NPEs AT THE ITC
Key issues If an NPE files a complaint at the ITC, the respondent should consider several issues as soon as possible. Te first is whether to file a consent order stipulation and move to terminate the action. A consent order stipulation does not constitute an admission of liability, and may contain a statement that it is submitted for settlement purposes only and is not an admission that an unfair act has been committed. Te ITC will routinely grant a motion to terminate based on a consent order if the motion and stipulation contain all the necessary elements required by its rules. Termination based upon a consent order may be a viable option where the accused product is being phased out, discontinued or redesigned, or if its manufacture is being moved to the United States. In such instances, it may be best to move to terminate the investigation using a consent order, given that the ITC cannot award monetary damages based on past infringement and the consent order stipulation is not binding in a subsequent district court action.
Te respondent should also consider as early as possible how best to prepare for discovery, which can be rigorous and burdensome at the ITC. Under the ITC’s rules, responses to written discovery are due within 10 days, and there are few limits on the number of deposition notices, interrogatories, document requests and requests for admission that can be served. As a result, a significant amount of time and expense is spent by both parties responding to discovery, which can become a distraction and diversion, particularly for a party that is not adequately prepared.
Te discovery burden can weigh even more heavily on the respondent when the complainant is an NPE. Tis is because, in a typical action, the respondent and complainant must each produce technical documents such as schematics and source code, answer interrogatories and make deposition witnesses available in connection with their respective products. Te respondent’s product would be relevant to the alleged infringement and the complainant’s product would be relevant to its domestic industry claims. However, because an NPE’s domestic industry is based on licensing activities and not any specific product, the NPE does not have to produce any technical information, and its discovery burden is significantly reduced. Tis can be a major advantage for an NPE during discovery.
Te respondent should also consider its underlying litigation strategy based on the goals it wishes to accomplish in connection with the litigation. For example, it may prefer to reach an early settlement before any other named respondents do so and
before significant litigation costs are incurred. Typically, costs incurred during the first two to three months of an ITC litigation are relatively low as compared to the total costs of the action. Aſter the first two to three months, depositions, major motions practice and expert report preparation begin, and the costs of litigating the action increase significantly.
Alternatively, if the respondent prefers to make the NPE prove its case and obtain information valuable to leverage in settlement negotiations, it can do so under the ITC rules, which allow the respondent to begin an aggressive discovery campaign within the first few days of the action and file early dispositive motions challenging the validity of the claims or the domestic industry allegations.
Early challenges
Given that an NPE makes no product to fulfil the domestic industry requirement, it may be wise for the respondent to challenge the NPE’s licensing allegations early in the investigation, since a failure of proof for this jurisdictional issue would result in immediate termination of the investigation. Tere are several ways to challenge an NPE’s domestic industry claims. For example, the licensing activities of the NPE may not be significant enough to satisfy the ITC’s domestic industry requirement if the NPE has few employees and minimal overhead costs, or if the patent at issue has not generated significant licensing revenue. In addition, the NPE may not be able to prove that there is a nexus between each alleged domestic investment and the licensing of the asserted patents. Licensing activities relied on by the NPE occurring outside the United States would not be relevant, and the NPE cannot rely on legal fees spent in connection with enforcing the patents at issue if the litigation efforts did not result in a licence.
Conclusion
NPEs are filing more actions at the ITC, and it would be wise to prepare in advance to defend such actions. To defend against an ITC action filed by an NPE, a respondent should consider whether to terminate the action unilaterally based on a consent order stipulation. If the action cannot be terminated in that manner, it would be wise to prepare for discovery as soon as possible and consider whether to pursue a litigation strategy that might bring about an early, favourable settlement. If the decision is made to litigate the action, it may be wise to challenge the NPE’s domestic industry allegations. If successful, such a challenge will lead to the immediate termination of the investigation.
50 World Intellectual Property Review September/October 2010
James Coughlan has extensive patent litigation experience before the US International Trade Commission, both in his former role as a lead staff attorney and in his current role as of counsel. He served as lead ITC counsel on behalf of two cell phone manufacturers in one of the largest and most significant ITC actions on record, which resulted in the Federal Circuit’s Kyocera decision. His other representations included patents relating to audio processing integrated circuits, portable digital media players and wireless communication devices, including cell phone and ‘3G’ technologies.
James B. Coughlan is of counsel at Perkins Coie LLP. He can be contacted at:
jcoughlan@perkinscoie.com
John P. Schnurer is a partner co-chair of ITC Section 337 Actions at Perkins Coie LLP. He can be contacted at:
jschnurer@perkinscoie.com
John Schnurer litigates and tries cases in courts throughout the country, including Section 337 investigations before the United States International Trade Commission. He is recognised as a premier intellectual property strategist, particularly with respect to the development and execution of global patent litigation strategies. Schnurer also prepares, prosecutes and secures patent protection for his clients’ innovations, and provides strategic intellectual property counselling, including advice on patent infringement, validity, re-examinations and large portfolio due diligence studies, whether for acquisitions, licensing or pre-suit purposes. His experience as a former electrical engineer complements his legal practice.
www.worldipreview.com
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