[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

                              ----------                              

                             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

                              ----------                              


                        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











                                 
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