[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
ABUSIVE PATENT LITIGATION: THE ISSUES
IMPACTING AMERICAN COMPETITIVENESS AND
JOB CREATION AT THE INTERNATIONAL
TRADE COMMISSION AND BEYOND
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COURTS, INTELLECTUAL PROPERTY,
AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 16, 2013
__________
Serial No. 113-24
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio JUDY CHU, California
TED POE, Texas TED DEUTCH, Florida
JASON CHAFFETZ, Utah LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania KAREN BASS, California
TREY GOWDY, South Carolina CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
KEITH ROTHFUS, Pennsylvania
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Courts, Intellectual Property, and the Internet
HOWARD COBLE, North Carolina, Chairman
TOM MARINO, Pennsylvania, Vice-Chairman
F. JAMES SENSENBRENNER, Jr., MELVIN L. WATT, North Carolina
Wisconsin JOHN CONYERS, Jr., Michigan
LAMAR SMITH, Texas HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE CHABOT, Ohio Georgia
DARRELL E. ISSA, California JUDY CHU, California
TED POE, Texas TED DEUTCH, Florida
JASON CHAFFETZ, Utah KAREN BASS, California
MARK AMODEI, Nevada CEDRIC RICHMOND, Louisiana
BLAKE FARENTHOLD, Texas SUZAN DelBENE, Washington
GEORGE HOLDING, North Carolina HAKEEM JEFFRIES, New York
DOUG COLLINS, Georgia JERROLD NADLER, New York
RON DeSANTIS, Florida ZOE LOFGREN, California
KEITH ROTHFUS, Pennsylvania SHEILA JACKSON LEE, Texas
Joe Keeley, Chief Counsel
Stephanie Moore, Minority Counsel
C O N T E N T S
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APRIL 16, 2013
Page
OPENING STATEMENTS
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Courts,
Intellectual Property, and the Internet........................ 1
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Ranking Member, Subcommittee
on Courts, Intellectual Property, and the Internet............. 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member Subcommittee on Courts, Intellectual
Property, and the Internet..................................... 4
WITNESSES
Kevin H. Rhodes, Vice President and Chief Intellectual Property
Counsel, 3M Innovative Properties Company
Oral Testimony................................................. 7
Prepared Statement............................................. 9
Colleen V. Chien, Santa Clara University School of Law
Oral Testimony................................................. 40
Prepared Statement............................................. 42
Jon Dudas, former Under Secretary of Commerce for Intellectual
Property and Director of the United States Patent and Trademark
Office
Oral Testimony................................................. 49
Prepared Statement............................................. 51
Russell W. Binns, Jr., Associate General Counsel, IP Law and
Litigation, Avaya, Inc.
Oral Testimony................................................. 60
Prepared Statement............................................. 62
Deanna Tanner Okun, Partner, Adduci, Mastriani & Schaumberg, LLP,
former Commissioner, U.S. International Trade Commission
Oral Testimony................................................. 74
Prepared Statement............................................. 76
F. David Foster, Chairman, Legislative Committee, U.S.
International Trade Commission Trial Lawyers Association
Oral Testimony................................................. 88
Prepared Statement............................................. 90
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable Bob Goodlatte, a
Representative in Congress from the State of Virginia, and
Chairman, Committee on the Judiciary........................... 120
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the National Retail Federation and Shop.org 135
ABUSIVE PATENT LITIGATION: THE ISSUES IMPACTING AMERICAN
COMPETITIVENESS AND JOB CREATION AT THE INTERNATIONAL TRADE COMMISSION
AND BEYOND
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TUESDAY, APRIL 16, 2013
House of Representatives
Subcommittee on Courts, Intellectual Property,
and the Internet
Committee on the Judiciary
Washington, DC.
The Subcommittee met, pursuant to call, at 2:25 p.m., in
room 2141, Rayburn Office Building, the Honorable Howard Coble,
(Chairman of the Subcommittee) presiding.
Present: Representatives Coble, Goodlatte, Marino, Chabot,
Poe, Chaffetz, Farenthold, Collins, DeSantis, Watt, Conyers,
Chu, DelBene, Jeffries, Nadler, Lofgren and Jackson Lee.
Staff present: (Majority) Vishal Amin, Counsel; Olivia Lee,
Subcommittee Clerk; and (Minority) Stephanie Moore, Minority
Counsel.
Mr. Coble. The Subcommittee on Courts, Intellectual
Property, and the Internet will come to order. Without
objection, the Chair is authorized to declare a recess of the
Subcommittee at any time.
We welcome all our witnesses today.
Before we get into the hearing as such, I want to convey
our condolences to our New England friends who were the victims
of the inexcusable and indefensible tragedy that struck Boston
yesterday. I know the victims are all in our thoughts and
prayers.
I will give my opening statement now.
It is clear that abusive patent litigation serves as a drag
on our economy and our future competitiveness. The America
Invents Act of 2011 was the most substantial reform to the U.S.
patent system since the 1836 Patent Act. Though the America
Invents Act set our patent system on solid footing, there are
still a number of patents that have been issued or are
currently being reviewed under the old system. Many, if not
most, are good patents, but there are a number that probably
never should have been granted in the first place. Though these
patents will eventually work their way out of the system as
they expire, that does not mean that they are not causing real
harm to American entrepreneurs and job creators today.
Today's hearing builds on the Subcommittee's March 14th
hearing regarding abusive patent litigation, and on the July
18, 2012 hearing on the International Trade Commission. The ITC
has a long history, but in the last few years it has become an
attractive forum for patent cases. In fact, the average number
of ITC complaints filed annually during the past decade is
nearly triple the average for the previous decade. Some may say
that the situation is starting to get out of control.
Recent decisions at the ITC to expand the domestic and
industry requirement have led to more cases migrating to the
agency. When a patent holder brings a case at the ITC, the
alleged infringer faces the ultimate punishment, the exclusion
order. The ITC serves a narrow role. It is not meant to be an
alternative to district court, and it is not equipped to deal
with the complexities of today's various technologies.
When it is one patent to one product, the decision may be
clear. But when you are talking about a product with thousands
of patents spread across hardware and software, the issues
become much more complex. Patent assertion entities, PAEs, have
increasingly been using the ITC to drive litigation
settlements. With unlimited discovery and a punishment that is
absolute, a PAE knows that it will just make economic sense for
an infringer to simply pay up. And even when the case is
litigated at the ITC, since it is just a Federal agency, the
PAE can go to the ITC, lose, and still go to the district court
and sue again.
Clearly, the ITC has veered away from its statutory mandate
into uncharted waters. The ITC can still fix the problem that
they have created by taking several simple steps which include
narrowing the domestic industry requirement and conducting
their public and economic interest tests upfront when deciding
whether or not to even allow a case to proceed at the ITC
before discovery begins.
American innovation cannot be held hostage to frivolous
litigation from weak or over-broad patents. To ensure that the
American economy does not suffer legal gamesmanship that is
currently taking place by patent assertion entities, or patent
trolls, it is important for us to consider ways to remedy the
situation. I hope we will hear today what potential steps can
be taken to promote America's innovation economy and create
jobs.
I again thank the panel for your presence here today, and I
am now pleased to introduce the gentleman from North Carolina,
the Ranking Member, Mr. Mel Watt, for his opening statement.
Mr. Watt. I thank the other gentleman from North Carolina,
our Chair, and join him in expressing my shock and condolences
to those who were injured and the families of those who were
killed yesterday in Boston also.
Today we continue our examination of litigation abuses in
the patent arena, turning our focus for the first time in this
Congress to the International Trade Commission. I am very
pleased that we have before us the immediate past chair of the
Commission, Ms. Okun, and I would like to thank her publicly
for accepting the invitation to testify today.
Last Congress, then Chairman Smith, Ranking Member Conyers
and I wrote a letter to Chairman Okun expressing our concerns
about the policy implications of companies using the ITC to
seek exclusion orders on standard essential patents. We noted
that, ``The ability to leverage standard essential patents to
obtain an exclusion order may result either in these products
being excluded from markets altogether or in companies paying
unreasonable royalty rates to prevent an exclusion.''
Although today's hearing does not focus specifically on
standard essential patents, it does touch on the issue of
whether certain companies that are often called ``patent
trolls'' unfairly wrestle unreasonable royalties from
legitimate U.S. manufacturers with threats of obtaining
exclusion orders. More precisely, we are seeking to evaluate
whether the practices and procedures before the ITC, including
the domestic industry requirement, invite abuse by those
seeking to extract unjust settlements from manufacturing and
production companies that employ thousands of Americans.
It is for that reason that it is very valuable to have
Chairman Okun at our witness table today. That, of course, is
not designed to minimize the importance of the presence and
testimony of our other expert witnesses on today's panel.
Mr. Chairman, let me make four brief points. First, I think
it is evident that there is no satisfactory definition based on
business models of what constitutes a troll. The fact that an
entity, whether a university, an independent inventor, or a
patent aggregator does not exploit its patents in the same
manner in which a production company may use the patented
devices or technology does not mean that the entity is a troll,
or that it stifles innovation, or is otherwise non-essential to
the patent ecosystem. The existence of a robust secondary
market in patents is vital to the patent system, and
responsible non-practicing entities often play an important
role in that market.
Second, there are multiple players with distinct purposes
operating in this space that we all must be cognizant of. I
hope that I need not remind members of the Intellectual
Property Subcommittee that the principal objective of the
patent system is to promote the progress of science and the
useful arts by providing incentives to innovators to keep
innovating.
I also hope I need not remind members of the Judiciary
Committee that the judicial system exists to provide a civil
forum for the unbiased resolution of disputes between private
parties, and is largely premised upon the principle of open
access to all litigants with standing to sue, with
particularized sanctions for misuse or abuse of the system.
And the ITC, which exercises in rem jurisdiction, is a
trade forum whose core task is to protect U.S. industries from
unfair trade practices. It would be foolhardy to dismantle any
of these players, even at the margins, or unhinge their
foundational underpinnings to solve a particular perceived
problem, including the problem of trolls.
Third, I think there is a need for substantially more
information to avoid uninformed or precipitous action by this
Committee. While I don't discount the costs that abusive non-
practicing entities inflict on the marketplace, or the concern
of production companies about the number of settlements they
enter into. Because most settlements are confidential, it is
impossible to assess whether the numbers reflect that extortion
is taking place or, on the other hand, whether some of these
settlements might actually reflect fair compensation for
infringed property rights.
If infringement is taking place, we certainly don't want to
turn a blind eye to it simply because we don't like the
plaintiff or can conveniently categorize that plaintiff as a
troll.
Finally, although this Subcommittee does not have specific
jurisdiction over the inner workings of the ITC--we do have a
jurisdictional interest in how intellectual property is
impacted by its investigations. In that vein, I would caution
those who advocate for solutions directed at ill-defined
entities as opposed to specific abusive conduct to examine
carefully the implications of those proposals.
For example, isn't it possible that the Shield Act's loser
pay requirement in patent litigation in Federal court of a bond
for non-practicing entities to initiate suit could have the
unintended consequence of driving even more patent enforcement
activity to the ITC, the very complaint we are here trying to
address today? In other words, if we erect overly onerous
barriers to access the Federal courts, wouldn't non-practicing
entities that can meet the requirements at the ITC likely
migrate to that forum?
As I have indicated in our previous hearings, I continue to
believe that focusing on the activity as opposed to the actor
would yield better results.
With that, Mr. Chairman, I yield back the balance of my
time and look forward to hearing the testimony of our witnesses
today, and again welcome Ms. Okun and all of the witnesses.
Mr. Coble. I thank the gentleman from North Carolina.
The Chair now recognizes the distinguished gentleman from
Michigan, the Ranking Member for the full Committee, for his
opening statement.
Mr. Conyers. Thank you, Chairman Coble. I welcome all of
the witnesses, particularly the former chair of ITC and the
chairman of the legislative committee of the trial lawyers.
Now, it can't be disputed, and Mel Watt has done an
excellent job of this, that there has been an increase in the
number of new Section 337 investigations over the years. But we
should examine whether the increase in the number of these
investigations is really due to abusive behavior by the non-
profits or is there some other reason. For my part, let me just
say that these incredible increases of challenges tripled over
10 years is not good. Sixty-five percent of them proceed
simultaneously in the Federal district court, and I remain
skeptical of current proposals to abuse patent litigation by
reforming ITC legislatively.
There is not as much abuse as I first suspected, but this
is what we are holding the hearing for. I want to find out from
our experts. We know that these cases are being watched
closely. Any proposed change must not adversely impact American
innovators.
Now, the patent law is not efficient, the other reason that
we are here, 700,000 backlog. And although they are shrinking,
they are not shrinking fast enough. So let's find out what is
going to be revealed at this hearing.
I thank the Chairman, and I return my unused portion of
time.
Mr. Coble. I thank the gentleman from Michigan for his
comments.
I think Chairman Goodlatte was on his way, but I see he has
not arrived as yet.
We have a very distinguished panel of witnesses today, as I
previously indicated. Each of the witnesses' written statements
will be entered into the record in its entirety. I ask that
each witness summarize his or her testimony in 5 minutes or
less. To help you stay within that time frame, there is a
timing light on your table. When the light switches from green
to yellow, that is your indication that you have 1 minute to
remain and the ice upon which you are skating is thin.
[Laughter.]
No one will be keel-hauled. But if you can keep it within 5
minutes, that would be appreciated. When the light turns red,
that does signal that the 5 minutes have expired.
I will begin by swearing our witnesses in today before
introducing them. If you would, please, rise.
[Witnesses sworn.]
Mr. Coble. Let the record reflect that all answered in the
affirmative.
Now I will introduce each witness, and then we will proceed
with the testimony.
Our first witness today, Mr. Kevin Rhodes, Vice President
and Chief Intellectual Property Counsel, 3M Innovative
Properties Company. In his position, Mr. Rhodes manages 3M
global intellectual property assets in its worldwide
affiliates. Mr. Rhodes joined 3M in 2001. Prior to that, he was
a partner at Kirkland & Ellis in Chicago, specializing in
intellectual property and litigation. Mr. Rhodes is a member of
the Board of Directors of the Intellectual Property Owners
Association Educational Foundation.
Mr. Rhodes received his J.D. magna cum laude from
Northwestern University, and his B.A. in Chemistry from
Grinnell College.
Our second witness, Mr. Jon Dudas, former Undersecretary of
Commerce for Intellectual Property and Director of the U.S.
PTO. Mr. Dudas was appointed as Director in 2004 and served in
this position until 2009. He also served 6 years on the House
Judiciary Committee, including time as counsel of this
Subcommittee in the area of intellectual property, having
worked on major company patent rights and trademark policies
and laws. After leaving the U.S. PTO, Mr. Dudas joined the law
firm of Foley & Lardner as a partner and became President of
FIRST, For Inspiration and Recognition of Size and Technology.
Mr. Dudas currently serves on the Board of Directors of MOSAID
Technologies, Inc.
Mr. Dudas received his J.D. degree from the University of
Chicago and his B.S. in Finance summa cum laude from the
University of Illinois.
I understand that our third witness, Professor Colleen
Chien, is a constituent and friend of Congresswoman Zoe
Lofgren, and Ms. Lofgren has asked for the opportunity to
introduce Professor Chien, and I am now pleased to yield to her
for that purpose.
Ms. Lofgren. Well, I appreciate that very much, Mr.
Chairman, and it is an honor to introduce Professor Colleen
Chien. She is a Professor of Law at the University of Santa
Clara, my alma mater, and where I serve on the Board of
Visitors. She is nationally known for her research and
publications about patents, and especially domestic and
international patent law and policy issues. She is an expert on
the International Trade Commission and has authored many
articles about it, and is a co-author of the practice guide,
the Section 337 Patent Investigation Management Guide.
She is an engineering graduate of Stanford University, got
her juris doctorate from Boalt Hall. Before serving as a
professor, she prosecuted patents with Fenwick & West in San
Francisco, and also did stints as a consultant at Dean and
Company, a spacecraft engineering company at NASA Jet
Propulsion Lab. She is the inaugural Eric Yamamoto Emerging
Scholar at Santa Clara University Law School, and she is one of
Silicon Valley's Women of Influence, and I think all of the
Santa Clara University community is proud that she is a witness
here today.
I yield back, Mr. Chairman.
Mr. Coble. Thank you, Ms. Lofgren, and it is good to have
Ms. Chien with us as well.
Our fourth witness, Mr. Russell Binns, is Associate General
Counsel in IP law and litigation with Avaya. In his role, Mr.
Binns is responsible for all aspects of Avaya's worldwide
intellectual property legal operations, including IP litigation
and patent procurement. Prior to joining Avaya, Mr. Binns
worked as an IP litigator with Goodwin Procter in New York and
in Boston. He also serves as board member for the Intellectual
Property Owners Association.
Mr. Binns received his J.D. from the Franklin Pierce Law
Center and his Bachelor of Science in Electrical Engineering
from Clarkson University.
Our fifth witness is Ms. Deanna Tanner Okun, about whom we
heard earlier, a partner at Adduci, Mastriani & Schaumberg, and
former Chairman of the U.S. International Trade Commission. Ms.
Okun served two terms as chairman during her 12 years of
service at the ITC. Ms. Okun also served as counsel for
international affairs to Senator Frank Murkowski, associate
attorney and member of the International Trade Group at Hogan &
Hartson, and research associate specializing in trade at the
Competitive Enterprises Institute.
Ms. Okun received her J.D. with honors from Duke University
School of Law and her B.A. with honors from Utah State
University.
Our final witness, the sixth and final witness is Mr. David
Foster, Chairman of the Legislative Committee at the U.S.
International Trade Commission Trial Lawyers Association, also
known as U.S. ITCTLA. He is also a partner at Foster Murphy
Altman & Nickel, where he focuses on international intellectual
property matters, particularly international licensing and
litigation. Mr. Foster has worked extensively on Section 337 of
the Tariff Act beginning in 1974 while working at the ITC's
General Counsel office, and then as the Trade Counsel for the
Senate Finance Committee, and now represents complainants and
respondents litigating patent disputes at his firm.
Mr. Foster received both his law degree and his bachelor's
degree from Arizona State University.
Welcome to all of you.
Mr. Rhodes, if you will kick it off, and keep a sharp eye
on the time clock, if you will. Thank you.
TESTIMONY OF KEVIN H. RHODES, VICE PRESIDENT AND CHIEF
INTELLECTUAL PROPERTY COUNSEL, 3M INNOVATIVE PROPERTIES COMPANY
Mr. Rhodes. Thank you. Chairman Coble, Ranking Member Watt
and Members of the Subcommittee, thank you for the opportunity
to testify today. Because of the importance of a well-
functioning patent system to 3M's business model, which is
based on bringing innovative new products to its customers, 3M
has been engaged with Members of this Subcommittee and other
stakeholders for many years as we have discussed issues of
patent law and policy. We appreciate the opportunity to
continue that dialogue today.
3M brings a balanced perspective to the question of patent
litigation abuse. We have litigated patent disputes in district
courts across the country and in many ITC investigations. 3M is
a plaintiff as often as it is a defendant, and we recognize
that abusive litigation practices can be perpetrated by
defendants as well as plaintiffs, and by practicing patent
owners as well as non-practicing patent owners. It is the abuse
that should be targeted, not particular types of patent owners.
Any legislation to curb litigation abuse should ensure that
a patent owner's right to enforce against infringement--a core
value of the patent grant, the right to exclude others--is not
unduly weakened by overly broad reactions to litigation abuse
by a few patent owners.
Regarding calls for legislative action at this time, there
are a lot of moving parts right now in the patent system. Many
of them will impact patent litigation outcomes and procedures,
including the reforms just now fully being implemented by the
Leahy-Smith America Invents Act. Until the combined impacts of
these changes become clear, 3M urges caution in making major
changes that may risk unintended consequences or otherwise
upset the balance of the patent ecosystem as a whole.
Now, against that background and call for caution, I will
turn to the ITC. The ITC is an important venue for 3M and other
U.S. patent owners to protect their inventions against
infringing imports. The ITC is too important to weaken unless
and until a compelling case is made that it is broken and that
it cannot fix itself. I do not believe that case has been made.
Just yesterday, the ITC released updated caseload
statistics. I encourage you to review them. People look at
these statistics and the caseload data in different ways, but
what is telling to me is that the ITC itself has looked at its
data and it has concluded that the increase in its caseload has
not been caused by so-called patent assertion entities who seek
exclusion orders. And to the extent that there are legitimate
concerns, which there are, the ITC already has the tools and
the authority to guard against abuse. It has shown awareness of
the concerns being expressed, sensitivity to those, and it has
taken action to address them. I will give you a few examples of
the most recent actions it has taken.
In 2011, the ITC, in a case, clarified the elements needed
to establish a licensing-based domestic industry, and that is
how PAEs, patent assertion entities, seek to prove they have
established a domestic industry through licensing. Since that
time, only one party has been successful in establishing a
domestic industry through licensing investments, and that case
was in July of 2012. In that case, the ITC held that the party,
in establishing the domestic industry, could not rely on money
it had spent on purchasing patents, on patent litigation, and
on patent reexamination proceedings.
Just last month, in an investigation brought by a PAE, the
ITC ordered the judge to issue an expedited initial
determination within the first 100 days solely on the threshold
issue of whether that PAE can show a domestic industry through
licensing. The investigation will not proceed unless this
threshold showing is made. So this is a great example of active
case management identifying when domestic industry is a key
threshold issue, accelerating that determination to the front
of the investigation, and if that showing isn't made, the
investigation won't continue.
The ITC recently issued new rules that provide for a more
complete record on public interest considerations. These have
to be considered even before an investigation is begun, and
they must be taken into account before issuing any exclusion
order.
Finally, just last week, the ITC published new rules of
practice and discovery rules, and it has also proposed new
rules for E-discovery that are based on the Federal circuit's
recently issued E-discovery model order. So the ITC is looking
at all facets of its law and its practice to address the
concerns that have been expressed.
We believe it is prudent to monitor and assess the impact
of these efforts the ITC already has underway before
considering what, if any, further legislative changes may be
warranted.
As always, 3M remains committed to working with Congress
and all stakeholders to find fair and balanced solutions to
curb abusive litigation practices in patent cases. I will be
pleased to answer any questions or to supply any additional
information for the record. Thank you very much.
[The prepared statement of Mr. Rhodes follows:]
__________
Mr. Coble. Thank you, Mr. Rhodes.
Ms. Chien?
TESTIMONY OF COLLEEN V. CHIEN,
SANTA CLARA UNIVERSITY SCHOOL OF LAW
Ms. Chien. Thank you so much, Chairman Coble. Thank you so
much. It is really an honor and privilege to be here, Chairman
Coble, Members of the Subcommittee, and especially thank you to
Representative Lofgren for your wonderful remarks.
It is my privilege and honor to be here today, and I
commend you Members for your close attention to the abuses that
plague our patent system.
I have two points to make today. First, I believe that we
are spending too much time and money fighting about patents. I
believe this fighting is a problem because it drives companies
to settle even if their case is weak. That means that the
profits that come from patent assertion get increased, and this
breeds more fighting and more filing, even for weak patents.
Second, I believe Congress and agencies can stop this abuse
by reducing waste and duplication, and by helping companies
help themselves to resist patent demands over weak patents.
Point One: We are spending too much time and money fighting
about patents. I am talking here about campaigns of companies
like Lodsys against app developers that make the terrific
applications that we have on all of our smartphones. Many of
them have received demands based on implementing functionality
that is basic. These patents are in litigation. Apple says it
already has rights to them, and Google has placed these patents
into reexamination. Still, the letters and suits continue to
plague hundreds of app developers. I am talking about the
filing of cases in the ITC and district court at the same time.
Earlier, the statistic of 65 percent of overlap was cited.
When we went back and checked for 2012, we found that over 90
percent of cases in the ITC that were patent cases also had a
district court counterpart, which has different remedies and
procedures but much overlap otherwise.
Does it make sense to make litigants go to both venues? If
litigants can get exclusion orders in one place but not the
other, or if SHIELD applies in one place but not the other,
this invites forum shopping and abuse.
I am talking about small companies that call me and don't
have the resources to send their own representatives to these
hearings. Companies that make $10 million or less in revenue
are the majority of unique defendants to PAE suits.
Startups are crucial sources of new jobs, but patent
demands hinder their ability to hire and meet other milestones,
cause them to change their products and shut down lines of
business, according to a survey that I conducted. Forty percent
of them were targeted because of technology they did not make
but implemented or used.
Why is this happening? My sense is it is because the market
is impatient, and now the market is driving patent assertion,
because for all the epithets that are thrown at patent
assertion entities, they have very compelling economics. They
sell the market need by making patent enforcement affordable
and less risky. In fact, the economics are so compelling that
there are now over 15 publicly traded companies that bankroll
patent lawsuits. Intellectual property funds generate returns
between 10 and 20 percent, reports Julie Steinberg in her Wall
Street Journal article entitled, ``Stocks, Drugs, Rock 'n
Roll.''
Foreign governments are getting into the game: Korea's
Intellectual Discovery Fund, France's Brevets, and the
Innovation Network Corporation of Japan are examples. It is
only in this context that we can understand the filing of a
complaint by Swiss investor-backed PAE Beacon Navigation GmBH
against U.S. car companies that employ thousands of people at
the International Trade Commission, a venue that is designed to
protect domestic industries.
As PAEs increase, so do the burdens on our courts and the
public. Last year, PAEs filed over 50 percent of patent cases
in district courts and, according to my estimates, about 30
percent of ITC cases. These cases are complicated. They are
time-consuming. They can be torturous for jurors, and they clog
our dockets. But they also are rightful vindications of patent
rights. How can we streamline litigation to reduce the over-
incentive for enforcement but still allow for meritorious
claims to go through? In this testimony, I provide three
suggestions for consideration.
First, I believe we should look carefully at the
duplication in our patent system by trying to improve
coordination between patent entities. It makes no sense to have
more than one entity simultaneously decide a patent's validity
or whether the same act constitutes infringement. PAEs are now
suing multiple users of goods rather than single suppliers or
manufacturers of that good. Congress should reduce the
duplication that results by immunizing or eliminating liability
for innocent end-users or implementers that use the invention.
As I mentioned before, 90 percent of patent litigation in
the ITC were also filed in District Court. While that interface
is regulated by Section 1659, Congress should look carefully at
this overlap and make sure that there is no unnecessary
duplication between these efforts. We should also reduce waste
in our patent system, following the example of the Federal
Circuit Advisory Council's Model Order Initiative. Congress
should facilitate the benchmarking of courts trying innovations
in the patent pilot program so that the best practices for
reducing waste can be observed and disseminated.
Finally, I believe that we should reduce the government's
role in deciding patent disputes. The government should give
members of the public, and in particular the members of the
public that are not patent-savvy or well-funded, information
from which they can help themselves rather than going to a
court or lawyers. Courts should require governmental data
storehouses to provide data on patent litigations,
reexaminations, ITC actions and ownership information either by
themselves or to third party providers who promise to
consolidate and make it available to the public in an
accessible form. The FTC or PTO should provide authoritative
information about patents and options for responding to demand
letters. Many people now are getting a demand letter and don't
have anything to do or know about the patent system. They need
basic information about their options.
The duplication, redundancies, and lack of access to
information in our patent system invite abuse and forum
shopping. They clog our docket and consume our precious
judicial resources. They create lucrative opportunities for
patent assertion that is attracting financing and more suits.
I would be happy to take your questions in a question-and-
answer period.
[The prepared statement of Ms. Chien follows:]
__________
Mr. Coble. Thank you, Ms. Chien.
Mr. Dudas?
TESTIMONY OF JON DUDAS, FORMER UNDER SECRETARY OF COMMERCE FOR
INTELLECTUAL PROPERTY AND DIRECTOR OF THE UNITED STATES PATENT
AND TRADEMARK OFFICE
Mr. Dudas. Thanks very much, Mr. Chairman, Ranking Member
Watt, and all the Members of the Committee. It is a real
opportunity and an honor to testify before you today.
While I am not an ITC subject-matter expert, I do offer my
perspective as former undersecretary and a former staffer of
this Subcommittee.
For the last year, I also served on the Board of Directors
of MOSAID Technologies, Inc. In addition to holding 1,450
issued and pending patents from its own R&D, MOSAID
Technologies has a core expertise in managing high-quality
patent portfolios.
In my government role, I was honored to promote the United
States system of intellectual property throughout the world.
Nothing has given me more professional satisfaction and pride
than to explain our system and its economic benefits and growth
to officials from other Nations. Is it a perfect system?
Certainly not. But it is the best in the world, and its
tremendous value makes it worth your efforts to improve it.
This is an important point, because in an effort to advance
a particular point of view or an effort to advance a particular
model, our entire patent system has often come under attack.
Many have essentially claimed that the strength and value of
innovation lies not in the invention itself, not in the idea or
the model, but in who owns it. There is a growing lexicon of ad
hominem names for entities that own intellectual properties but
do not make products: ``troll,'' ``privateer'' are among the
most common. Name-calling is a distraction and plays no role in
addressing the actual problems facing our system, and there are
real problems.
It turns out there are many entities that own intellectual
property and do not make products, but they add tremendous
value to the system. It is not who owns the property that
matters but what they own and how they conduct themselves in
their ownership. There are certainly individuals or entities
that own patents, do not make products, and engage in abusive
and inappropriate practices. Likewise, there are those who own
patents, do make products, and engage in abusive and
inappropriate practices.
The solution will be to address abusive and inappropriate
practices, not to discriminate against certain business models.
Focusing on conduct allows judges to fashion remedies that fit
particular circumstances.
One example of focusing on conduct occurred just last week.
District Judge Scola noted of two companies locked in a patent
lawsuit, ``The parties have no interest in efficiently and
expeditiously resolving this dispute. They instead are using
this and similar litigation worldwide as a business strategy
that appears to have no end. That is not proper use of this
court.'' The judge did not discriminate against the companies
based on whether they made a product or did not, but because of
what he described as obstreperous and cantankerous conduct,
Judge Scola ordered the parties to narrow the case or he would
put it on hold, a remedy to the actual conduct.
As the Committee considers proposals for potential
additional modifications to patent law, please consider the
following principles.
Do no harm. The solution we seek should not cause more harm
than the problem--something that this Committee has looked at
many times in patent law.
Do not discriminate. The intellectual property is what
matters, not who owns it.
Please consider being conduct focused. Root out bad
behavior regardless of the actor, and make sure proposed change
will actually address the targeted conduct. That is one thing I
worry about, is are we going to actually resolve the issue, or
if there are really bad actors out there, and we know there
are, are they just going to find another way around the law?
Respect the role of the Federal judiciary and recognize
that some measure of judicial discretion will be necessary and
that the Federal judiciary already has the toolkit.
I will close my oral testimony with a story I find
particularly compelling. To me, it is an example of how the
U.S. innovation and intellectual property system has proven to
be an inspiration to the world. The head of the State
Intellectual Property Office of China, Tian Lipu, is a
brilliant man. He understands how strong intellectual property
laws will benefit China and any other country. He was one of
the partners we had to build, try to build a stronger
intellectual property system in China. In a symposium 2 years
ago, Commissioner Tian noted that Chinese manufacturers paid
$19.70 in patent royalties for each DVD player they produced.
His quote, ``This is 10.2 times their profit, which is only
$1.93 for each DVD player. In the year 2007 alone, the patent
royalties charged by multinational companies from Chinese
manufacturers amounted to $2.85 billion.''
His point is clear and well understood. What matters is not
so much who made the product but who had the innovation and who
had the idea. There is much more to be done in China, for
certain, on the intellectual property front, but it was a great
moment for me to see a leader of China make that point, that
the ideas are what are important. I would hate to sit across
the table and explain why in the U.S. system we treat different
patent owners differently from other patent owners when we are
negotiating with the Chinese to make certain that they treat
our innovators in China with the same respect that we demand
through international treaties.
In closing, allow me to thank you again for the chance to
share my views and answer any questions you may have. Please
know I welcome the opportunity to participate in the process
going forward. I am also certain that the company where I serve
as a corporate director, MOSAID Technologies, would welcome the
opportunity to participate as well.
The only professional regret I have, I just want to say at
this moment, was when I was on this Committee, I often sent
really hard questions up to Members of Congress to hassle the
witnesses, and I don't sleep at night now knowing that I did
that. [Laughter.]
Thank you very much.
[The prepared statement of Mr. Dudas follows:]
__________
Mr. Coble. Good to have you back on the Hill, Mr. Dudas.
Thank you, sir.
Mr. Binns?
TESTIMONY OF RUSSELL W. BINNS, JR., ASSOCIATE GENERAL COUNSEL,
IP LAW AND LITIGATION, AVAYA, INC.
Mr. Binns. Mr. Chairman and Members of the Committee, thank
you for convening this hearing and for the opportunity to
testify about the impact of abusive patent litigation today. I
am the head of intellectual property law at Avaya, a leading
provider of business and government communication systems
worldwide, with approximately 7,000 employees in the United
States and over 3,000 U.S. patents and patents pending. Avaya
has a long history of innovation that traces its roots back to
Alexander Graham Bell and Bell Labs. Avaya has been the victim
of substantial abusive litigation and believe we are
representative of many U.S. companies facing these issues.
Despite the best efforts of Congress and the courts, patent
assertion entities continue to have a deeply damaging effect on
the U.S. economy and consumers through both Federal court
litigation and the ITC. These abuses cost U.S. companies
billions of dollars that could be used to create jobs, invest
in R&D, and bring new products to consumers. The abuses are
even more clearly evident at the ITC, where patent assertion
entities are frequently bringing cases against companies with
operations in the U.S. seeking remedies that they don't want--
namely, exclusion orders. Yet exclusion orders go contrary to
the very business model of patent assertion entities.
A typical patent case costs millions through trial, and ITC
actions are much more expensive and compressed. Regardless of
the merits of the patents at issue, defendants are put in the
position of rolling the dice in this system. These complex
cases often coerce settlements that are out of line with the
value of an asserted patent that represents a miniscule part of
a targeted product. Patent assertion entities use their profits
from one suit to file additional suits, and as the cycle
continues and expands, no businesses are furthered, no jobs are
created, and progress of science or the useful arts are not
promoted. All of these costs are eventually shouldered by
consumers.
I think there are unintended consequences caused when
licensing was added in 1988 as a former domestic industry for
standing at the ITC without envisioning how 25 years later a
cottage industry of patent assertion entities would develop and
burden the patent system and U.S. operating companies. The ITC
was not created as a patent court for everyone but is a trade
court with limited jurisdiction. It should only be used by
those that need an exclusion order. The question everyone
should be asking is why should licensing entities that are only
seeking money have access to the ITC? From my experience,
licensing entities use it for ulterior motives, to coerce
settlements for more than what they could obtain in Federal
court.
Avaya, along with several other major U.S. companies,
recently faced an ITC dispute against a patent assertion entity
that was only seeking licensing revenue on products that we had
developed and had been commercializing for many years. Its
patent had nothing to do with communications, but was seeking
to exclude essentially all of our phones and gateways. Knowing
that its patent was for a small feature within a system and did
not justify the large damages in Federal court, it filed an ITC
action threatening an exclusion order.
During the case, settlement demands were based on a
disproportionate share of the entire revenue of these products,
and due to the cost of litigation and the chance of an
exclusion order issuing, Avaya settled for a substantial sum of
money. I believe the harm caused to companies such as Avaya by
even a few of these cases is problematic enough to warrant
change, and there are several ways Congress can improve the
system.
First, institute a hearing into the equities of each 337
investigation in an early stage of the proceeding. It is not
rocket science to determine if a complainant is using the ITC
for an exclusion order to prevent harm or rather using it to
obtain licensing revenue to support its business model. The
hearing should be the first matter undertaken by an ALJ and
would allow the ITC to prevent abusive patent assertion
entities from initiating non-trade-related investigations. The
inquiry could be similar to that used by the courts in applying
eBay before awarding injunctive relief.
Second, Congress should amend Section 337 to change the
domestic industry requirements by limiting qualification to
those who engaged in production-based licensing and not allow
complainants to rely on revenue-based licensing to satisfy
domestic industry. This can be accomplished and is appropriate
as licensing entities are seeking only money and the ITC cannot
award damages. These changes will preserve legitimate uses of
the ITC while constraining patent assertion entities that have
an adequate remedy at law in the Federal courts, where they
belong, thus protecting U.S. industry, jobs, and technology
from abusive and damaging litigation in ITC.
Thank you for holding this hearing and addressing this
problem that is harming American companies. I would be happy to
discuss these issues further with any of you at your
convenience, as these are critically important issues to Avaya.
Thank you.
[The prepared statement of Mr. Binns follows:]
__________
Mr. Coble. Thank you, Mr. Binns.
Ms. Okun?
TESTIMONY OF DEANNA TANNER OKUN, PARTNER, ADDUCI, MASTRIANI &
SCHAUMBERG, LLP, FORMER COMMISSIONER, U.S. INTERNATIONAL TRADE
COMMISSION
Ms. Okun. Thank you, Chairman Coble, Ranking Member Watt,
and Members of the Subcommittee. Thank you for the opportunity
to testify. It is an honor to engage in this important
discussion with you today and to appear on this panel of
distinguished witnesses.
Mr. Chairman, thank you for your introduction. Let me
reiterate that I appear in my individual capacity and not on
behalf of the firm or any of its clients, nor do I speak for
the U.S. ITC or my former colleagues. My purpose is to share my
perspective based on my recent experience as commissioner and
chairman. I will focus my oral remarks on a few key points for
consideration by the Subcommittee. I will refer Members to my
written statement, and I will be pleased to answer questions.
First, the ITC is an expert trade agency that, in
administering Section 337, provides an effective remedy to
combat the pervasive problem of infringing imports, thereby
providing essential protection to U.S. IPR owners and fostering
U.S. competitiveness and innovation.
Second, through its decisions and administrative actions,
it is my view that the ITC has sent a strong message that only
entities with substantial domestic ties will succeed under
Section 337. The data demonstrate that PAEs are not succeeding
at the ITC.
Third, the ITC, perhaps because it is small, non-partisan,
and quasi-judicial, has been nimble in addressing litigation
issues by pursuing case management and rules changes to reduce
the cost and burden of litigation.
Allow me to elaborate briefly on those three points.
As this Committee knows well, innovation is a primary
driver of U.S. economic growth and competitiveness. IP
licensing is one of the few industries in which the United
States enjoys a significant trade surplus. Unfortunately, the
infringement of IPR is a pervasive problem that harms companies
and consumers.
The advantages of Section 337 include expeditious
adjudication, experienced ITC judges, in rem jurisdiction, and
effective remedies. The prevalence of high technology products
with short life cycles underscores why these attributes make
the ITC an attractive venue for domestic industries battling
infringing imports. I respectfully submit that Section 337, by
serving as a mechanism for protecting U.S. IPR, promotes
American competitiveness and domestic job creation.
Critics claim that NPE's are easily satisfying the domestic
industry requirement through dubious investments in licensing
activities. To the contrary, since August 2011, only one NPE
has proved the existence of a licensing-based domestic
industry. In addition, and I want to underscore this really
important administrative development, the Commission, in a
recent case with an alleged PAE complainant accusing 15
respondents of patent infringement, ordered the presiding ALJ
to hold an early evidentiary hearing, find facts, and issue a
decision within 100 days as to whether the complainant had
established a domestic industry.
The Commission's decision to order an early hearing
demonstrates that PAEs must be prepared to prove their domestic
industry before addressing other aspects of the case. This puts
significant pressure on the PAE and reduces its leverage to
extract a settlement. Moreover, the expense to respondents is
potentially reduced as the case could be dismissed on domestic
industry grounds early on.
Next, I would like to focus on the data regarding NPEs at
the ITC. I want to note, yesterday the ITC posted on its
website an update on facts and trends regarding U.S. ITC
Section 337 investigations. According to the fact sheet, from
May 2006, when eBay was decided, through the first quarter of
2013, the U.S. ITC instituted 301 investigations. Of these,
Category 1 NPEs accounted for 33 investigations or 11 percent,
and Category 2 NPEs, which would resemble a PAE under many
definitions, accounted for just 27 investigations or 9 percent.
The second data issue concerns results, are PAEs obtaining
exclusion orders. Again, the facts do not support the hype. The
Commission has issued over 50 exclusion orders since 2006, only
four of them on behalf of NPEs, and those NPEs developed the
technology, or their affiliates.
Let me briefly touch on public interest issues. Before
issuing any remedial order, the Commission is required by
statute to consider the effect of such relief on the public
health and welfare, competitive conditions in the U.S. economy,
the production of like or directly competitive articles in the
U.S., and consumers. The ITC has tailored remedies based on
legitimate public interest concerns. In the most recent
example, the Commission delayed enforcement of remedial orders
by 4 months to provide network carriers time to replace the
infringing smart phones and permitted the respondent to import
replacement parts to be provided to customers under warranties
and insurance contracts. In addition, in 2011, the ITC issued
new rules allowing ALJs to develop the factual record on how a
complainant's request for relief would affect the public
interest.
Finally, I want to call the attention of the Committee to
the rulemaking initiatives of the Commission to increase the
efficiency and reduce costs for all litigants. While I was
chairman, the Commission initiated new rules and pilot programs
governing discovery, including e-discovery, inspired in part by
Chief Judge Rader's efforts to encourage courts and the ITC to
adopt rules that reduce the cost of litigation. The first set
of new rules, including limits on depositions and
interrogatories, issued last week, and new rules on e-discovery
are expected soon. These changes are additional evidence of a
nimble agency finding reasonable ways to best address the
matters under its jurisdiction.
Thank you, and I look forward to your questions.
[The prepared statement of Ms. Okun follows:]
__________
Mr. Coble. Thank you, Ms. Okun.
Mr. Foster?
TESTIMONY OF F. DAVID FOSTER, CHAIRMAN, LEGISLATIVE COMMITTEE,
U.S. INTERNATIONAL TRADE COMMISSION TRIAL LAWYERS ASSOCIATION
Mr. Foster. Thank you, Mr. Chairman and Ranking Member
Watt, and Members of the Committee. The U.S. International
Trade Commission Trial Lawyers Association appreciates the
opportunity to appear today. Many of the comments I was going
to make have been made by Mr. Rhodes and Ms. Okun, so I won't
repeat those, but I will focus on just a few issues.
One is that, as has been noted, while NPE use of Section
337 has increased, the development of the Commission's practice
and jurisprudence is addressing their use of Section 337, and
in particular their access to Section 337 and perceived
excessive leverage, the very issues that are addressed by some
of the proposed legislative changes that are being made.
The Commission, as administrator of the law, is well suited
to developing the application of Section 337 to NPEs and PAEs
and the issues raised thereby. Given that this process involves
the application of expertise and very complex fact and law
situations, we believe that thought should be given to
according the Commission deference in this process prior to
amendment of the statute.
The second point I would like to make, in addition to the
points that have already been made, is that in considering
amendments to Section 337, we would urge great caution, and I
will just reference one particular proposal and some of the
implications of that proposal.
Under one proposal, the Commission would be required to
apply in Section 337 investigations the same equitable
principles required by the eBay Supreme Court case to be
applied in district court patent cases when the court must
determine whether an injunction should be issued or whether
monetary relief only should be made available. The differences,
however, between Section 337 investigations and district court
cases dictate that such a proposal should be carefully
evaluated as to its appropriateness given the consequences that
would likely result. Unlike district courts, the Commission
does not have the ability to award damages if a violation is
found.
Section 337 is a trade, a border enforcement statute. It
operates in addition to any other provision of law, but it has
at its disposal only one remedy, the exclusion order. Congress
determined that only the remedy of exclusion should be applied
in Section 337 cases subject to consideration of the public
interest, which the Commission has to undertake in every case
when it is considering whether or not to issue an exclusion
order.
The House report on the 1988 act specifically noted a
temporary right to exclude others was the essence of the patent
right, citing Article 1, Section 8, Clause 8 of the
Constitution, and it was this 1988 act that amended Section 337
in significant fashion.
In Section 337 investigations, if no exclusion is issued,
no relief would be given even though infringement is occurring.
This effectively makes the eBay criteria of adequacy of legal--
that is, monetary--relief simply inapplicable to Section 337
investigations. The consideration of equity in these
circumstances is totally different than in district court
cases, where relief is always available, at least in the form
of damages.
So again, this is sort of an example of potential
unintended consequences or potential effects that would happen
with proposed amendments. And again, the Association would urge
Congress that in considering potential amendments, they take
into account the fact that you may have unintended
consequences, and also to allow the Commission to further
develop the jurisprudence which, in our view, is addressing
many of the issues that are raised by NPEs and PAEs.
Thank you for your consideration. I will be happy to answer
any questions.
[The prepared statement of Mr. Foster follows:]
__________
Mr. Coble. Thank you, Mr. Foster.
Ladies and gentlemen, thank you all again for your
contribution today.
We try to comply with the 5-minute rule as well, so we will
be appreciative if you all could keep your responses as terse
and as brief as possible.
I will start with you, Mr. Rhodes. Do you believe that the
patent assertion entities, PAEs, or those that accumulate large
numbers of patents for purely offensive purposes should be
subject to antitrust scrutiny?
Mr. Rhodes. Thank you for the question, Chairman Coble. I
think that it is difficult to generalize the business models
for patent monetization. I think there are a lot of different
approaches to the market by a lot of different entities. I
don't think that the business model of acquiring patents to
exploit them, whether it be by licensing with litigation or in
conjunction with litigation, because sometimes litigation is
needed to reach licensing agreements, ought to receive any
special antitrust scrutiny. I don't think that is in the nature
of the patent rights that have been granted. I don't think it
automatically should confer special scrutiny.
Mr. Coble. Thank you, sir.
Ms. Chien?
Ms. Chien. Thank you for the question. I believe that
scrutiny is appropriate. I don't know if the antitrust actions
are the right ones to regulate PAEs. I am not an antitrust
expert, but I think that exposing and understanding the
business model more fully is something that is within the
antitrust authorities, and I commend the FTC for considering
instituting a 6B investigation. We just don't know enough about
these entities. They have different names. They have different
organizations. We don't know enough about who is behind certain
suits, and these types of practices can be exposed through
scrutiny.
Mr. Coble. Mr. Dudas?
Mr. Dudas. All industries should be subject to antitrust
scrutiny as long as it is based on conduct and they are doing
something wrong. As a licensing company, some of the revenues
that have come out of patent licensing have led to 700 patents
in research and development for a new product that might start
a new industry. That is not anticompetitive. But even some of
the companies that engage in certain licensing agreements with
each other to keep people out, anything that looks like it is
really violating antitrust laws should be scrutinized. But I
don't think a particular industry, licensing or any other,
should be subject because of what it is to antitrust laws.
Mr. Coble. Thank you, sir.
Mr. Binns?
Mr. Binns. Yes. I am not an antitrust expert, but I would
think that, as Mr. Dudas has said, that there should not be any
entity that is exempt from antitrust laws. If they are
conducting actions that are in violation of antitrust laws,
they should be susceptible to those, and that could be a
possible course of conduct against them.
Mr. Coble. Thank you, sir.
Ms. Okun?
Ms. Okun. I am not an antitrust expert, so I would prefer
not to answer the question.
Mr. Coble. All right.
Mr. Foster?
Mr. Foster. I could say exactly the same thing, but I will
at least comment that I echo the comments of Mr. Dudas, that
there is no exemption from the antitrust law, but I don't think
that categorizing somebody as an NPE means that they should be
subject to any particular scrutiny other than based on their
particular conduct and the conduct of that group.
Mr. Coble. Thank you, sir.
This is for all witnesses again. I think we all understand
the value of having a strong patent system, but do we see
operational inefficiencies in the current patent litigation
system where the cost to defend far outweighs the cost to
accuse? How can we better improve our patent litigation system
to get it on a par with a newly modernized post-AIA patent
system?
Mr. Rhodes. Thank you for the question, Chairman Coble. I
suggested three possible areas of exploration in my testimony.
One is to encourage more fee shifting against non-meritorious
behavior in patent cases; two, to look at ways to impose more
discovery, rationality, proportionality, and cost shifting in
appropriate circumstances; and three, to provide for a
codification of the right to stay downstream cases against
customers or end-users in favor of the manufacturer or primary
supplier of the product having the battle with the patent owner
in the first instance.
In addition to that, I would add that there are a few
follow-up actions from the AIA that I think would be
appropriate. One is to fix the estoppel provision that could
have raised from post-grant review, to lessen that to what it
was intended to be without the could-have-raised estoppel.
Mr. Coble. Thank you, sir.
Ms. Chien. I agree with Mr. Rhodes. One other point I would
like to make is that I think that the interface between the PTO
and the district court should be carefully monitored. As I
mentioned before, these overlaps between the different entities
in the patent system need to be looked at, but in particular
with respect to staying cases, the district court judges that I
talked to want to give their litigants relief, and so they are
reluctant sometimes to stay cases. But it doesn't make sense to
have the PTO going on one course that could potentially
invalidate a patent and still have parties spend millions of
dollars on discovery. So I urge that there be a closer look at
that interface.
Mr. Coble. Thank you.
Mr. Dudas?
Mr. Dudas. I would just make one point, that companies that
are excellent portfolio management companies, they are not
litigation companies, they are licensing companies, and I am
not sure that their litigation costs aren't as high as
defendants, because they are there to really license. I think
the big problem is those companies--and there are many of them
out there that are abusing the situation--if they are there for
the cost of litigation, I think that is what we are talking
about. If they are frivolous suits to begin with and they want
to settle out on costs of litigation, then yes, we really do
need to identify that, and I agree with some of the statements
made by other witnesses. Well, I would say my own, which is
that attorneys' fees, rule 11, more transparency in the system,
there are ways to address that so that we can root out the
frivolous bad actors.
Mr. Coble. Thank you, sir.
Mr. Binns. Thank you. The costs are very asymmetrical
between a patent assertion entity and an operating company that
gets sued, whether it be in Federal court or the ITC. A
licensing entity typically doesn't have very many employees. It
doesn't have a terribly large number of documents. It usually
has all the documents prepared on a CD before they even start
the suit, and the defendant has to usually spend a tremendous
amount of time not just on lawyers but on internal resources,
devoting people that should be doing R&D and other functions at
the company full-time on discovery efforts. These cost
differences are a big problem, and I think that the judges need
to act as better gatekeepers on discovery. There should be more
sanctions offered when things are disproportionate or when
plaintiff is being just abusive with the discovery to try to
force a party into settlement.
Mr. Coble. Thank you, sir.
Ms. Okun. Yes. I think it is very important for the ITC to
continue to address lowering the cost to all litigants, and I
think the rulemaking that was begun and is continuing where
companies, such as the ones you are hearing from today, can
comment but they have limited interrogatories at the Commission
now, limited depositions, and then the other administrative
action I mentioned earlier of holding a 100-day hearing on a
threshold issue of domestic industry can reduce costs to
respondents as well. So I encourage the Commission to continue
that and to look, I would say, on the sanctions side where
there is frivolous or abusive litigation, to use that as a tool
as well. Thank you.
Mr. Coble. Thank you, Ms. Okun.
Mr. Foster?
Mr. Foster. I would just echo the comments of former
Chairman Okun and indicate that I think the Commission and its
judges are making increased efforts to try to control costs and
try to penalize dilatory and inappropriate behavior, and
motions for sanctions are on the increase, and the Commission
and judges are not shy about imposing fees for abusive
discovery, for example. I think that is likely to continue and
hopefully will help to control some of the costs.
Mr. Coble. Thank you, sir. I see my red light has
illuminated, so I will recognize the gentleman from North
Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman. Ms. DelBene, one of our
new Members, has made me aware of an irreconcilable conflict
she has, so I am going to yield my time to her and go all the
way at the end of everybody else.
Ms. DelBene. I would like to thank the Ranking Member for
giving me the time, and thank you all for being here and for
your testimony.
Ms. Okun referenced the fact sheet that the ITC just put
out, and in it it talks about the number of cases from non-
practicing entities, and in particular talks about entities
that do not manufacture products that practice the asserted
patents and whose business model primarily focuses on
purchasing and asserting patents. In this data, 9 percent of
the cases are of those types of non-practicing entities, and I
think, Professor Chien, you said maybe 35 percent of the cases
were from non-practicing entities. I just wondered how you
calculated your data and whether you agree or think of it
differently.
Ms. Chien. I haven't seen this data sheet, but I know of
their methodology from before, and they separate patent
assertion entities into two types, or two types of NPEs. The
data you cited also is over the 2006 to 2013 period, and what I
cited was 30 percent from the last year alone. So I wouldn't
expect there to be very many cases in earlier years, but now as
patent assertion entities have become prevalent in district
court litigation, just in that way they are also coming to the
ITC.
Ms. DelBene. And, Ms. Okun, I just wanted to ask for your
response on that because I am trying to get an idea of what the
numbers actually are.
Ms. Okun. Sure. So, Ms. Chien is correct in terms of the
fact sheet references the period post-eBay since there was a
lot of discussion of was there a flood after eBay was decided,
and I think these numbers would show no. In an individual year,
if you look at--2011 was a high point in cases filed at the ITC
altogether, so all cases went up. In 2012, the caseload at the
ITC went down by 30 percent. The number of NPEs, total NPEs,
remained about the same. So the percentage is higher in 2012
than in 2011, but the overall caseload is down, and down again.
Ms. DelBene. And so you think that trend is consistent even
though that 1 year is slightly different?
Ms. Okun. I think over time looking at this, it is just not
a large portion of the caseload given that most of the other
cases that are brought are more traditional.
Again, it is there, and I think that is the reason you have
seen the Commission, both through its decision-making on the
cases that have come before it and in these administrative
actions, look for even these few cases that have been filed as
ways to say are they meeting the domestic industry requirement
as a threshold issue. They have to show substantial ties.
Litigation expenses alone are not enough, according to the ITC.
The ITC in its case law has said it looks to productive versus
revenue-driven licensing even though all of it is looked at.
But it is very case specific. If you read the cases that have
dealt with PAEs and NPEs, I think that has been a very fact-
specific inquiry to make sure that the ITC is administering the
statute consistent with what Congress intended when it was
amended in 1988.
Ms. DelBene. Thank you.
Professor Chien, you look like you had something else to
say.
Ms. Chien. Right. No, I agree with the remarks of Chairman
Okun, especially that the ITC is paying more attention to
domestic industry.
One thing in terms of just statistics to be aware of,
though, is that not only the number and share of cases is
important, but also the number of defendants and the share of
respondents. So because the ITC does not apply the rules that
were enacted as part of the AIA, you can still name a lot of
defendants there. So the number of defendants, when you count
by that, we counted that to be about 50 percent of defendants
in 2012.
At the same time, I do want to acknowledge that the ITC is
evolving its domestic industry case law, and I think this 100-
day case management that was just proposed is a great
development. I think it also provides an example for the rest
of the court system. Earlier the question was asked how do we
reduce waste and duplication in the system. One way is to have
early disposition of dispositive motions heard, whether it be
about standing or about whether or not the patent is subject-
matter eligible. For example, if Apple can say, well, we
actually have exhaustion doctrine that would cover all the
people here, why should we go on with the case. So those types
of things in terms of spacing out and ordering the cases
properly can result in great efficiencies.
Ms. DelBene. Thank you. And again, I would like to thank
the Ranking Member, and I yield back my time.
Mr. Coble. I thank the gentle lady.
The gentleman from Pennsylvania, Mr. Marino.
Mr. Marino. Thank you, Chairman, and welcome, members of
the panel.
Mr. Foster, I want to start with you, if you would, please.
Should Congress try to define PAEs in order to limit their
activity, or instead try to define abusive behavior and limit
that?
Mr. Foster. Well, I am not certain that Congress needs to
do either. I think at least in terms of what the Commission is
doing, the Commission has its statute, has its requirement for
domestic industry, and the law permits a licensing industry.
And whether it is a PAE that is just an aggregator and has
nothing but patents, or whether it is an NPE that has
production of one type but has additional patents that it is
trying to monetize, the Commission looks at the statute and
makes a determination of whether there is an industry. It
really doesn't look, so to speak, and try to define the
complainant as either an NPE or not. It simply says whoever you
are, what are your assertions as to what your domestic industry
is, and then it applies its regulations, its rules, the statute
to that and makes a determination as to whether or not there is
a licensing industry.
So from that perspective, what the Commission is doing is
really not just sort of focusing on NPEs and saying we are
going to address the NPE issue. They are simply saying if you
come here, you have to have a recognizable industry as required
by the statute. If you don't, you won't get relief.
Mr. Marino. Ms. Okun, please.
Ms. Okun. Yes. If I could just add that I really think the
focus on abusive behavior is the correct one, particularly for
the Commission or the court, because that is something that
helps all litigants. Again, I don't think it is based on who
the litigant is. There can be abusive behavior whether you are
a PAE or a regular litigant. But the Commission should care
about that, and reducing the cost of litigation, and finding
ways to help its judges do these things more expeditiously. I
think it is good for the system. So I think that is where the
focus properly should be.
Mr. Marino. Professor, you look like you want to say
something.
Ms. Chien. Well, I think a lot of comments here have been
about focusing on the behavior and not the entity, and I do
endorse those sentiments. But I think that they are linked
together, because a lot of the asymmetries and advantages from
PAEs flow from the business model, which is if you don't have
customers, they don't make anything, they are not in the
market. Normal companies don't sue their customers, but PAEs
don't have customers, so they can't sue end-users, and they do
so. Normal companies have a reputation to defend. They don't
start fights unless they really believe it is important for the
competition. PAEs don't have to worry about their reputation.
They are not in the marketplace. They don't have to worry about
people thinking that they are engaging in litigation just for
the sake of the litigation. That is their business. They don't
have to worry about the threat of retaliation in terms of a
counter-suit, or about production of documents.
So the business model itself is set up in a particular way,
and it is very compelling. It is not something that I think--I
am not saying that the people that are working in it are bad
actors. There are legitimate investors and different entities
that are investing in PAE activities. Even large companies
sometimes are partnering with them. So it is the business model
itself which can lead to abuses.
Mr. Marino. So with that thought in mind, what would you do
concerning the PAEs and the entities that do not produce?
Ms. Chien. Well, I would look carefully at their behavior,
but I would really focus on these things that they do that
normal companies don't and just be aware that some of these
asymmetries, for example, which could be fixed by fee shifting,
for example, are related again to this model. So I think,
again, looking at the behavior, but also the model and just
being aware, and understanding the model very deeply is what
will lead to narrowly tailored interventions that will actually
work.
Mr. Marino. Mr. Dudas, would you please, if you want to
respond to that, but I also want an explanation from you as to
what is the intent, why do we need PAEs.
Mr. Dudas. So responding to that, I would just say that
MOSAID is a company that does want everyone to know about their
licensing, about their technology, about how they have 1,450
patents. So they do care about that. I think there are some
points that are correct about how the model works, but that is
one of the things I think can be a difference.
How can we address that? More transparency. For those who
don't want anyone to know who owns the patents, whether it is
in litigation or whether it is before the Patent and Trademark
Office, let's make sure they do know. Addressing abusive
practices in litigation itself, again, a ``loser pays'' model
that applies to everybody is something to really consider.
And, I'm sorry, your next question was about why do we need
them at all?
Mr. Marino. Yes.
Mr. Dudas. I think because we are becoming a much more
knowledge-based economy, the idea that actually owning the
ideas is something that we celebrate in every Nation, the idea
that we transfer to a knowledge-based economy. There is more
efficiency. The reason there are companies that come to
MOSAID--MOSAID started out as a company that had a lot of
research and development and found out that their patents were
being infringed. They developed a licensing model because they
had to. Otherwise, they weren't getting paid for any of their
R&D. They developed an expertise in that. Some companies don't
have as deep of an expertise. If a company can license its IP
really well in-house, that is fantastic. But a number of
companies have come to MOSAID to say you can do a better job of
developing this technology.
And another that was just raised as well, it doesn't
subject itself to traditional cross-licensing type of thing,
where I won't sue you if you don't sue me.
Mr. Marino. Thank you. I see my time has expired. I yield
back.
Mr. Coble. I thank the gentleman.
The Chair recognizes the gentleman from Michigan, Mr.
Conyers.
Mr. Conyers. Thank you, Chairman Coble.
I am wondering what the thought is about the SHIELD Act. I
am wondering whether the statute is disproportionately applied
by NPEs and PAEs. And finally, I am wondering if ITC should not
have jurisdiction if the infringer is not subject to the
Federal court's jurisdiction. What do you think?
Mr. Rhodes. Thank you for the question, Representative
Conyers. First of all, I think that the SHIELD Act is a flawed
approach to litigation abuse reform. I think it suffers from
the flaw that we just discussed, and that is it targets the
actor and not the bad action. It is not truly a fee shifting.
It is just a ``loser pays'' for certain types of patent owners
who are penalized, as compared to other litigants who might be
engaging in exactly the same behavior and not be challenged.
I have put in my written statement and I have said this
afternoon that I do believe a relaxation of ``loser pays,'' or
I should say to have more ``loser pays'' is an appropriate
approach to remedy some of the abuse, but only if it is applied
equally and targeted at behavior and not litigants.
As to your second question about ITC jurisdiction if there
is also Federal court jurisdiction, for us I think it is
important to point out that these are complementary procedures
and they really do work in conjunction with each other. If we
have a situation which we have had many times in the past where
there is infringing importation that we want to remedy, we are
willing to go to the ITC. We are not looking for every remedy.
We are not looking for damages. But we can get a fast, very
efficiently run proceeding with knowledgeable ALJs and well-
defined procedures to see if we can stop that importation from
occurring, and we have done that on everything from canary
yellow Post-it notes to lithium ion batteries in the past, and
it has been very effective, and I think it is an essential tool
when a U.S. patent-holder wants to prevent infringing imports.
It is not designed for everything. It is not commensurate with
the district court, but it is complementary in my view.
Mr. Conyers. What do you think, former chairman, about the
statute being disproportionately applied to NPEs and PAEs?
Ms. Okun. Thank you for the question. I think the
statistics that I mentioned earlier and most recently in the
official statistics released by the Commission indicate that it
is not disproportionately being used by NPEs, that they are a
small portion. Yes, the caseload has grown generally at the
ITC.
On that point, I would note that if you look at our trade
balance, what you find at the ITC is if you have a lot of
imports coming in, you have more infringing imports, and so we
think we have seen growth in the caseload because of that. But
I don't think it is disproportionate, and it is not only not
disproportionate in terms of their filings, they certainly are
not succeeding at the ITC. Out of 50 orders that the ITC has
issued, only four were for NPEs, and those NPEs were--either
the NPE or their affiliate developed the technology. So it is
not even in this other category of a PAE.
So I think the statistics don't support that it is
disproportionate. I don't think the results support that.
Therefore, I think that the Commission, through applying the
statute--and for those of you who have had a chance to read the
Commission's decisions on licensing, again, it is a high
threshold. You have to show ties to the domestic industry. It
is substantial, and most NPEs don't make it, only one since
2011.
So all those things I think support that it is not
disproportionate. Thank you.
Mr. Conyers. Should the patent disputes be limited to
infringers not in the Federal court jurisdiction?
Ms. Okun. Sorry, I forgot the second part of your question
about the jurisdiction. I think Mr. Rhodes is an example of
explaining why there is a trade statute designed to stop
infringing imports. It is an unfair competition statute. It is
not a patent statute. Yes, a lot of patent holders use it, but
they use it to stop infringing imports. So at its base, it is a
trade statute and was set up by Congress to be in addition to
other provisions.
So, yes, you can bring a case, but I think, as Mr. Rhodes
pointed out, and what I saw when I was at the Commission, is
where you have technology that needs to come to market and you
have infringing imports, your ability to stop that allows you
to get your product to market. If you are forced to stay the
ITC, as some have suggested, and go through the district court
first, with all due respect to district courts, they have a lot
on their plate. They don't get to these things quickly. It is
not an expeditious forum, and the IPR holder whose rights are
being infringed sits there. Yes, he might get damages at the
end, but he may not succeed in the market if the infringing
imports are allowed to go through during that time period.
Thanks.
Mr. Conyers. Thank you, Mr. Chairman.
Mr. Coble. Thank you, Mr. Conyers.
The Chair recognizes the Chairman of the full Committee,
who has now arrived, Chairman Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman. I appreciate you
holding this hearing, and I wish I had been here earlier to
read my great statement into the record, but instead I will
just ask unanimous consent that it be put in the record so I
can ask some questions of these great witnesses.
Mr. Coble. Without objection.
[The prepared statement of Mr. Goodlatte follows:]
Prepared Statement of the Honorable Bob Goodlatte, a Representative in
Congress from the State of Virginia, and Chairman, Committee on the
Judiciary
U.S. House Judiciary Committee Chairman Bob Goodlatte Subcommittee
on Courts, Intellectual Property and the Internet Hearing on: ``Abusive
Patent Litigation: The Issues Impacting American Competitiveness and
Job Creation at the International Trade Commission and Beyond''
Statement Submitted for the Record
During the last Congress we passed the America Invents Act (AIA).
That bill was the most significant reform to the patent system in my
lifetime. The AIA modernizes our patent system and sets it on the right
path for decades to come.
The AIA included a number of provisions that went directly to
addressing the issues surrounding patent quality. The PTO has new
programs in place to ensure higher quality patents that can stand up to
review, setting the bar higher so that quality control starts on the
front end rather than relying on the federal courts system to fix
problems.
The U.S. patent system is designed to be fair, meeting our
international obligations and not discriminating against any field of
technology. The strength of the U.S. system relies on the granting of
strong patents, ones that are truly novel and non-obvious inventions,
those that are true innovations and not the product of legal
gamesmanship.
While the AIA paved the way for higher quality patents on the front
end, there were a few issues that were left on the cutting room floor
during the last Congress that could help go more directly to the
immediate issues surrounding patent assertion entities (PAEs) or patent
trolls.
Abusive patent litigation is a drag on our economy. Everyone from
independent inventors, to start-ups, to mid and large sized businesses
face this constant threat.
Many of these lawsuits are filed against small and medium-sized
businesses, targeting a settlement just under what it would cost for
litigation, knowing that these businesses will want to avoid costly
litigation and probably pay up. And it is this type of tactic that has
now made the International Trade Commission (ITC) an attractive venue
for patent cases.
The ITC has at its disposal the ability to issue exclusion orders
that block the importation of ``infringing'' products into the United
States. Since the ITC is a federal agency and not an Article III court,
it makes sense that it is limited to this single remedy.
In recent years, however, PAEs have used the Commission as a forum
to assert weak or poorly-issued patents against American businesses.
It is evident that there are cases that have come before the ITC
that probably should be litigated exclusively in our U.S. District
Courts. Nowhere is the disharmony between patent law and Article III
court precedent more on display than the application of exclusion
orders in technology cases at the ITC.
For example, Congress established an important counter-balance to
the blunt sanction of the exclusion order in the public-interest test
provided under Section 337. The statute requires the ITC to consider
public health and welfare, and the impact of an exclusion order on
competition in the marketplace before issuing an exclusion order; yet
the ITC rarely exercises its responsibility to apply the public-
interest test. This failure to follow the law has particularly damaging
results in today's technology markets in which products are often
reliant on hundreds or thousands of patents. The ITC has the ability to
take certain immediate steps within its statutory authority to correct
these problems.
Three key adjustments that the ITC should consider undertaking
include: A return to a pre-2010 domestic-industry standard that does
not allow legal expenses, airplane flights, and the like to satisfy the
domestic-industry requirement.
Second, application of the public-interest test and economic-
interest test at the beginning of a Section 337 review for purposes of
determining claims consideration as well as the issuance of exclusion
orders.
And third, based on the public-interest and economic-interest test
analysis, articulation of standards that clarify which patent disputes
should be adjudicated by the ITC and those which are more properly
addressed by U.S. district courts.
The patent system was never intended to be a playground for trial
lawyers and frivolous claims. We need to work on reforms to discourage
frivolous patent litigation and keep U.S. patent laws up to date.
Abraham Lincoln once said that ``the patent system added the fuel of
interest to the fire of genius.'' Well I for one would not want to see
the spark of innovation and job creation go out because of a few folks
who are adding water to the proverbial gas tank.
Abusive patent troll litigation strikes at the very heart of
American innovation and jobs. That is why Congress, the Federal Courts
and the PTO should continue to take the necessary steps to ensure that
the patent system continues to be one that lives up to the vision of
our Founders, truly promoting the progress of science and the useful
arts.
I look forward to hearing from all of our witnesses on the issue of
abusive patent litigation and potential solutions to this growing
problem, in order to ensure that we continue to promote American
ingenuity, innovation and jobs.
__________
Mr. Goodlatte. Thank you, Mr. Chairman.
First, I will direct a question to several of you. I'll
start with you, Mr. Rhodes.
When it comes to the patent system, especially patent
ownership, do you believe that it is appropriate for entities
to assert a patent far beyond the value of its contribution to
the art? Are there or should there be limits to asserting
patents in litigation?
Mr. Rhodes. Well, thank you for the question. That is a
very difficult question, of course. Certainly, we all would
hope that patents would be asserted commensurate with their
contribution to the art, but those are the disputes of which
Federal court litigation is made, what is their contribution. I
think it is a problem that has existed but one that the courts
are looking at and working on, primarily in the area of the
development of damages jurisprudence.
So if you look at some of the decisions that have come out
of the Federal circuit, in the Lucent case for example, that
really dealt with the entire market value rule and how
components of a larger product should be valued for purposes of
infringement determinations and damages, the Uniloc case which
talked about the rules of thumb that the Federal circuit threw
out, I think that issue is being addressed, and I think we all
have the same goal--to try to measure what the contribution
is--and we are working in that direction.
Mr. Goodlatte. Professor Chien?
Ms. Chien. Damages and settlements should be driven I think
precisely as you say, by the economic value of that patent and
its contribution to that product. Right now, however, what is
happening instead is that the cost of litigation avoidance is a
big factor, as well as what a jury might be persuaded to value
the patent as.
I actually endorse in my testimony doing a study that can
help us bring damages calculations down to earth and actually
inject a real-life ex-ante negotiation for what is this patent
actually contributing to this product in its decision, when I
am making a product and I am deciding between alternative
technologies, what is the value of this technology over another
technology. Those types of analyses should be done. We should
understand what is happening in the real world for the
evaluation of patents.
Mr. Goodlatte. Let me ask another question since you are
all giving good answers, but they are long and I have a couple
of other questions.
Let me ask Mr. Dudas, do ITC patent investigations
complement or conflict with patent litigation in the U.S.
District Court? Should the ITC's jurisdiction over patent cases
be limited to disputes in which the accused infringer is not
subject to the court's jurisdiction? I think the Ranking Member
just asked something similar to that. I don't think you had an
opportunity to answer.
Mr. Dudas. I still look at them as two different remedies.
A way over-simplification of this is if someone stole your car,
I wouldn't want the police officer to tell me, well, just sue
them in court. You want to make sure that person doesn't get
your car.
Mr. Goodlatte. True, but you wouldn't sue them in two
different courts.
Mr. Dudas. Right. But I guess my point is that I think,
again, as long as it is applied equally and there is fairness
to it. When I was at the Patent and Trademark Office, one thing
I was concerned about when we did reexaminations is if there
was something parallel in court while we are doing something
there. I know there are different standards, there are
different notes, but we tried to talk about that in this
Committee as well.
I guess what I am getting at is, on intellectual property,
if you have someone importing goods and they are infringing
your property, you want that to stop. That is a completely
separate remedy. You don't want anybody selling anything that
is your intellectual property. Separately from that, you want
damages to collect.
Mr. Goodlatte. Mr. Binns?
Mr. Binns. Thank you. This brings me back to my key point,
which is that there are parties that go into the ITC that don't
want an exclusion order. An exclusion order would actually hurt
their business because they don't participate in the market.
They are not selling products. They don't have anything to
protect. All they want is money. Almost I would say 100 percent
of the time, when a true patent assertion entity files an ITC
action, they are filing a district court action at the same
time. They should be just in the district court.
Mr. Goodlatte. Thank you.
Ms. Chien, let me ask you this. Do you believe that there
is a perception that the ITC provides a friendly forum for
those engaging in patent troll type behavior? Is there more
that the ITC could do to prevent abuse?
Ms. Chien. I think the ITC is evolving its case law, and I
don't think that there is greater activity at the ITC than
district court with respect to patent assertion entities.
Mr. Goodlatte. And what are some of the ways that Congress
can ensure that patent rights are able to be enforced while
discouraging abusive entities from shaking down? We know there
are some bills out there, but what would be some of the things
that you would favor the most? What could we do that would be
the most productive?
Ms. Chien. I personally recommend in my testimony that the
overlap and the duplication in the system be reduced, because
that is what invites abuse, forum shopping, and----
Mr. Goodlatte. So what Mr. Binns just said.
Ms. Chien. Yes.
Mr. Goodlatte. Mr. Dudas, what would you do?
Mr. Dudas. I would focus on transparency and who owns the
patents, and I would also focus on what I think is litigation
abuse. So I think the idea, from a personal standpoint----
Mr. Goodlatte. So let me ask you about the litigation
abuse, because there is litigation abuse, but the Federal
courts have been loath to impose Rule 11 sanctions. Some of the
legislation that has been proposed would add new statutory
provisions like ``loser pays'' on parties that abuse the
process. You may or may not be abusing the process with ``loser
pays.'' But what kind of litigation sanctions would you suggest
that we can count on being enforced, as opposed to just being
on the books?
Mr. Dudas. When I was the counsel on the Subcommittee for
Courts and Intellectual Property, we looked at expanding Rule
11 and we looked at ``loser pays'' rules, abusive practices and
fines, and I even think of the amendment when it was in a
different context. If the Department of Justice pursued you
frivolously, vexatiously or in bad faith, there is the
opportunity to recover fees. I think there are a number of
models out there that would get at that.
Mr. Goodlatte. Very good.
Thank you, Mr. Chairman.
Mr. Coble. Thank you, Mr. Chairman.
The gentlelady from California, Ms. Chu.
Ms. Chu. Thank you, Mr. Chair.
Mr. Binns, I would like to get your view as to why the
patent assertion entities are filing in the ITC. In your
testimony you state that they are looking for money. Then why
are the patent assertion entities using the ITC to adjudicate
patent infringement cases if the ITC can't award damages? Why
would they want an exclusion order from the ITC?
Mr. Binns. That is a good question. They actually don't
want an exclusion order, but they use it as a hammer to drive
up settlements that they couldn't get otherwise in Federal
court. My experience is that no company, an operating company
that is selling a significant amount of product in the United
States, would ever want to risk having those products excluded.
I think as the injunctions have been taken away from patent
assertion entities in the district court, they now have moved
over to the ITC because there is only one remedy, the exclusion
order, and they wave that over your head, demanding large
settlement amounts.
Typically, we have patents that cover just a very small--
every patent assertion entity case I have had has covered a
miniscule component of an overall system, and they want damages
on the overall system. They can't get that, as Mr. Rhodes
pointed out, under the current case law in the Federal circuit.
They go into ITC and they try to get an exclusion order on the
entire system. These cases almost always settle, which is one
reason why I disagree with Ms. Okun, because she talks about
success.
I think that a patent assertion entity succeeds by getting
a settlement in the ITC. They don't succeed by getting an
exclusion order. They succeed by getting settlements. If you
only measure patent assertion entities by getting an ITC all
the way through to completion, you are measuring the wrong
thing.
Ms. Okun. May I have an opportunity to respond to that, Ms.
Chu?
Ms. Chu. Yes, please.
Ms. Okun. In terms of settlement rates, the ITC fact sheet
that was referenced today goes through the settlement rates,
and it shows that for Category 2, most like PAE, the settlement
rate is not much different for all settlements at the ITC. So
again, about 50 percent settle, and the numbers are somewhat
consistent.
From Mr. Binns' perspective about what you should measure,
that raises a point, and that is why I highlighted one of the
recent Commission actions of ordering a 100-day hearing,
because I think if there is a questionable PAE who has to come
to the Commission and prove the domestic industry within 100
days and their case goes away if they can't do it, and their
ownership is not enough, litigation expenses are not enough--
the test is tough--that has to reduce the ability to force a
large settlement.
Now, I think it also helps if they are not successful at
the ITC. So I think all these things--and then finally, just to
go back briefly, you also need to lower the cost, because if it
is so expensive for these companies that they are forced to
settle, then the Commission should be looking for additional
ways to lower the costs, reduce depositions, reduce discovery.
Thank you.
Ms. Chu. And, Mr. Binns, how do you respond to that?
Mr. Binns. No, I think the ITC is taking some steps in the
right direction. I think having an early hearing--I think 100
days is probably longer than you need to do. District courts
are able to do preliminary injunctions in much shorter amounts
of time, typically. During that 100 days, you are still under
the full burden of ITC discovery, as I understand.
Once a case has been initiated, the damage is already done
because you are going to be spending millions of dollars. You
are paying your attorneys $750,000 an hour for that 100 days,
and all the internal resources that go to bear. I mean, it is a
step in the right direction. I don't think it is enough, but it
is a step in the right direction.
Ms. Chu. Professor Chien, your testimony stated that the
ITC was originally created as a solution to the problem of
forum piracy, and yet these patent cases are growing as a
proportion of the overall caseload. And what about the ITC's
ability to investigate effectively if this problem persists?
What impact does this have on the agency's ability to
investigate overseas competition, and should we be worried that
the ITC may not be able to pursue other intellectual property
violators?
Ms. Chien. I think that is a great question. I think it
looks into the future a bit because--and actually related to
the 100-day idea that has been mentioned before. The judge in
that case said I am going to have to put off my other cases so
I can concentrate on this issue.
So, as we see more cases of piracy come in or we think
about using the ITC for other reasons, as has been contemplated
by the OPEN bill, for example, I think we do need to think
about what is the ITC really good at. They are good at
exclusion orders. If they are not giving those in most cases,
those cases probably shouldn't be there.
Ms. Chu. Thank you. I yield back.
Mr. Coble. I thank the gentlelady.
The gentleman from Texas, Mr. Poe, is recognized.
Mr. Poe. Thank you, Mr. Chairman.
Thank you all for being here. I admire the study of patents
that you have all done. Being a prosecutor and a judge,
spending time at the criminal courthouse for 30 years, it is a
lot easier to understand bank robberies, stealing, pillaging,
and auto theft than it is patent law. So, God bless you for
your work there, and all those judges and lawyers that work in
that area. It is highly important, but it is complicated.
As a general rule--I want everybody to answer this--as a
general rule, are you in favor of the concept of ``loser
pays?''
Mr. Rhodes, I will start with you. Just yes or no.
Mr. Rhodes. Yes.
Mr. Poe. Professor?
Ms. Chien. I think the devil is in the details.
Mr. Poe. Okay.
Mr. Dudas. Yes, as long as it is applied on both sides.
Mr. Binns. Yes.
Ms. Okun. Yes, as it is applied.
Mr. Foster. I am afraid that is beyond my brief and I will
have to decline.
Mr. Poe. Okay. So we have five yeas and an abstention.
Mr. Dudas, you mentioned in your testimony, you gave four
solutions that may be helpful. If Congress gets involved, we
don't want to make things worse. Sometimes that actually does
happen when we pass laws. We make it worse. You mentioned your
respect for the Federal judiciary and judicial discretion. Of
course, judges love the word ``discretion.'' I am a former
judge. I love that word. Do you think really, though, judicial
discretion would help in the area of figuring out bogus cases,
legitimate cases, the troll problem? Do you think that that
would help, and if so, how? Explain to me what judicial
discretion you are talking about.
Mr. Dudas. Personally, I am a fan of it, the reason being
that if a judge has had the case, the judge has the opportunity
to see the case and a judge can see certain behavior that is
problematic, I would like the judge to have the discretion to
fashion a remedy that works.
I will use a context that is well outside of patent law
that I mentioned earlier to Chairman Goodlatte. I had the
pleasure to work with Congressman Hyde on an amendment that
said if the Department of Justice pursues you frivolously,
vexatiously and in bad faith, you are exonerated on all claims,
you at least have the opportunity to seek attorney's fees from
the Department of Justice, and that relied entirely on the
judge. It was more efficient because the same judge could look
at it. The judge knows what the conduct was in the case.
So I don't mean carte blanche judicial discretion but the
opportunity to say I have seen what this is, and I think
attorney's fees as a possible remedy, or the possibility to
sanction plaintiff or defendant.
Mr. Poe. Attorney fees, sanctions, either side a sanction?
Mr. Dudas. Yes.
Mr. Poe. Okay. Does anybody else want to weigh in on that?
Professor, I can see you want to.
Ms. Chien. I think we want to give judges as much help as
we can. These are very complicated cases, and they have a lot
more on their docket as well. So where it is possible to help
them understand what the dynamics might be, I think that is
helpful, either through transparency or other fee shifting
where we have certain behaviors that are identified. We just
want to make it as easy for the judiciary to do its job as we
can.
Mr. Poe. Mr. Rhodes?
Mr. Rhodes. Yes, just to echo a couple of points. I think
the fee shifting proposal has merit if it is applied equally
and is really targeted toward abusive behavior. I think beyond
attorney's fee shifting, the cost of discovery shifting beyond
a core set of discovery is a concept that has some merit. I
know it is somewhat of a challenge for Congress to get in the
middle of how discovery is managed in courts, but in my
testimony I recommend maybe some suggestions to the Judicial
Conference or through the patent pilot program on ways that
discovery cost shifting could level out some of the asymmetries
that a number of us have talked about this afternoon.
Mr. Poe. All right. Talk about briefly standard essential
patents. Is the ITC moving to more standard essential patents,
about the same, less? Where is the ITC moving on that issue of
standard essential patents?
Ms. Chien. Actually, I had my research assistant look at
that number in terms of the number of standard essential patent
cases that have been filed, and it is growing, and I think that
issue highlights one of the design flaws or issues that we need
to be concerned about. We have been talking about patent
assertion entities a lot today and how there is a different
standard for injunctions at the district court and within the
ITC, but standard essential patents is another area potentially
where the district courts seem to be moving toward not entering
injunctions. But if you can go to the ITC and get an injunction
on your standard essential patent, that invites mischief.
Mr. Poe. Last question. Do you think a PAE should have
equal footing with a traditional patent holder in Federal court
or before the ITC? I would just like your opinion on that.
Ms. Chien. In Federal court, I think they do have the same
footing. They don't have under eBay the same ability to get an
injunction. I think that is appropriate.
Mr. Poe. So you think it is appropriate in the current
system that it is the way it is now, or in Federal court they
should or should not have equal footing?
Ms. Chien. I think that the Federal courts right now are
treating PAEs appropriately.
Mr. Poe. All right. Does anybody else want to comment on
that? Mr. Binns?
Mr. Binns. I think patent assertion entities should have
the same footing in Federal court as other patent holders. I
think there are other reforms that could be done to limit the
abuses by patent assertion entities in Federal court, though.
Mr. Poe. All right. I am out of time.
Thank you, Mr. Chairman. I yield back.
And God bless you again for what you do. Tough, tough
assignment.
Mr. Coble. Thank you, Mr. Poe.
The gentleman from New York, Mr. Jeffries.
Mr. Jeffries. Thank you, Mr. Chairman.
I have the great privilege of representing a congressional
district entirely within the City of New York, and
traditionally New York City's economy has relied on financial
services and real estate and insurance, and it served the City
of New York well over time. One of the things, however, that
became clear in the aftermath of the collapse in 2008, where
the collapse of those industries resulted in a decrease in
significant revenue that New York City and New York State had
been relying upon, is that we needed to diversify our economy,
and that has happened, thankfully, to some degree as a result
of the growing technology and innovation sector and presence in
New York City and Silicon Valley growing even into Brooklyn
with the Tech Triangle.
So we are concerned, given the importance and the increased
reliance and the significance of technology and innovation,
that abuse of patent litigation may be having an impact on
growth and entrepreneurship and creativity within this sector.
So I guess my first question, Professor Chien, has there
been any study that has been done that really quantifies the
impact on economic activity that abusive patent litigation in
totality has had on the industry?
Ms. Chien. Well, with respect to startups, I have done a
survey of about 300 companies in the fall, and I am now
enlarging that study to be much larger. But I think the impact
on startups was very troubling because when you think about
what they have to face in terms of trying to make their
milestones, make their products, they don't have a lot of
resources to deal with it when it comes in. So when it comes
in, they are tending to be more significant in their impact. It
may cause them not to be able to hire, not to have to change
their product, potentially to actually close the business down,
and one of your constituents, Brad Burnham, testified at the
DOJ FTC hearings in December about how one of his companies was
basically put out by a troll completely.
So I think it is a concern of ours to think about not only
the issues of patent assertion entities in general but the
distributional equities and how this might be hurting smaller
entities more.
Mr. Jeffries. Okay, thank you.
Now, Mr. Dudas, is there a distinction, as you understand
it, between the cost of discovery and litigation in district
court and the cost of discovery and litigation in the patent
space before the ITC?
Mr. Dudas. There is, as I understand it. I don't have a
deep expertise or really a lot of expertise on ITC. But, yes,
my understanding is it's dramatically----
Mr. Jeffries. Can anyone on the panel comment as to that
distinction?
Mr. Binns. I can respond firsthand. I have been a defendant
in many district court cases, as well as in ITC, and the burden
from the ITC's perspective is exponentially worse than it is in
the district court.
Mr. Jeffries. And is that because the remedy of exclusion
is viewed as a more drastic or more severe remedy?
Mr. Binns. Not for that reason. The reason is because the
discovery rules in ITC are so much more draconian. For example,
as you guys know, in the district court you get served
discovery. Typically, you have 30 days to respond. You can
often get extensions. You are able to formulate and not take up
too much of your internal bandwidth to respond to discovery. In
ITC, you are served with a thousand interrogatories from the
day the investigation is initiated, and you have 10 days to
respond, and there are really no extensions. It is tremendous.
Mr. Jeffries. Thank you.
Ms. Okun, in your view, is the domestic industry analysis
as it has recently been set forth in the case that you
articulated in your testimony, is that more rigid analysis, can
that serve as a significant constraint to preventing or
minimizing frivolous litigation in a patent space for moving
forward before the ITC?
Ms. Okun. Yes. It is my view that the application of the
statute to the different cases that have come before the
Commission involving non-practicing entities trying to
establish a domestic industry through licensing has sent a
clear message to a questionable PAE that they are not going to
meet the domestic industry test of the Commission. Mere
ownership is not enough. Litigation expenses are not enough to
prove domestic industry. So I think the case law as developed
is a very tough test for that.
Mr. Jeffries. Thank you. Now, Mr. Binns made the point that
if you have burdensome discovery that proceeds simultaneously,
that reduces the value of this constraint or this analysis
being applied, that may ultimately result in the patent
assertion entity being thrown out of court. Can the ITC stay
discovery if circumstances dictate while the domestic industry
analysis is proceeding? And if they currently don't have that
ability, is that something that Congress should consider to
minimize the cost of litigation while this analysis is
proceeding to see if this is a legitimate entity with standing?
Ms. Okun. A couple of responses. First, just to be clear,
the Commission just adopted, I believe it was last week or the
week before, new rules limiting interrogatories, limiting
depositions, so a number of the things that Mr. Binns talked
about the Commission has recognized and has asked for comments
from the parties and had final rulemaking. So there will be
limits and a clear message from the Commission to its ALJs and
to the parties that these new rules mean that it should reduce
the cost and expense. That is one thing.
With regard to the 100-day hearing--and again, I am not at
the Commission--and so there may be additional steps they are
taking or additional comments they want to hear on whether this
is a workable solution about whether you would stay discovery.
So I believe there is the authority to do it. It is just for
the domestic industry itself, you would have discovery. I mean,
that is how you figure out if someone has a domestic industry.
That is what the judge has to hear. So there is discovery going
on. Whether the discovery on the rest of the issues in the case
are stayed during that 100 days is something that I think
parties and others should comment to the Commission on at an
appropriate time of what makes more sense.
Mr. Jeffries. Thank you.
Mr. Coble. Thank you, Mr. Jeffries.
The Chair recognizes the gentlelady from Texas, Ms. Jackson
Lee.
Ms. Jackson Lee. Let me thank the Chairman and Ranking
Member for the courtesies extended for those of us who had
meetings outside this room, and thank the presenters here.
I want to welcome you back, Mr. Dudas, and for your service
as well. You have lived both lives with the district court
process and the ITC. I guess my line of questioning is just
going to be on the parallel route of the district court, the
ITC, and the impact it has on either growth and opportunity for
businesses or how it provides a dilatory process that does not
create that pathway.
In your mind, is the ITC--why don't I ask a very blunt
question. Does it perform any role, positive role? And
particularly in light of the new legislation that has been
passed I think since you have been in the executive.
Mr. Dudas. Yes. So, I would be clear. I am not a deep ITC
expert, but I will tell you that I do think it performs role,
and I think it performs an important role for intellectual
property. It has been said by some that it is not part of their
mission. Because I am not a deep expert on ITC, I went to their
website. The Commission also adjudicates cases involving
imports that allegedly infringe intellectual property rights.
Second page, the primary remedy is an exclusion order that
directs Customs to stop infringing imports.
I serve on the board of directors of a company that has a
licensing portfolio. They have expertise in that. They also
have 1,450 patents pending or issued, including 700 on this.
The bottom line on that is it does matter. It is a licensing
company, but it does matter to them that they don't want other
people infringing their product and selling it throughout the
United States. If they have the domestic industry and they have
met that burden, it is unfair. This is their property. They
don't want other people to do it. If it gives them an advantage
that someone else can't take their property and import it into
the United States, then so be it. That is okay, and this is me
testifying in my personal opinion. It is property.
So I think it serves an important purpose. Federal courts
are looking at damages. This is about the property itself.
Should you allow infringing property to come into the United
States? I think there is a lot of talk about if it is the right
valuing. It makes a lot of sense to talk about is it really a
domestic industry if people are going to cause those kinds of
fees and it is not a domestic industry for a licensing company.
But the idea that you are automatically not a domestic industry
to me doesn't make a lot of sense. So I think it adds value,
yes.
Ms. Jackson Lee. I am going to expound on the question and
ask the rest of you the same question. I will go to Mr. Binns.
Is there any problem to grow the domestic industry with a
definitive product that now appears to be under predatory
attack and not use the ITC?
Mr. Binns. If you are making a product and selling a
product in the U.S. that is clearly a domestic industry, that
should entitle you to the ITC.
Ms. Jackson Lee. And you would define that as what? Coca-
Cola?
Mr. Binns. It would be any type of operating company that
is selling product in the U.S. It would be like my company,
Avaya. We sell telecommunications products in the United
States. 3M sells many products here in the United States.
Ms. Jackson Lee. So you are not making the argument that
the technology is unique to the United States?
Mr. Binns. No, not unique, but you have to be selling that
product in the United States in order to take advantage of the
domestic industry standard for access to the ITC.
Ms. Jackson Lee. No, and I understand that. Do you think
that is valuable? That is what I am asking. Do you think that
is a valuable tool that is necessary?
Mr. Binns. I think the ITC does serve a function. I would
not say that you should get rid of the ITC by any means. The
ITC definitely does serve a legitimate function.
Ms. Jackson Lee. I am going to go down to Ms. Okun, and I
am going to keep going down as long as I can. Did I pronounce
it right? Is it Okun?
Ms. Okun. Thank you for the question.
Ms. Jackson Lee. Did I get the pronunciation? I never want
to be on the record incorrectly.
Ms. Okun. Okun.
Ms. Jackson Lee. Okun. All right. Thank you.
Ms. Okun. Thank you. Well, certainly, having served on the
Commission for 12 years, I think you would expect me to say the
Commission serves a valuable role. But the Commission is a
creature of Congress. Congress created the ITC, gave it
specific rules, and I think the thing to keep in mind with the
statute, it is a trade statute. We are talking about the
pervasive problem of infringing imports. The ITC is just one
tool. There are other tools out there. But I think that is what
I hope the Committee can keep in mind. The Commission plays a
valuable role. Because of the problem of pervasive infringement
of U.S. IPR, we need every tool at our disposal, and the ITC is
one tool.
Ms. Jackson Lee. Professor Chien, you look like you wanted
to say something, and I am trying to get in before this red
light to get Mr. Foster and Mr. Rhodes. Go ahead, Professor.
Thank you.
Ms. Chien. I was going to say just about the point of the
problem of foreign imports, I think that is an important
problem, but I think we need to remember that the ITC now, the
patent holders can be foreign. We have, for example, as I
mentioned before, a Swiss-backed PAE suing American car
companies for their importation, because a lot of things are
made abroad. So the distinctions between us and them I think
are getting blurry.
I do think the ITC plays an important role. It has a very
special remedy, and it is appropriate to be applied in certain
cases. But where the entity is only seeking licensing revenues,
I don't think the ITC, it is a good use of their time to be
litigating that dispute.
Ms. Jackson Lee. Mr. Chairman, can Mr. Foster and Mr.
Rhodes answer?
Mr. Coble. Yes, go ahead.
Ms. Jackson Lee. Mr. Foster? Professor Chien added a little
twist to it.
Mr. Foster. I thought it was another question.
Ms. Jackson Lee. Oh, no, no. I am not, I am not. I am just
repeating Professor Chien, it is getting blurry. Mr. Foster?
Mr. Foster. I am sorry. Yes, I think the ITC does serve a
valuable role in helping enforce patents, and I think the
evidence is companies, whether they are NPEs or not, are voting
with their feet. They are coming to the ITC because they
perceive that the speed in which they can get relief, the
quality of the judges at the ITC and their ability to
comprehend very complex technology, and the remedy that is
available is a very valuable tool for them. They have a choice
to go to the district court, but they choose the ITC even
though potentially it is a more expensive forum. So that, to my
mind, is very stark evidence that it serves a very valuable
role.
Ms. Jackson Lee. Mr. Rhodes? Thank you.
Mr. Rhodes. I would echo what Mr. Foster said. I think it
is not right for every case, but in the case where we are
facing infringement by unfair trade practices by virtue of the
importation of infringing devices, it is a very important forum
to be able to have that option to enforce our IP. But it goes
beyond just when we have a product we have already developed
and marketed. I mean, this is about protecting innovation. It
may be that we are still in the R&D stage. We had a case with
our lithium-ion battery where we didn't have much of a product
yet, but we were worried that the whole market would be
destroyed by these infringing imports before we could actually
develop it. We only had a pilot line. We had done the research,
but we hadn't really started marketing.
So what we are trying to protect here is innovation, not
just products. That innovation may just be at that point in the
form of R&D, or we may have exploited it via licensing rather
than direct sales, and protecting that licensing revenue that
can then go into further R&D to make further innovations is one
of the points that I wanted to make. That is important for the
ITC to protect as well.
Ms. Jackson Lee. I thank the Ranking Member and the
Chairman. I yield back. Thank you. Thank the witnesses.
Mr. Coble. I thank the gentlelady.
The gentleman from North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman. I just wanted to ask a
few clarifying questions. I think most everybody has covered
most of the points.
Let me be clear, Mr. Binns, on what standard would you
apply in the ITC to get jurisdiction.
Mr. Binns. Yes, I would think that you have to apply the
domestic industry, and you have to do it early, as ITC is
attempting to do in one particular case. We would like to see
that become more standard and have those assessments upfront.
Mr. Watt. I guess my question is would you say that a PAE
cannot come to the ITC?
Mr. Binns. No, we would not characterize----
Mr. Watt. Okay. Well, how would you apply the standard to
them?
Mr. Binns. The way I would apply it is that you have to
look at whoever the entity is that is taking advantage of the
ITC, what is it that they are seeking, and you have to look at
the behavior. Are they seeking just money damages to fund their
licensing model of being a purely litigation company, or are
they seeking to legitimately protect a market by having
products excluded? That determination should be done upfront,
and that should be done as a standing assessment before the ITC
gets into a full-blown investigation.
Mr. Watt. What do you say to that, Mr. Rhodes?
Mr. Rhodes. I do not think that legislation should change
the 1988 amendments that expanded ITC jurisdiction under
domestic industry to include licensing. I think licensing is a
way to exploit American innovation that we need to preserve and
encourage, and I think the ITC has looked in that 2011 case
that has been referenced a couple of times, really does put
rigor around is the licensing tied to the patent we are talking
about. Does it really represent substantial licensing, and is
it taking place in the United States in terms of the revenue
generation?
I think with those important safeguards, that is the
standard that ought to continue.
Mr. Watt. What do you say to that, Mr. Binns?
Mr. Binns. Well, there are several problems there. What we
have seen recently is that----
Mr. Watt. There seem to be problems on all sides here.
Mr. Binns. Yes, there are problems on all sides.
Mr. Watt. But you are not saying that you would exclude all
licensees if they are not the actual owners?
Mr. Binns. Not all licensors, but----
Mr. Watt. Okay. How would you draw that distinction, then?
Mr. Binns. Because there is production-driven licensing,
and there is revenue-based licensing. Production-driven
licensing is the licensing where you have technology, you have
invented something, you want other people to adopt it,
incorporate it into their products and bring it to market. That
is production-driven licensing.
Revenue-driven licensing is where what you have actually
invented isn't actually being used by anybody, but you
interpret your claims broadly to try to cover an industry that
has already matured and grown up and is making and selling many
products in the U.S., and then trying to seek revenue from
that. You are not promoting innovation. The U.S. Supreme Court
in eBay found that excluding products automatically is not
necessarily promoting the useful arts.
Mr. Watt. Ms. Okun, I thought the ITC had already addressed
this. I thought you testified that the ITC has already
addressed this. Have they not?
Ms. Okun. Could you repeat which part?
Mr. Watt. The revenue part.
Ms. Okun. Okay, thank you. The case law, what the case law
in interpreting the statute has said--and again, it is very
fact specific. So there are cases saying the Commission has
given more weight to production-driven licensing then revenue-
driven licensing. The litigation expenses alone are not enough,
the mere ownership of the patent is not enough. So the
Commission is looking for a very strong nexus between the
licensing activity and the patents.
Mr. Watt. So you don't think that they have gone far
enough, Mr. Binns?
Mr. Binns. They have not gone far enough.
Mr. Watt. Mr. Rhodes?
Mr. Rhodes. Well, I echo what former Commissioner Okun
said. I think they are looking very carefully at very fact-
specific questions, putting the appropriate weight. It is in
the eye of the beholder, too. One person's production-driven is
another person's revenue-generating. So I think it is probably
not the stuff of which legislative fixes are as appropriate as
case-by-case development. I think the ITC is sensitive. They
are engaged. They are looking into this issue, and I think they
are moving in the right direction.
Mr. Watt. What do you say to that, Professor?
Ms. Chien. I think they are engaged and they are evolving
their practices in many of the ways people have talked about. I
think the question becomes does Congress need to help them if
they feel that they don't have the authority within the statute
to change the practices. Just again, by design, the ITC is a
completely different remedy and procedure than district court.
Do we want to have two forums, 90 percent overlap? Is that
something that we want to encourage in our system?
Mr. Watt. Thank you, Mr. Chairman. I yield back.
Mr. Coble. Thank you, Mr. Watt.
Prior to adjournment, does anyone have any closing
statements to make?
Very well. I want to thank not only the panelists but those
in the audience who survived the ordeal as well. I appreciate
you being with us.
I don't mean that literally. It was not an ordeal.
But today's hearing is concluded. Thanks to all for
attending.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
This hearing stands adjourned.
[Whereupon, at 4:21 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record