Hill Hearing Targets ITC 'Cavalier' Grants of Patent-Based Exclusion Orders

Goodlatte questioned whether the Supreme Court decision in eBay v. MercExchange was a driver for the increase in ITC cases in recent years. The case affirmed the traditional four-factor test for deciding when injunctive relief is appropriate for patent cases and subsequently increased the hurdles for so-called "patent trolls" to seek remedy in district courts, witnesses said. Goodlatte posited that ITC may have become a new forum for patent trolls to seek money from U.S. innovators and questioned whether the commission is too "cavalierly" granting exclusion orders. Though Goodlatte did not recommend any specific legislative solutions he said committee members are interested in communicating ideas to reform how the commission approaches patent disputes.

Ranking Member Mel Watt, D-N.C., said consumers are the losers in the escalating "patent arms race" and urged members to restore order. Entities are using "patent holdups" as an unfair negotiating tool to undermine their rivals, he said. "The ability to leverage standards essential patents to obtain an exclusion order may result either in these products being excluded from the market altogether or the companies paying unreasonable royalty rates to prevent an exclusion. Either way the consumer loses," said Watt. "It is time for the patent wars to find patent peace. They are a drain on the economy ... and ultimately not good for the consumer or the company."

Watt suggested giving the ITC the authority to punish litigants who bring frivolous cases to the agency. Witnesses said they were generally receptive to shifting legal fees to entities who are acting in bad faith. But Tessera Technologies General Counsel Bernard Cassidy, whose company has large IP holdings in wireless, consumer and computing technologies, objected. "It is a part of our legal system to allow people into the court and into the system at a very low threshold," Cassidy said. "Every judge knows that there will be nuisance cases brought before them."

Full Judiciary Committee Ranking Member John Conyers, D-Mich., said he was concerned about large companies using patents to advance their competitive position. "The large corporations have taken to collecting patents as a legitimate competitive tool to concentrate market power," he said. "I don't think it is the little companies that are keeping us unorganized. I gave up that naivete years ago." But witnesses disagreed that the issue is about large companies or institutions using their resources to subjugate smaller organizations.

Congress should act if the ITC does not move to curb "anti-capitalistic behavior," said Colleen Chien, Santa Clara University law professor. She said it's actually easier for patent trolls to acquire an injunction at the ITC than it is in district court. The ITC is not being used for its intended purpose as U.S. companies are more likely to find themselves in ITC patent disputes than foreign companies, she said. Ford Motor Co. IP Counsel David Kelley said the increased patent litigation at the ITC is a "problem that is hurting American manufacturers."

Cassidy said it would be "premature" for lawmakers to broadly legislate on the issue and instead should seek targeted remedies in cases where the ITC has failed. Congressional action should be reserved for a time when there is "strongest disagreement with the ITC's interpretation of when relief is appropriate for patent holders," he said. Furthermore, Congress should not extend the principles of the eBay decision to the ITC as it would would "substantially impede the ability of the commission," he said.