Id. at 4 (Question 6).

[90]  Id. at 4-5 (Questions 7-13).

[91]  Id. at 4 (Questions 4-5).

[92]  Certain Elec. Devices, Including Wireless Commc'n Devices, Portable Music & Data Processing Devices, & Tablet Computers, Inv. No. 337-TA-794, Notice of Comm'n Determination to Review the Final Initial Determination; Schedule for Filing Written Submissions on the Issues Under Review & on Remedy, Public Interest, and Bonding (Nov. 20, 2012).

[93]  Id. at 3 (Question 2).

[94]  See Wireless Commc'n Devices, Inv. No 337-TA-745, Notice of Comm'n Decision to Review in Part a Final Initial Determination Finding a Violation of Section 337; Request for Written Submissions, at 2-3 (June 25, 2012); see also, e.g., Wireless Commc’n Devices, Inv. No. 337-TA-745, Statement of Qualcomm Incorporated on Public Interest Issues (July 9, 2012).

[95]  See, e.g., Certain Gaming & Entm't Consoles, Related Software, & Components Thereof, Inv. No. 337-TA-752, Letter from Cisco (June 7, 2012); Letter from Apple (June 8, 2012); Letter from IBM (June 13, 2012); Letter from the Fed. Trade Comm'n (June 6, 2012); Letter from the Judiciary Committee of the U.S. House of Representatives (June 7, 2012); Letter from Congressmen Reichert, Dicks, McDermott, Hastings, Smith, Larsen, Rodgers, and Beutler; Letter from the Illinois delegation (June 8, 2012); Letter from Congressman Issa (June 8, 2012); Letter from Senators Cantwell and Murray (June 28, 2012); Letter from Senators Lee, Kyl, Risch, Kohl, Cornyn, and Hoever (July 19, 2011).

[96]  Certain Optoelectronic Devices, Components Thereof, & Prods. Containing Same ("Optoelectronic Devices"), Inv. No. 337-TA-669, Initial Determination (Pub. Version) (Mar. 29, 2010).

[97]  Id. at 74-86.

[98]  Id. at 83-84.

[99]  Id. at 84.

[100]  Id. at 84-85.

[101]  Id. at 86-88.

[102]  Optoelectronic Devices, Inv. No. 337-TA-669, Notice of Comm'n Decision Not to Review a Final Initial Determination Finding a Violation of Section 337 (May 13, 2010).

[103]  Certain Mobile Tel. Handsets, Wireless Commc'n Devices, & Components Thereof ("Mobile Telephone Handsets"), Inv. No. 337-TA-578, Order No. 34 (Initial Determination) (Pub. Version) (Mar. 8, 2007).

[104]  See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 136-38 (1969); Princo Corp. v. Int'l Trade Comm'n, 616 F.3d 1318, 1331-32 (Fed. Cir. 2010).

[105]  Mobile Telephone Handsets, Inv. No. 337-TA-578, Notice of Comm'n Decision Not to Review an Initial Determination Granting Complainant's Motion for Summary Determination as to Respondents' Twelfth and Thirteenth Affirmative Defenses (Mar. 22, 2007).

[106]  Certain Wireless Commc'n Devices, Portable Music & Data Processing Devices, Computers & Components Thereof ("Wireless Commc'n Devices"), Inv. No. 337-TA-745, Corrected Verified Complaint under Section 337 of the Tariff Act of 1930, as Amended (Oct. 14, 2010).

[107]  Wireless Commc'n Devices, Inv. No. 337-TA-745, Apple Inc.'s Response to Motorola's Corrected Verified Complaint and Notice of Investigation, at 34-50 (Dec. 1, 2010).

[108]  See Wireless Commc'n Devices, Inv. No. 337-TA-745, Notice of Comm'n Decision to Review in Part a Final Initial Determination Finding a Violation of Section 337; Request for Written Submissions (June 25, 2012); see also supra p. 10.

[109]  Certain Elec. Devices, Including Wireless Commc'n Devices, Portable Music & Data Processing Devices, & Tablet Computers ("Electronic Devices"), Inv. No. 337-TA-794, Complaint under Section 337 of the Tariff Act of 1930, as Amended (June 23, 2011).

[110]  Electronic Devices, Inv. No. 337-TA-794, Notice of Comm'n Determination to Review the Final Initial Determination; Schedule for Filing Written Submissions on the Issues Under Review & on Remedy, Public Interest, & Bonding (Nov. 20, 2012).

[111] Electronic Devices, Inv. No. 337-TA-794, Notice of Comm’n Determination to Extend the Target Date for Completion of the Investigation (Dec. 28, 2012); Electronic Devices, Inv. No. 337-TA-794, Notice of Comm’n Determination to Extend the Target Date for Completion of the Investigation (Jan. 17, 2012).

[112]  Certain Gaming & Entm't Consoles, Related Software, & Components Thereof ("Gaming & Entertainment Consoles"), Inv. No. 337-TA-752, Verified Complaint under Section 337 of the Tariff Act of 1930, as Amended (Nov. 22, 2010).

[113]  Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Initial Determination, at 282-83.

[114]  Id. at 289-292.

[115]  Gaming & Entertainment Consoles, Inv. No. 337-TA-752, Notice of Comm'n Determination to Review a Final Initial Determination Finding a Violation of Section 337; Remand of the Investigation to the Administrative Law Judge, at 2-3 (June 29, 2012).

[116] Gaming & Entertainment Consoles, Inv. No. 337-TA-752 (Remand Proceeding), Motorola’s Motion to Terminate this Investigation in Part with Respect to U.S. Patents No. 5,319,712 and No. 5,357,571 (Oct. 24, 2012).

[117] Gaming & Entertainment Consoles, Inv. No. 337-TA-752 (Remand Proceeding), Motorola Mobility’s Motion to Terminate this Investigation In Part With Respect to U.S. Patent Nos. 6,980,596 and 7,162,094 (Jan. 8, 2013); In the Matter of Google Inc., FTC File No. 121-0120, Statement of the Federal Trade Commission, at 1 (Jan. 3, 2013); see also the Matter of Google Inc., FTC File No. 121-0120, Opening Remarks of Federal Trade Commission Chairman Jon Leibowitz, at 2 (Jan. 3, 2013) ("Google's settlement with the Commission requires Google to abandon its claims for injunctive relief on any of its standard essential patents with a FRAND commitment."); In the Matter of Motorola Mobility LLC, FTC File No. 121-0120, Agreement Containing Consent Order (Jan. 3, 2013); supra p. 8.

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About this Author

Attorney

Tom Schaumberg is a long-time advocate of the importance of Section 337 as an effective border enforcement mechanism against unfair import competition.    Mr. Schaumberg is the editor of both the first and second editions of the book published by the American Bar Association entitled A Lawyer’s Guide to Section 337 Investigations Before the U.S. International Trade Commission.  He has been a pioneer in various trade bar groups and associations with an interest in the statute. He helped found the ITC Trial Lawyers Association, was its first President and remains on its...

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Associate

Emi Ito Ortiz is an associate with Adduci, Mastriani & Schaumberg, LLP.  Her areas of concentration include intellectual property litigation and Section 337 investigations before the ITC, as well as customs matters. She is a member of the Giles S. Rich American Inn of Court, the ITC Trial Lawyers Association, and the National Asian Pacific American Bar Association.  Ms. Ortiz is a contributor to the second edition of the book published by the American Bar Association entitled, A Lawyer’s Guide to Section 337 Investigations Before the U.S. International...

202-467-6300