[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
IP LITIGATION AND THE U.S. INTERNATIONAL TRADE COMMISSION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
TUESDAY, JULY 23, 2024
__________
Serial No. 118-91
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
56-357 WASHINGTON : 2024
COMMITTEE ON THE JUDICIARY
JIM JORDAN, Ohio, Chair
DARRELL ISSA, California JERROLD NADLER, New York, Ranking
MATT GAETZ, Florida Member
ANDY BIGGS, Arizona ZOE LOFGREN, California
TOM McCLINTOCK, California STEVE COHEN, Tennessee
TOM TIFFANY, Wisconsin HENRY C. ``HANK'' JOHNSON, Jr.,
THOMAS MASSIE, Kentucky Georgia
CHIP ROY, Texas ADAM SCHIFF, California
DAN BISHOP, North Carolina J. LUIS CORREA, California
VICTORIA SPARTZ, Indiana ERIC SWALWELL, California
SCOTT FITZGERALD, Wisconsin TED LIEU, California
CLIFF BENTZ, Oregon PRAMILA JAYAPAL, Washington
BEN CLINE, Virginia MARY GAY SCANLON, Pennsylvania
KELLY ARMSTRONG, North Dakota JOE NEGUSE, Colorado
LANCE GOODEN, Texas LUCY McBATH, Georgia
JEFF VAN DREW, New Jersey MADELEINE DEAN, Pennsylvania
TROY NEHLS, Texas VERONICA ESCOBAR, Texas
BARRY MOORE, Alabama DEBORAH ROSS, North Carolina
KEVIN KILEY, California CORI BUSH, Missouri
HARRIET HAGEMAN, Wyoming GLENN IVEY, Maryland
NATHANIEL MORAN, Texas BECCA BALINT, Vermont
LAUREL LEE, Florida Vacancy
WESLEY HUNT, Texas
RUSSELL FRY, South Carolina
Vacancy
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SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND
THE INTERNET
DARRELL ISSA, California, Chair
THOMAS MASSIE, Kentucky HENRY C. ``HANK'' JOHNSON, Jr.,
SCOTT FITZGERALD, Wisconsin Georgia, Ranking Member
CLIFF BENTZ, Oregon TED LIEU, California
BEN CLINE, Virginia JOE NEGUSE, Colorado
LANCE GOODEN, Texas DEBORAH ROSS, North Carolina
KEVIN KILEY, California ADAM SCHIFF, California
NATHANIEL MORAN, Texas ZOE LOFGREN, California
LAUREL LEE, Florida MADELEINE DEAN, Pennsylvania
RUSSELL FRY, South Carolina GLENN IVEY, Maryland
CHRISTOPHER HIXON, Majority Staff Director
AARON HILLER, Minority Staff Director & Chief of Staff
C O N T E N T S
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Tuesday, July 23, 2024
OPENING STATEMENTS
Page
The Honorable Darrell Issa, Chair of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
California..................................................... 1
The Honorable Henry C. ``Hank'' Johnson, Ranking Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Georgia...................................... 2
WITNESSES
Tara Hairston, Senior Director, Technology Policy, Alliance for
Automotive Innovation
Oral Testimony................................................. 4
Prepared Testimony............................................. 7
Sam Korte, Senior Principle Counsel--IP, Garmin International,
Inc.
Oral Testimony................................................. 11
Prepared Testimony............................................. 13
Jorge L. Contreras, James T. Jensen Endowed Professor for
Transactional Law; Director, Program on Intellectual Property
and Technology Law, The University of Utah
Oral Testimony................................................. 18
Prepared Testimony............................................. 20
Michael Doane, Visiting Assistant Professor of Law, University of
Akron School of Law
Oral Testimony................................................. 25
Prepared Testimony............................................. 27
LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING
All materials submitted by the Subcommittee on Courts,
Intellectual Property, and the Internet, for the record........ 49
Materials submitted by the Honorable Henry C. ``Hank'' Johnson,
Ranking Member of the Subcommittee on Courts, Intellectual
Property, and the Internet from the State of Georgia, for the
record
A letter to the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the
Internet from the State of California; the Honorable Jim
Jordon, Chair of the Committee on the Judiciary from the
State of New York; the Honorable Jerrold Nadler, Ranking
Member of the Committee on the Judiciary from the State
of New York; and the Honorable Henry C. ``Hank'' Johnson,
Ranking Member of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
Georgia, from the Council for Innovation Promotion, Jul.
22, 2024
A letter to the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the
Internet from the State of California; and the Honorable
Henry C. ``Hank'' Johnson, Ranking Member of the
Subcommittee on Courts, Intellectual Property, and the
Internet from the State of Georgia, from Conservatives
for Property Rights, Jul. 23, 2024
An article entitled, ``The unheralded agency protecting
America's innovation edge,'' Jul. 22, 2023, The Hill
A letter to the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the
Internet from the State of California; the Honorable Jim
Jordon, Chair of the Committee on the Judiciary from the
State of New York; the Honorable Jerrold Nadler, Ranking
Member of the Committee on the Judiciary from the State
of New York; and the Honorable Henry C. ``Hank'' Johnson,
Ranking Member of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
Georgia, from the Medical Device Manufacturers
Association (MDMA), Jul. 23, 2024
Materials submitted by the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of California, for the record
Case document, Code Alarm v. Directed Electronics, ED,
Michigan, 1996
Case document, Code Alarm, Inc. v. United States
International Trade Commission, 1995
QUESTIONS AND RESPONSES FOR THE RECORD
Questions for Tara Hairston, Senior Director, Technology Policy,
Alliance for Automotive Innovation; Sam Korte, Senior Principle
Counsel--IP, Garmin International, Inc.; Jorge L. Contreras,
James T. Jensen Endowed Professor for Transactional Law;
Director, Program on Intellectual Property and Technology Law,
The University of Utah; and Michael Doane, Visiting Assistant
Professor of Law, University of Akron School of Law, submitted
by the Honorable Darrell Issa, Chair of the Subcommittee on
Courts, Intellectual Property, and the Internet from the State
of California, and the Honorable Ben Cline, a Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Virginia, for the record
Response from Tara Hairston, Senior Director, Technology
Policy, Alliance for Automotive Innovation
Response from Jorge L. Contreras, James T. Jensen Endowed
Professor for Transactional Law; Director, Program on
Intellectual Property and Technology Law, The University
of Utah
Response from Sam Korte, Senior Principle Counsel--IP, Garmin
International, Inc.
IP LITIGATION AND THE U.S. INTERNATIONAL TRADE COMMISSION
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Tuesday, July 23, 2024
House of Representatives
Subcommittee on Courts, Intellectual Property, and
the Internet
Committee on the Judiciary
Washington, DC
The Committee met, pursuant to notice, at 10:07 a.m., in
Room 2141, Rayburn House Office Building, the Hon. Darrell Issa
[Chair of the Subcommittee] presiding.
Members present: Representatives Issa, Massie, Fitzgerald,
Cline, Kiley, Johnson, Ross, Lofgren, and Ivey.
Mr. Issa. The Subcommittee will come to order. Without
objection, the Chair is authorized to declare a recess at any
time.
We welcome everyone here today for a hearing on
Intellectual Property Litigation and the U.S. International
Trade Commission. I will note that we will work as
expeditiously as possible, but we may have a short break during
the first round of votes later this morning.
I will now recognize myself for an opening statement.
Today, we are examining the U.S. International Trade
Commission, a forum of adjudication of, among other things,
intellectual property cases. We want to focus on how IP
litigation at the ITC fits into the overall IP system of the
United States' IP-related issues raised by the ITC docket and
recent developments relevant to the ITC and IP litigation. That
is a complex way of saying that, in fact, after the eBay
decision, the ITC has clearly become a place for the equivalent
of injunctive relief, also known as exclusion.
First, I want to thank the Ways and Means Full Committee
Chair Jason Smith and Trade Subcommittee Chair Adrian Smith for
graciously working with the Committee so that we could hold
this hearing. Although this is not a joint hearing, there will
be questions asked today specifically that were brought to us
by the Ways and Means Committee, the Committee of Jurisdiction
over the ITC.
The ITC's mission, and I will repeat this many times
throughout the day, is vital. The ability to enforce on behalf
of American businesses and consumers is a role the ITC was
formed for and needs to continue doing. The ITC focuses on
investigating unfair trade practices and IP infringement is
essential for maintaining the integrity of our market.
Clearly, there were times when the ITC uniquely has the
ability to act quickly and to stop the importation of
counterfeit or unfair competition including patent-infringing
goods. For example, on finding infringement, the ITC can grant
exclusion orders and they do so quickly with only limited
exemptions for granting them, and they do so because the
companies or the individuals are usually outside the United
States and anything but an exclusion order would be
ineffective.
However, recently, there has been a growing chorus of
voices suggesting that the ITC is being misused for purposes
other than its intent. Some stakeholders argue the ITC IP
litigation system is being leveraged in ways that may distort
the broader IP system. That is why the goal of today's hearing
is to elevate the ITC's role and effectiveness in the overall
landscape.
We understand that the ITC's impact on IP litigation and
enforcement is vital for ensuring the system remains balanced
and effective. We must ensure the ITC continues to serve its
role to maintain fairness, innovation, and competitiveness.
This hearing is an opportunity to delve into those areas.
I want to reiterate: The ITC, in the opinion of the Chair,
for a very long time, has from time to time been misused. In my
own home district, Qualcomm v. Broadcom, two multibillion
leading corporations, found themselves before the ITC. Why?
Because it was a convenient venue. Would Broadcom support the
idea that the ITC should have had some limitations? Yes, except
it benefited them. Would Qualcomm support the ITC needs to be
limited? Yes, except when it benefits them.
That is exactly why Congress must act. Corporations, large
and small, want to see the best use of the ITC and, in the
opinion of the Chair, a 100 percent retention of their
authority over companies or individuals that are outside the
financial reach of the United States.
With that, I yield to the Ranking Member for his opening
statement.
Mr. Johnson. Thank you, Mr. Chair. The International Trade
Commission was established as an executive agency by Congress
in 1916 to oversee the importation of goods from around the
world. Over 100 years later, it continues to protect the U.S.
economy, our workers, and our innovators. Few know that the ITC
has been around even longer than that.
The agency we know today is the culmination of a series of
legislative efforts that began at our Nation's founding. Our
forefathers understood, as we do today, that while the
importation of goods from overseas can strengthen our financial
position on the world stage and enhance our access to
innovations around the world, the wrong products can cause
grievous harm to our streams of commerce.
American laborers, manufacturing hubs, and intellectual
property owners all have a vested interest in ensuring that
when products are imported from overseas, the company doing so
respects the laws of our Nation. This means that our country
also has a vested interest in importing products that do not
violate patents, U.S. patents, trademarks, and copyright laws,
products that have not been produced in violation of U.S. human
rights laws, and products that do not unduly interfere with
vital American manufacturing sectors.
The ITC is the designated venue for weighing such alleged
violations. While our colleagues on Ways and Means have
jurisdiction over the ITC and its dealings, we on House
Judiciary have a particular interest in the proper functioning
of the agency's adjudications because of its impact on
intellectual property cases relevant to this Subcommittee's
work. Under Section 337 of the Tariff Act of 1930, the United
States, through the ITC, is permitted to investigate and
exclude imported goods that infringe on U.S. intellectual
property rights.
Unlike in District Courts, the ITC does not issue damages.
Instead, it is required to take into consideration public
interest factors to determine whether to issue a remedy such as
an exclusion order. These factors include the impact of the
importation of public health and welfare, competition in the
U.S. economy, production of competitive articles in the U.S.,
and the best interests of American consumers.
Today, I expect to hear some of my colleagues argue that
the differences between patent litigation in the District
Courts and the ITC mean that the latter is unfair, that we need
to change how the ITC does business and that various shadowy
figures are using the ITC to take advantage of the system in
U.S. business.
I respectfully disagree. At its core, a patent right is the
right to exclude, making the ITC a particularly efficient means
by which to enforce the fundamental purpose of a patent.
Between exorbitant costs, procedural hurdles, and long wait
times, it has become difficult for a small business owner to
hold and enforce a patent here in the United States.
It is unsurprising to me that the same folks who say our
patent system is doing just fine as is, would also like to
reign in the ability of the ITC to take and decide patent
disputes. What we must remember is that the ITC is a separate
system designed for a different purpose. ITC only issues trade
remedies. It doesn't issue determinations of validity or for
injunctive relief and is only available to a smaller segment of
the patent-owning population. Section 337 investigations are
designed to reach determinations quickly because businesses on
both sides of the disagreement have an interest in speedy
resolution to determine whether a product can be imported into
the United States.
On the specific topic of remedies, exclusion orders are
narrower than injunctions in District Courts and limited to the
importation of infringing products from overseas. Some argue
that patent owners are going to the ITC for relief because it
has become the only way to prohibit a company from making an
infringing product available while a District Court case is
ongoing.
I agree that patent owners should not be forced to resort
to the limited ITC remedies to solve issues in our patent
litigation. That is why I am looking forward to joining
Congresswoman Dean later this year when she introduces a bill
to restore the availability of preliminary injunctions to
patent litigants.
I want to thank Chair Issa for his ongoing commitment to
bipartisanship even when at times we disagree on policy. This
Subcommittee's ability to hold serious hearings that delve into
complicated topics is unmatched and I am grateful to have Chair
Issa as a partner across the aisle.
Thank you also to our witnesses for being here today and I
look forward to hearing your testimony and I yield back the
balance of my time.
Mr. Issa. I thank the gentleman. Without objection, all
other opening statements will be included in the record. I now
would like to introduce our witnesses.
Ms. Tara Hairston is a Senior Director for Technology
Policy at the Alliance for Automotive Innovation where she
works on technology innovation, artificial intelligence,
cybersecurity, intellectual property rights protection, and
other issues. She previously served five years as the head of
Government Relation at Kaspersky and spent nearly a decade
working on Federal and State policies at Honda Corporation.
Mr. Sam Korte is a Senior Principal Counselor for
Intellectual Property at the Garmin International Corporation
where he works on global intellectual property issues such as
portfolio management, inbound and outbound patent licensing,
patent prosecution, and patent litigation. Prior to joining
Garmin, he was an attorney in private practice where he focused
on intellectual property law.
We also have Professor Jorge Contreras. Mr. Contreras is
the James T. Jensen Endowed Professor for Transactional Law and
the Director of Program on Intellectual Property and Technology
Law at the University of Utah. Professor Contreras teaches and
researches in the area of intellectual property, property law,
technical standardization, antitrust, and science policy.
Professor Michael Doane is the Visiting Assistant Professor
of Law at the University of Akron of Law. Before he taught full
time as a Professor, he served as General Counsel to Kent
Displays and was the intellectual property attorney in private
practice.
We welcome all our witnesses and thank them for appearing
here today.
We will begin by asking you to rise to take a swearing-in
oath. Please raise your right hands. Do you solemnly swear or
affirm under penalty of perjury that the testimony you are
about to give will be the truth and correct to the best of your
knowledge, information, and belief, so help you God?
Thank you, let the record reflect that all witnesses
answered in the affirmative.
As is the policy and we probably have all seen it on C-
SPAN, your entire written statements and intended oral
statements will be placed in the record. We only ask that you
try to limit yourself on or very close to five minutes so that
we have time for a round of questioning, notwithstanding votes
that are inevitably going to take us away.
I now recognize Ms. Hairston for her opening remarks.
STATEMENT OF TARA HAIRSTON
Ms. Hairston. Chair Issa, Ranking Member Johnson, and the
distinguished Members of the Subcommittee. My name is Tara
Hairston. I am Senior Director of Technology Policy at the
Alliance for Automotive Innovation which represents the
automakers producing most of the vehicles sold in the United
States, and other players within the automotive ecosystem.
Thank you for the opportunity to testify at this hearing to
share the auto industry's perspective on intellectual property
rights' complaints and the U.S. International Trade Commission.
Let me say at the outset, the auto industry knows the value
of intellectual property rights to innovation. As significant
rights holders, auto companies support robust legal protections
for intellectual property rights. However, the auto industry
today faces frequent and costly lawsuits alleging intellectual
property rights infringement, many of which are filed by
nonpracticing entities making spurious assertions. This is
happening more and more frequently, and it is a real problem.
Auto companies want to ensure that intellectual property rights
are properly granted and not being used for anticompetitive
purposes.
My full written testimony expands on the following
essential points:
LFirst, auto companies support the ITC Section 337
investigative authority.
LSecond, Section 337 disputes involving auto
companies have evolved in recent years.
LThird, the auto industry is increasingly
concerned about the use of Section 337 by nonpracticing
entities or NPEs.
LFourth, the auto industry supports ITC reform.
The auto industry agrees with and supports the intent of
Section 337 to protect domestic industry from unfair foreign
competition. Auto companies have filed their own Section 337
complaints at the ITC, when imported products infringe their
intellectual property rights and/or when there was unfair
competition. Auto companies have also been the targets of
Section 337 investigations including those involving abusive
claims by NPEs.
Historically, Section 337 auto disputes dealt with
importing mechanical and electromechanical articles, but now
they involve technologies like semiconductors,
microelectronics, and artificial intelligence. These modern
technologies have led to a major increase in the number of
patents in the automotive space which, in turn, has resulted in
more patent infringement lawsuits targeting auto companies both
in District Court and at the ITC. At the same time, auto
companies are incorporating more technologies that are not
unique to the industry into their products which also expands
the number of patented technologies on which ITC complaints can
be filed.
A significant number of these cases have been brought by
NPEs. NPEs regularly bring Section 337 complaints to the ITC
often with the intent to gain unfair leverage against an auto
company and force a company to settle pending litigation in
another venue. They often succeed. The possibility that the ITC
will issue an exclusion order makes the ITC an appealing venue
for this purpose. This activity diverts important automotive
resources from innovation and manufacturing to expensive
litigation and settlements.
Complaints filed by NPEs at the ITC frequently relate to
small dollar parts within a vehicle. A potential violation of
one patent could result in an import ban on an entire vehicle.
Shared platforms across a single automaker or shared suppliers
with components to multiple automakers could result in the
inclusion of multiple vehicles.
Since the primary enforcement remedy available to the ITC
is an exclusion order that applies to the entire vehicle, auto
companies are frequently forced into settling even when the
merits of the complaint are weak. These exclusion orders hurt
manufacturers, suppliers, customers, and overall competition by
reducing consumer choice, discouraging innovation, and
increasing costs for companies compared with others in the
marketplace. This is why ITC reform is necessary so that the
ITC can focus on its mission of protecting domestic industry
and so that it is no longer misused by NPEs to hire
manufacturers, workers, and consumers.
The automotive industry supports the following reforms:
LStrengthen the domestic industry requirement to
focus on production-based licensing, not revenue-based
licensing;
LReinforce consideration of the public interest
throughout a Section 337 investigation;
LIdentify potentially dispositive issues that
should be decided by ALJs within a 100 days of instituting an
investigation;
LLimit the issuance of exclusion orders when an
allegedly infringing component is less than or equal to 10
percent of the overall product; and
LMandate disclosure on real parties and interests
by complainants and respondents.
These reforms would go a long way to making the ITC a less-
attractive venue for NPEs, seeking to force settlements in
separate litigation.
The Members of the Subcommittee, the ITC needs reform. This
is an essential agency that advises the President and Congress
on trade issues, but it is being misused by NPEs. This hurts
both consumers and manufacturers. In our view, Congress should
require the ITC to demonstrate that any exclusion order
preventing the importation of a product into the U.S. is in the
public interest, but this is not the case today. The Alliance
for Automotive Innovation looks forward to working with
Congress on meaningful reforms to the ITC. Thank you and I am
happy to answer any questions.
[The prepared statement of Ms. Hairston follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you. Mr. Korte, you will be the last
witness before we break for about 30 minutes total to do four
votes on floor. Please proceed.
STATEMENT OF SAM KORTE
Mr. Korte. Thank you, Chair Issa, Ranking Member Johnson,
and the distinguished Members of the Subcommittee. My name is
Sam Korte, and I am a Patent Attorney with Garmin.
Garmin pioneered the GPS industry. Some of you may be
familiar with our car navigation devices, smart watches, and
fish-finders, but we also make products as diverse as aircraft
auto-landing systems and Doppler radars. We are a global
company employing over 7,000 people in the United States
including thousands of highly skilled engineers. We have three
large manufacturing facilities in Florida, Oregon, and Kansas.
Intellectual property is very important to Garmin. We hold
thousands of patents on our products and are committed to a
strong patent system. A balanced patent system is not only
necessary, but also a key factor in our ability to grow our
U.S. business and employ thousands of Americans.
In my testimony, I will address three issues:
LHow the ITC has shifted from this root as a
specialized forum for addressing international trade disputes
to a super power and super expensive District Court accessible
to anyone with a patent.
LHow ITC 337 investigations often target American
manufacturers impacting the design and manufacture of products
within the United States, resulting in a high cost to everyone
involved.
LHow Garmin, as an American manufacturer, has
experienced these effects firsthand and has recommendations for
Congress to address these issues.
Section 337, dating back to its roots with the Tariff
Commission was never intended to involve routine patent
lawsuits, but over the years, through statutory changes by
Congress and the ITC's own interpretation of the law, the ITC
has become a forum accessible to almost anyone with a patent.
In many ways, the ITC is now no different than any Federal
Court with one critical exception.
Exclusion orders which bar all imports of infringing
products are automatic if the ITC finds a patent violation.
District Courts, however, only employ the nuclear option of an
injunction by carefully weighing equitable factors related to
the parties and the public interest. In almost all cases, ITC
exclusion orders against losing companies take effect soon
after the ITC issues its final determination. Assuming a losing
company is going to remain in business, it must either pay
whatever ransom is demanded by the patent holder or go through
the expense of changing its products. This is all, in addition,
to the cost of defending of parallel lawsuits on the exact same
technology with the exact same people in Federal District
Court.
Our cost to defend an ITC investigation is multiple to
costs of defending a case in Federal District Court, in some
cases exceeding $10 million. None of this is lost on those
looking to harm U.S. manufacturers. Patent trolls, or
nonpracticing entities if you prefer, have targeted Garmin at
the ITC over basic commodities like computer memory and
microprocessors. Because these components are central to
Garmin's U.S. product manufacturing process, a loss at the ITC
could shutter our critical American factories unless Garmin, of
course, pay whatever ransom was demanded.
Congress has many options to address these problems with
the ITC.
First, Section 337's domestic industry language has
confused the ITC and the Federal Circuit since it was last
revised by Congress in 1988. Clarifying the language regarding
domestic industry such as by requiring a patent owner to show
that it has assisted in bringing a product to market through
licensing or other efforts would ensure that the ITC is not
merely functioning as another Federal Court.
Today, a patent owner can fabricate domestic industry by
sitting on its patent for decades, suing a manufacturer that
independently developed its products, chiefly licensing its
patents to the manufacturer it just sued, and then racing to
the ITC to file a 337 complaint against the rest of the
established industry. This practice should end.
Second, Section 337 could also be revised to address
automatic exclusion orders by requiring the ITC to engage in a
more detailed analysis of the public interest including
weighing the impact of an exclusion order on a U.S. company,
American workers, and the public at large.
Finally, it is not lost on Garmin that the statutory
purpose of the ITC is to protect American domestic industry,
companies just like Garmin, with factories and places like
Florida, Oregon, and Kansas. The ITC is now routinely used by
foreign companies, sometimes funded by their own governments to
disrupt American innovation and production. It is impossible to
tell the true party behind an ITC investigation and ITC does
not ask. This distortion of the ITC's purpose undermines the
entire congressional intent behind Section 337 and poses a
threat to the ability of American companies to compete on the
global stage. Congress is best suited to address this problem.
Thank you again for the opportunity to present testimony on
this important issue facing American companies. I look forward
to your questions.
[The prepared statement of Mr. Korte follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you. As promised, we will now take a
hopefully very short recess. We stand in recess.
[Recess.]
Mr. Issa. The Committee will reconvene. When we left off,
we had heard from two witnesses. We are now hearing from
Professor Contreras. Yes, the mic both has to be turned on and
held as close as possible. It is more effective that way. Thank
you.
STATEMENT OF JORGE L. CONTRERAS
Mr. Contreras. There we go. Thank you for that.
Mr. Chair, the distinguished Members of the Committee, my
name is Jorge Contreras and I am a Professor of intellectual
property law at the University of Utah.
In the years following World War I European manufacturers
were accused of flooding U.S. markets with cheap goods that
violated U.S. intellectual property rights. In response
Congress authorized what became the International Trade
Commission to investigate unfair acts pertaining to U.S.
imports including the importation of infringing articles.
This authority was needed to fill gaps in then-existing
law. For example, the U.S. Patent Act did not then offer a
remedy against the sale of noninfringing products made abroad
using processes patented in the U.S., nor could U.S. courts
hearing patent cases assert jurisdiction over foreign producers
of infringing goods.
Today more than a century later the world is a different
place. The Patent Act has been amended to prohibit the sale of
goods made abroad using infringing processes. Likewise,
overseas firms routinely establish subsidiaries in the U.S.
bringing them squarely within the jurisdiction of the U.S.
courts. As a result, in 2022-2023 only six percent of ITC
patent cases lacked a domestic respondent subject to personal
jurisdiction in the U.S.
So, what about the other 94 percent of ITC patent cases?
Ironically, they are brought against domestic companies who
offer American consumers lower prices by manufacturing products
overseas. They are brought by nonpracticing entities seeking to
pressure manufacturers to enter into monetary settlements. Most
surprisingly nearly a third of ITC patent cases are brought by
foreign companies seeking to prevent U.S. companies from
importing their own products for sale to U.S. consumers.
So, patent asserters will tell you that the ITC is a
wonderful thing, that it affords them exclusionary remedies
that are no longer available in the courts, that it is fast,
that its judges and staff have unprecedented expertise in
patent matters. So, whatever the merit of these assertions, and
some of them are somewhat questionable, they do not avail.
Notwithstanding any tactical litigation advantages the ITC
may offer to patent holders, there is little justification for
the maintenance at an annual taxpayer expense of nearly $40
million of a duplicate patent litigation system in the U.S.
With respect to patent matters, the ITC is duplicative. In
the last two years 83 percent of all ITC patent cases had
parallel proceedings in District Court often involving the same
parties, the same patents, and the same infringing product. The
result is costly and inconsistent parallel litigation.
We have recently seen examples in which patents are found
invalid at the ITC and then asserted again in court. We have
also seen the ITC extend its reach even beyond the patent
statute blocking the importation of noninfringing goods that
might someday be used for infringing purposes.
The truth is that the ITC offers patent holders a second
bite at the apple, an unprecedented opportunity to prevail in
one venue on claims that were rejected in another. This
privilege, while understandably attractive to patent holders,
is virtually unknown in any other form of litigation, from
medical malpractice to breach of contract.
So, what should be done? Over the years a range of
proposals have been made to reign in the ITC's ever-expanding
patent jurisdiction, all to no avail. This month in its
landmark decision in Loper Bright v. Raimondo the Supreme Court
issued a clear message to the Nation that the power of
administrative agencies in the U.S. has gone too far and that
the authority of these agencies must yield to that of our
constitutionally empowered courts. As such, the time is right
for Congress to reconsider the patent jurisdiction of the ITC.
A few potential corrective measures might include:
(1) Restricting ITC actions to parties over which the
Federal Courts lack jurisdiction;
(2) narrowing the definition of the U.S. domestic market to
exclude patent assertion and licensing by parties that don't
actually make or sell products in the U.S.;
(3) requiring the ITC to follow judicial precedent when
issuing remedies for patent infringement; and
(4) enabling the courts to work directly with the Customs
and Border Protection Agency to prevent the importation of
patent-infringing goods as they already do with products that
infringe U.S. copyrights and trademarks.
With one or more of these straightforward measures Congress
can correct the ITC's course to focus again on its primary
mission of protecting U.S. markets from unfair foreign imports.
Thank you for your time.
[The prepared statement of Mr. Contreras follows:]
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Mr. Issa. Thank you. Professor Doane?
STATEMENT OF MICHAEL DOANE
Mr. Doane. Chair Issa, Ranking Member Johnson, and the
distinguished Members of the Subcommittee, thank you for this
opportunity to speak with you today about intellectual property
litigation before the U.S. International Trade Commission.
My name is Michael Doane and I'm a Law Professor at the
University of Akron School of Law where I teach intellectual
property law including a course on intellectual property
practice at the U.S. International Trade Commission. Before I
became an academic, I was a lawyer specializing in ITC
litigation and general counsel for a small technology startup
company. I have viewed Section 337 investigations for over 30
years from the prospective of the litigator and in-house
counsel and now as an academic.
During that time Congress strengthened Section 337 to make
it an effective tool to address infringement of U.S.
intellectual property rights by unfair imports. Congress was
particularly concerned with protecting American innovators such
as startups, universities, and individual inventors from
foreign infringers. Congress should be cautious of proposals to
restrict access to relief under Section 337 to ensure that they
do not harm this important sector of the United States'
innovation economy.
Small startups face many challenges when bringing a new
product to market. These include not only creating the patented
technology but also developing a product that embodies the
technology, obtaining financing to develop and bring that
product to market, creating manufacturing capability,
developing a distribution network, and ultimately finding
customers. This is all expensive and time-consuming,
particularly if the startup company is faced with infringing
products sometimes before it is even able to fully develop and
market its own product.
Quite frequently, indeed in almost every circumstance these
infringing products are imported into the United States.
Section 337 provides startups with the most direct and
efficient remedy for this problem. Efforts to limit access to
relief under Section 337 will ultimately do more harm than
good.
Section 337, as has been noted, is a trade remedy statute,
not an intellectual property statute, which was designed to
address unfair imports and is one of the most effective
mechanisms for defending U.S. intellectual property rights from
imported infringing products, particularly from China.
Section 337 provides many advantages: Expert administrative
law judges, comparatively expedited proceedings, interim
jurisdiction, and effective relief. It is perhaps this last
advantage in the form of an exclusion order that is the most
significant. Because of this remedy Section 337 is frequently
the most effective, if not the only option for addressing two
specific challenges that startup companies face: (1) Patent
holdout and (2) knockoff products offered in online
marketplaces.
Patent holdout is when a large well-funded infringer uses
its size and market dominance to ignore an IPR owner's
infringement claims, imposes its own product on the product,
and usually seeking to litigate the IPR owner into oblivion.
Without a Section 337 exclusion order small entities could be
forced in effect to license their technology to large importers
at a reasonable royalty as determined by a District Court after
years of litigation.
As to knockoff products, numerous infringers, usually
Chinese, offer their products in large online marketplaces.
Infringing goods are offered by countless difficult-to-identify
entities. Such entities are not burdened by the expense of
developing technology or creating a new product, simply create
a low-quality copy that is sold at a discount. When challenged
such online entities easily disappear and reemerge elsewhere
under a different name to continue selling in the online
marketplaces.
Policing online marketplaces to take down infringing
products would be substantially more difficult if not
impossible without Section 337. It is important that small
entities have an avenue through which infringing products can
be removed from the marketplace in a more efficient manner.
Monetary damages, if they can even be obtained, are
certainly important, but the ability to develop and market
one's own product free from unfair competition from infringing
imported products, particularly for a small startup company, is
infinitely more important. When faced with infringing imports
the high cost of potential litigation may effectively deter a
small company from seeking to enforce its IP rights
particularly against a well-funded infringer.
Section 337 investigations, while also a potentially
expensive endeavor, offer an effective and expedited remedy if
successful. This is what Section 337 provides. In fact,
Congress expressly amended 337 to make this relief more easily
available to small innovators. As Senator Frank Lautenberg, one
of the drafters of these amendments, noted, smaller businesses
should not be denied the right to seek relief merely because
they may have made smaller financial investments than large
companies in developing or exploiting an intellectual property
right.
Section 337 provides unique and effective relief against
imported infringing products. Any effort to limit access to
Section 337 will ultimately negatively impact those that
Section 337 was expressly amended to protect and should be
carefully considered. Thank you.
[The prepared statement of Mr. Doane follows:]
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Mr. Issa. Thank you. I want to thank all the witnesses.
With that, we are going to go--there are a lot of people
who have various other requirements, so I am going to try to go
to people in the order in which they can ask questions. So
don't be surprised when it skips around on both sides.
With that, we go to the gentleman from Kentucky, Mr.
Massie.
Mr. Massie. I thank the Chair.
Ms. Hairston, Mr. Korte, and Professor Contreras, you all
mentioned this thing called public interest. Do any of you want
to explain to me what public interest is in the context of
deciding a patent dispute?
Ms. Hairston, what do you mean by public interest, that the
ITC should consider public interest?
Ms. Hairston. Thank you for the question, Congressman
Massie. We would say that in the--public interest means that it
is for the four factors that have been articulated in the ITC
statute in terms of public health and welfare, competitive
conditions, and other factors should be considered when looking
at the public interest, that it should not be left solely to
the ITC to determine that potentially infringing or
noninfringing goods would constitute a violation of public
interest.
Mr. Massie. Mr. Korte, how would you describe the public
interest consideration that you proposed?
Mr. Korte. Yes, thank you, Congressman. So, public interest
should be tied to the statutory purpose of the International
Trade Commission, which is to protect American domestic
markets. The ITC should not be taking any action, let alone an
exclusion order, if it's damaging American industry. That
should be the sort of analysis the ITC should do under Section
337. That should analysis--that analysis should include what's
already in the statute in addition to other requirements like
the impact on American workers, American factories, and the
American industry at large.
Mr. Massie. Ms. Hairston, one of the remedies you said is,
if there is 10 percent of the product that is infringing, or
deemed to be infringing, assumed to be infringing, that you
should still be able to import that product. Is that true?
Ms. Hairston. Yes, Congressman Massie. That is a number
that--the 10 percent threshold is something that we suggested
in terms of to inviting conversation and dialog. Yes, a 10
percent of the overall product is attributable to the allegedly
infringing product. We believe an exclusion order should not be
issued.
Mr. Massie. OK. Let me just say something: I am appalled
that you guys are here testifying like this. This is shameless.
You are like here trying to divvy up the goods of the American
inventor. What you are saying is that if you are only stealing
10 percent of the product, let us keep importing it. Let us
just keep stealing it as long as the theft is at a low enough
level.
Then this public interest notion. This is a communist term.
What you are saying is it may be in the public interest to let
somebody keep infringing. The Constitution guarantees the right
to exclude somebody from infringing. It doesn't say that the
government can come in and figure out what a fair price to pay
is for that infringement, yet that is what all three of you,
even you, Professor, are suggesting with this term public
interest, because we have seen it used in the past.
Really, I am just appalled that you have no shame in saying
that you should be able to steal a product from an inventor in
the United States, have it manufactured overseas in China,
import that as a knockoff and if you are only stealing 10
percent of the idea.
Professor Doane, Professor Contreras suggested it seemed
like that this ITC concept is archaic, that it is no longer
needed, it has been supplanted by other means. Then, I hear you
say, well, Congress has actually updated it. Mr. Korte said
that the intent of Congress needs to be clarified. The intent
of Congress is in the Constitution. We don't want you stealing
things, getting them made overseas, ripping off American
inventors, and then bringing it in here and selling cheap
knockoffs to Americans that are faulty.
Professor Doane, is the ITC obsolete?
Mr. Doane. Absolutely not, Congressman. As I said, it was
specifically amended for the purpose of at least small
innovators in 1988 and 1994 to make it easier for small
inventors/universities to bring these cases. I think that's an
important task of the commission.
Mr. Massie. Let me give you an example of whose hand has
been caught in the cookie jar here. Apple saw this pulse
oximeter technology. Said, oh, let's put that in an Apple
Watch. They stole the idea, stole all the people that developed
it from the original company that was making these in the
United States, went to China, had this cheap CRAP made, and
tried to bring it in and the ITC said you are infringing. Are
you aware of this case, Professor Doane?
Mr. Doane. Yes, sir, I am.
Mr. Massie. That seems like that is the way this should
work when you have got a big corporation ripping off a smaller
corporation and trying to get the CRAP made over in China
instead of made here. Doesn't the ITC have a role to play
there, Professor Doane?
Mr. Doane. I think that is specifically one of the
important reasons for the commission particularly in the
circumstance of a small inventor like--a small innovation
company like Masimo going up against a large importer of a
product to be able to after years of litigation--they've been
in litigation for I believe almost 10 years in District Courts
and the only relief they've been able to obtain is this ITC
exclusion order.
Mr. Massie. Thank you. I yield back.
Mr. Issa. Thank you. I would caution all Members if you are
going to use acronyms like CRAP, please define what the letters
stand for.
With that, we recognize the gentleman from Georgia, Mr.
Johnson.
Mr. Johnson. Thank you, Mr. Chair.
Professor Doane, this Subcommittee has a keen bipartisan
interest in preventing the government of China from stealing
U.S. intellectual property. How does the ITC prevent China from
ongoing infringement of the property of U.S. inventors and
would weakening the ITC help China import infringing goods into
the United States? If so, why or how?
Mr. Doane. I believe weakening Section 337 would certainly
benefit China in particular. If you look at where the source of
most challenge products come from, infringing products, by far
I believe you would find they come from China. They come in a
variety of forms. As I mentioned, all these little companies
that come in, manufactured cheap knockoffs of U.S. products and
sell them in online marketplaces and just end up dominating the
marketplace.
Or in the circumstance of bigger companies that have spent
billions of dollars building infrastructure in China to
manufacture there rather than manufacturing in the United
States. In that circumstance a Section 337 exclusion order
might be the only way a small company can get any kind of
relief after extensive litigation against a large well-
established importer of what is essentially Chinese products.
Mr. Johnson. Professor Doane, we have heard the arguments
of some in the room who want to change the ITC and some in
Congress have introduced legislation to amend the domestic
industry requirement to make it more difficult to petition the
ITC to investigate a trade violation. In your written statement
you wrote that the ITC should not be amended by Congress. Could
you explain to us why the ITC is functioning as intended as it
is now?
Mr. Doane. I believe the ITC does takes its mandates
seriously as to meeting the domestic industry requirement. I
think that in the face of the criticism, particularly involving
alleged patent MPEs, they've taken a lot of steps to try and
make sure that there is a substantial domestic industry.
In cases where the complaint comes in with a weak domestic
industry in the complaint, they will frequently place these
into what's called a 100-day proceeding to determine whether
there is a sufficient domestic industry to go forward. So, I
think they've put mechanisms in place to try and weed out
potentially problematic cases.
Also, I think to the extent that there's a claim of a flood
of MPEs coming to the commission, I don't think there's--the
data has born that out. There are certainly some that come
there, but I think the commission has taken steps in its own
review and in use of things like the 100-day proceeding to make
sure that cases like that, if it's merited, are weeded out. So,
I don't think amending the statute would add anything to what
the commission has already down to make sure that the statute
is not abused.
Mr. Johnson. Thank you. Some have argued that Congress
should revise Section 337 to effectively make it harder for
U.S. companies to obtain exclusion orders at the ITC for
infringement of their patent rights especially against U.S.
companies, or other U.S. companies.
As you know, since the Supreme Court's 2006 decision in
eBay patent owners have struggled to obtain injunctions in
Federal District Court with some studies showing a 90-percent
decline in courts granting injunctions in cases where patents
were found infringed. What is the difference between patent
cases in the ITC and in Federal District Court and why are both
tracks critical to protecting and incentivizing U.S.
innovation?
Mr. Doane. Well, I think Section 337 is critical because--
in large the remedy it provides. It gives the patent owner the
ability to say, no, you cannot use my patent. I can't be forced
to license it to you for a monetary award. You have to--I can
keep your product out of the United States.
The difference between the ITC and District Court right now
is the fact that to obtain an exclusion order you do not need
to establish injury, and that is there for the simple reason
that Congress decided that it should be such. Congress
expressly removed injury from the statute in 1988 after almost
a decade of hearings on it, and because it felt that too many
U.S. companies were losing because of requiring them to show
injury. It was felt that infringement of your patent is injury
enough. So, the injury was expressly removed by Congress, which
is why eBay does not apply to Section 337 investigations.
Mr. Johnson. Thank you.
Mr. Issa. Thank you. For the record, the acronym is Chinese
Rip-off of American Products (CRAP). Just want to make sure
that we understand that it was an acronym.
With that, we go to Mr. Fitzgerald.
Mr. Johnson. Mr. Chair, if I might--as for unanimous
consent to enter into the record a letter from Conservatives
for Property Rights, a letter from the Council for Innovation
Promotion, and also an op-ed in The Hill entitled, ``The
Unheralded Agency Protecting America's Innovation Edge.''
Mr. Issa. Of course. Gladly. Without objection. So ordered.
Mr. Johnson. Thank you.
Mr. Issa. Mr. Fitzgerald?
Mr. Fitzgerald. Thank you, Chair.
Professor Contreras, I introduced a bill, the Prohibiting
Adversarial Patents Act. What we were trying to get at is it
would prohibit companies on certain national security-related
sanctions lists from licensing or asserting their U.S. patents,
much as we discussed here this afternoon.
To your knowledge are adversaries like China using forums
like ITC to assert U.S. patents that generate revenue in
circumvention of U.S. sanctions?
Mr. Contreras. Congressman, I'm not aware of any concerted
effort by the Chinese government in that respect. Certainly,
companies from many different countries are able to utilize the
ITC against U.S. companies and against other foreign companies
if they do so through their U.S. subsidiaries, which almost
every foreign company of any size has today, which does make
the ITC a forum available to foreign companies controlled by
whoever to take advantage of U.S. manufacturers.
Mr. Fitzgerald. Right. I don't think we are concerned about
some of our friends, but adversaries like China using patent
assertion entities to bring infringement suits that generate
revenue in circumvention of U.S. sanctions. So, is there
anybody out there that have already demonstrated that they are
moving in that direction, I guess is maybe a broader way of
asking the question. Do you see any of these activity?
Mr. Contreras. I'm not aware of a specific national
security type of circumvention that's going on at the ITC. My
other copanelists may be.
Mr. Fitzgerald. OK. Mr. Korte, please explain kind of
briefly how ITC rules of procedure defer from U.S. District
Courts and why they often lead to higher cost for litigation,
right?
Mr. Korte. Yes, thank you, Congressman, for the question.
So, there's two main areas where ITC procedure drives up cost.
First, in U.S. District Court District Court Judges often
manage their docket through motion practice, motion dismisses,
and summary judgment motions. These motions before trial often
resolve the case or lead to a settlement.
At the ITC typically in a hearing none of these motions are
decided until the morning before the trial. So, very few ITC
investigations settle before the trial. The ITC noted this in
their last budget request that they have increased workload
because almost no ITC 337 investigations are settling. That
drives up costs because every case is going to trial.
The second main way that ITC cases drive up costs is the
exclusion order. If you are a company either making a product
in the United States or importing a product, you have to
prepare in advance for that exclusion order in the event that
you lose by designing your products, by changing your product
supply lines, and by changing your inventory levels. That all
adds incredible cost on top of the standard cost that you would
face in a parallel lawsuit in Federal District Court.
Mr. Fitzgerald. Yes, so ITC litigation kind of--the costs
associated with it, which is probably difficult to put a hard
number on, but there are so many different steps in that suit
that you are engaged on a regular basis. I am sure the bills
are just astronomical after a while for somebody involved in
this, right?
Mr. Korte. Yes. They're multiples of two, three, and four
times the cost of a patent lawsuit in Federal Court where those
lawsuits are already one of the most expensive activities on
earth. Some years our ITC investigation defense costs are by
far the biggest line item on our legal budget globally.
Mr. Fitzgerald. Just really quick, Professor Contreras,
when an entity brings a complaint to the ITC under Section 337,
are they required--do they have to disclose who is funding
their complaint? Is that something that is disclosed along the
way?
Mr. Contreras. No, they don't. There's a lot of ambiguity
around who is behind some of these entities, many of which are
names that you wouldn't recognize at all. Their sole purpose is
bringing these actions.
Mr. Fitzgerald. Because of the lack of disclosure there are
some risks there, right, I am sure.
Mr. Contreras. Absolutely. Absolutely. It could go back to
the other question that you asked previously. It could be a
pure corporate maneuver. It could be a governmental maneuver.
We just don't know.
Mr. Fitzgerald. Yes. Thank you. I yield back, Chair.
Mr. Issa. I thank the gentleman.
We now go to the gentlelady from North Carolina, Ms. Ross.
Ms. Ross. Thank you, Mr. Chair and Mr. Ranking Member, for
holding this hearing.
Just for context I represent the Research Triangle in North
Carolina. We don't have as many great big patent holders, but
we have a lot of innovators, small startups. Then, of course,
we have North Carolina State University which has a tremendous
number of patents and does some of the most work in the textile
industry in the entire country.
The ITC is one of the best tools that American innovators
have for addressing patent infringement. Even though the ITC
hears relatively few patent cases when compared to district
courts, it serves a key function for small inventors, startups,
and other innovators who find themselves facing patent
infringement, of course from people abroad.
Our intellectual property system is not always friendly to
patent holders, particularly small patent holders, and it is
often far too difficult to obtain an injunction from a District
Court. The PTAB is too often misused to the detriment of
innovators and small patent holders.
The ITC on the other hand has a strong record of issuing
exclusion orders to protect patent holders from counterfeit and
infringing products even when these patent holders are facing
large companies seeking to dominate them through litigation
spending.
Professor Doane, I frequently hear from patent holds about
how the law does not protect their intellectual property. This
is one of the reasons that I am a sponsor of the PREVAIL Act, a
bill to address the high rate of patent invalidations at PTAB
and prevent dual challenges at PTAB and District Court. Do you
think the fact that the ITC is one of the only venues where
patent holders feel that they are treated fairly has
contributed to the rise in patent cases that the ITC hears?
Mr. Doane. Yes, I believe the companies, patent owners,
come there because they do believe they get a fair shake at the
ITC. They get an effective mechanism. They get an efficient
mechanism.
We've heard mention about how long it takes for a summary
determination motion and how they're not granted at the ITC.
Well, in part, because the ITC moves so much faster than
District Court, that there's simply no time. By the time you're
in trial at the ITC, in a District Court, you're just getting
started.
So, it provides small patent owners an attractive forum
because it gives them quick, effective, and predictable relief
that will remove the product from the marketplace, not just
force a license agreement on them.
Ms. Ross. Thank you. Then I want to followup on Ranking
Member Johnson's question about domestic industry requirements.
Because, as I said, I represent a large university. It has a
lot of patents, and those issues are front of mind in my
district.
How could proposed changes to the domestic industry
requirement, such as limiting how patent licensing can satisfy
the requirement, harm small investors and patent holders?
Mr. Doane. I think it would injure them in a number of
ways. We know that there's the claim about patent assertion
entities, and I just think that's not borne out by the data. I
think that these changes to the domestic industry fall with
greater harm on the shoulders of small innovators who are still
maybe trying to develop a product, maybe trying to--who've
invented something, like a university that wants to license.
These additional requirements would just simply further
burden them, as opposed to actually dealing with the purported
problem of patent restriction entities. I think it just adds
another hoop that these complainants, these patent owners,
would have to jump through to get any kind of relief for
enforcement of their patents.
Ms. Ross. Thank you very much.
I was going to ask another question, but, instead, I'm
going to agree with Congressman Massie, who has since had to
leave, and just say that we've heard some testimony here in
favor of weakening the ITC to some degree and it's troubling--
to make it harder for a patent owner to stop competitors from
bringing infringing products manufactured abroad into the
United States.
That's on top of the eBay decision, which, since 2006, has
made it nearly impossible for patent owners to get injunctions
in court to protect their property. I don't think that U.S.
innovators should be left with no way in court or in the ITC to
protect their businesses from infringing products manufactured
overseas.
With that, I yield back.
Mr. Issa. I thank the gentlelady. We now go to the
gentleman from California, Mr. Kiley, for five minutes.
Mr. Kiley. Good morning. I wanted to get a little better
sense in the circumstance where an exclusion order is issued.
What is the sort of typical response by the infringing entity?
Mr. Korte or Ms. Hairston, if you want to weigh-in? Is a
license usually the result of that? Do they shift their
manufacturing domestically? What is the typical response?
Mr. Korte. Yes, thank you for the question, Congressman.
So, the typical response is years more of fighting. So, once an
exclusion order is issued, the company that lost probably has
already planned for that, as I mentioned earlier, and has
products if things don't fall within the scope of that order.
So, the next step after a loss at the ITC is to go to
Customs, Customs and Border Protection. There's months or years
of briefing and argument by lawyers at Customs over the scope
of the exclusion order and what products it should apply to.
So, oftentimes, there is no license after a loss at the ITC.
There are product changes on the market, and then, more
fighting at Customs, and eventually at the Federal Circuit over
what the scope of an exclusion order might actually be.
Mr. Kiley. Well, that part of it seems problematic to me
and maybe everyone, both sides, would agree on that. Professor
Doane, what do you think about this issue of fighting with
Customs for years? Is that beneficial to the system?
Mr. Doane. Well, I don't know about how much fighting there
is, but, with Customs, I do know that respondents that have
lost do try to redesign their products, which, by the way, is
kind of the point of a patent, is that, if you infringe it, the
idea for the patent is that you will then try to design around
it, and thus, advance technology even further by coming up with
something different.
The Commission does, in fact, provide respondents with the
opportunity to present redesigns to the Commission as well.
Either during the course of an investigation, if they can get
them in on time, or in an advisory opinion proceeding at the
Commission, you can say, ``I, Commission, I want to import my
new product. Here's why I think it doesn't infringe. Will you
give me permission?'' The Commission can then say yes or no,
and if you win, then you are free to import. You don't even
have to talk to Customs. It has been blessed by the Commission.
Mr. Kiley. Right. So, maybe that's an area where we could
focus on our forum as well, is sort of streamlining that
process, so that it would at least set the stage for a better
negotiation over a license or let folks know what kind of
alternatives are available to them.
Also, when it comes to the consideration of the public
interest, I guess, Professor Doane, this would be a good
question for you. Do you know in what percent of cases an
exclusion order is not issued based on the public interest
factors, roughly?
Mr. Doane. Well, I could tell you the number--if the
question is the number that has been denied because of a public
interest consideration, I believe there has been, actually,
very few, maybe four or five. The Commission always does take,
particularly in the last 10-20 years, has taken public interest
not to deny relief, but to modify the scope of relief. They
consider it in how they draft the exclusion order, whether
particular products are covered, whether to grandfather in
already imported products or new products. They do take public
interest into consideration to make sure that there is no harm.
For example, this is a trade secret case, not a patent
infringement case, but there was a case in which it was found
that batteries for electric cars were going to be excluded
because they were being produced after a theft of trade
secrets. The Commission modified the exclusion order, giving
American car companies the opportunity, several months before
the exclusion order would go into force, to allow them to
switch to it and design in the types of batteries into their
cars, so that they wouldn't be using an infringing battery.
Mr. Kiley. So, what do you make of this notion that these
proceedings are duplicative because you might have parallel
litigation going on in U.S. courts? Is there any validity to
that? From my perspective, it seems that, if you're importing a
product that may be infringing, then maybe in that situation,
we should have more scrutiny and perhaps the additional remedy
in an exclusion order, which we don't really have now in the
U.S. system. What do you make of that argument?
Mr. Doane. Well, it certainly is the case that one can file
a District Court complaint with a Section 337 complaint. In
fact, I would say it's probably more common than not that this
is done, largely because the ITC does not grant, does not have
the authority to give money damages. So, if you do actually
want to get compensation for past infringement, you do have to
go to District Court to get that. The exclusion order is the
perspective going forward and removes the product from the
market.
There is 28 U.S.C. 1659, I believe is the number, which
gives the--if you are a respondent in an ITC case and a
defendant in a District Court case, you are automatically
entitled to a stay of the District Court case until the ITC
litigation is completely completed, including all the way
through appeal. So, you're not facing two trials at once,
unless you choose to. You can decide to waive that right. The
statute gives a respondent in that circumstance an absolute
right to stay the District Court action.
Mr. Kiley. Thank you. Well, I think that there are a number
of opportunities for reform to make this process work better,
but in the process we need to make sure that we're not in any
way making it easier for China to infringe on American
intellectual property, which seems to be a huge risk here.
Also, need to be mindful of the impact that weakening the
availability of exclusion orders would have on innovation in
this country and, particularly, small innovators.
So, I thank the Chair for holding this hearing, and I think
there's a lot we can work on this going forward. I yield back.
Mr. Issa. I thank the gentleman. We now go to the
gentlelady from San Jose, Ms. Lofgren.
Ms. Lofgren. Thanks very much, Mr. Chair.
Standard essential patents--those are SEPs, Mr. Chair, for
the acronyms--for many products comply with industry standards.
As you know, owners of SEPs agree to license these patents on
fair, reasonable, and nondiscriminatory (FRAND) terms--that's,
Mr. Chair, the acronym--to ensure that the technology is
accessible.
At the same time, the ITC can issue exclusion orders to
stop the import of products that infringe on patents. However,
these orders can be disruptive, especially when it comes to
SEPs, because they could block the import of widely used
products, impacting businesses and consumers.
I'm wondering if each one of you has an opinion on these
two questions.
First, the issue of monetary remedies versus exclusion
orders. Considering the potential disruption of exclusion
orders, do you believe that monetary remedies should be the
first option, with exclusion orders reserved only for the most
severe cases when SEPs and FRAND are involved?
Second, given that commitment to license on fair terms,
should the ITC avoid issuing exclusion orders when they
conflict with FRAND commitments? How should we handle these
situations to balance the needs of patent holders and their
rights with those of the broader market?
Anybody have an opinion on those two questions?
Ms. Hairston. Thank you for the question, Congresswoman.
With regard to monetary remedies versus exclusion orders, our
position is that, if there is actual infringement, that the
first option should be those monetary damages and potential
royalties, particularly as it relates to standard essential
patents. They are licensed largely with the intent to monetize
the IP, intellectual property, and, therefore, we don't think
that an exclusion order is appropriate.
With regard to fair, reasonable, and nondiscriminatory
terms, we don't think that the ITC should be granting exclusion
orders. We think that injunctive relief is not appropriate in
that context because of the FRAND commitment that the SEP
patent holders have made to license all willing implementers.
Ms. Lofgren. Yes?
Mr. Contreras. Yes, thank you for the question. As you
know, undoubtedly, in 2013, U.S. Trade Representative Froman,
representing the administration, issued the last disapproval of
an ITC exclusion order that had been issued to Samsung against
Apple, precisely because it involved standard essential
patents. Trade Representative Froman was very clear in his
explanation of the disapproval that standard essential patents
and standardized products are important for the U.S. economy,
for U.S. producers, and to block the importation of products on
the basis of a standard essential patent was a very significant
matter, and that the ITC had not adequately developed the
record in terms of FRAND and standard essential patents in that
particular case.
To its credit, the ITC has modified its procedures in the
intervening 11 years, so that there is a much more detailed
record developed around SEPs. The ITC has not issued any
exclusion order against a product by virtue of infringing
standard essential patents.
That's absolutely the right approach to take. When a
company is involved in the standardization process, it makes a
commitment, a binding contractual commitment to the standards
body, that it will grant licenses of its patents on fair,
reasonable, and nondiscriminatory terms.
That means it agrees that, if others are going to use its
patents, it will accept a monetary royalty, and as long as a
company is willing to pay that reasonable royalty, there's
really no cause for an exclusion order or an injunction in
court, either. So, the only question is how much money that
reasonable royalty ought to be, and that's a question that the
courts will decide.
So, yes, so I think that absolutely the ITC should stay
away from exclusion orders in the FRAND context.
Mr. Doane. As Professor Contreras pointed out, the
Commission has developed a procedure to develop a record on a
SEP and to determine whether an exclusion order might be
necessary. I think that the availability of an exclusion order,
the threat of an exclusion order needs to stay in place, even
for a potential SEP, to avoid the problem of holdout, of
companies that say, ``Well, yes, you haven't offered me good
enough FRAND terms. So, I'm not going to license and I'm going
to keep going, infringing, because you can't make me stop.''
Ultimately, I think that the threat of the exclusion order
is beneficial in that, ultimately, it might force the end of
patent holdout in the circumstance, in a case of an SEP.
Ms. Lofgren. I see my time is just about up, Mr. Chair. So,
I yield back. Thank you all for your testimony today.
Mr. Issa. I thank you so much.
I now ask unanimous consent that two pieces of litigation
history be placed in the record. (1) Code Alarm v. Directed
Electronics, ED, Michigan, 1996. Code Alarm, Plaintiff, v.
Directed Electronics, Defendant; (2) Code Alarm, Plaintiff, v.
Magnadyne Corporation, Defendant. One is an ITC hearing or
process, and the other is an Article III Court in Michigan.
Mr. Issa. Since no one else is here, I'll now recognize
myself. I put those in the record because those are my cases. I
was a defendant. The ITC very appropriately found that the
accuser had unclean hands and, in fact, did not have a valid
patent, but, in fact, was asserting a patent that they had
applied for after a vendor gave them not only the idea, but the
chip.
The ITC, for the first time that I know of, refused a
dismissal by the plaintiff, continued the case, and the
plaintiff then said,
That's great. You made your decision on summary judgment to
find my patent invalid, but I'm going to continue an Article
III.
Where we continued an Article III, ultimately, having it
decided twice at the Federal Circuit, once, sustaining the ITC;
once, opposing the defendants' plea; that is, the patent in
Article III was valid.
All of that goes to say that my experience with the ITC,
although quick and expensive, in fact, was fair. Now, the
question is for all of you--and I'll start with Professor
Doane--do you believe that the ITC is appropriate, for example,
when Broadcom and Qualcomm, two very large, multibillion dollar
companies, face each other over a portion of their intellectual
property and they are a simultaneously an Article III case? Yes
or no, please.
Mr. Doane. Yes.
Mr. Issa. Professor Contreras?
Mr. Contreras. No.
Mr. Korte. No.
Ms. Hairston. No.
Mr. Issa. So, this doesn't surprise me. What does surprise
me is that much of the discussion today has been about small
entities, large entities, and so on. So, I'm going to go into a
couple of areas that were brought up and try to tie together
some of the testimony today.
SEPs, Professor Doane, they exist to collect revenue. Your
belief is that, even though their attempt is to collect
revenue, that injunctive or exclusion should still be granted
as a leverage tool to get them not to be holdouts, or in other
words, not to assert their full rights in Article III, where
they might prevail. Is that correct?
Mr. Doane. Were you saying SEPS or--
Mr. Issa. An SEP, a potential infringer of a standard
essential patent.
Mr. Doane. I think that--
Mr. Issa. You're saying it should still be explored and
that an exclusion should still be granted in the ITC?
Mr. Doane. I think the availability of an exclusion order
should be an option in cases where there has been holdout. I
think I would hope that--
Mr. Issa. OK. I got you. I just wanted to make sure. So,
for the other three, because I'm suspecting a different answer,
the idea that the ITC is, in Professor Doane's experience of 30
years of practicing, a tool for leverage on what, ultimately,
is a royalty-only product--meaning that a royalty will be
granted; it will be paid if the defendant loses. Yet, the
professor has said that it's an effective, from his litigation
history, an effective tool. Would you (a) agree it's an
effective tool, and (b) do you believe it should be a tool,
essentially, used as a hammer to predetermine the outcome of an
Article III Court case?
Yes, Professor Contreras?
Mr. Contreras. Yes, I have been involved in numerous cases
where this has been used as a tool and it is effective, but
whether it's appropriate is another question. It's not an
appropriate tool. Of course, it's a tool that is favored by
patent holders because any tool in the litigation toolkit
should be--
Mr. Issa. There's a reason Broadcom sued Qualcomm in the
ITC. It is it was a tool available to them, just as Kodak and
Apple, and lots of other large companies.
Mr. Korte, has Garmin used the tool ever? You're an
American manufacturer. Have you used it again Asian imports?
Mr. Korte. No. Although we do face our own flood of Asian
imports, and including from China, we have never used 337
against those imports. We've found other recourse, including
Article III Courts, to be much more cost-effective and useful
to stem the flood of knockoff products.
Mr. Issa. Ms. Hairston?
Ms. Hairston. I would agree with Professor Contreras that,
while it can be a very effective tool, we don't necessarily
believe that it's an appropriate tool to use, particularly as
it relates to standard essential patents.
Mr. Issa. OK. We have another person coming. So, I'm going
to take a few extra seconds here.
One question--and I'll start with Professor Contreras--when
there is an SEP, for example, we could suggest to the other
Committee of Jurisdiction that a bond in lieu would be a remedy
that we could make available to the ITC--not mandate, but make
available. Do you think that a bond in lieu, where the full
cost of the holdout would then be paid in and continue to be
paid until the Article III Case reaches final adjudication? Is
that a reasonable alternative to exclusion?
Mr. Contreras. I would say it's an improvement. As you
undoubtedly know, many European jurisdictions have this idea of
a bond in lieu of the injunction. It's still not really
necessary.
We do have Article III Courts to adjudicate these matters.
Even with a bond, the bond is a significant cost. The small
companies are the ones who won't be able to pay the bond; the
large companies will.
Mr. Issa. Mr. Doane, or Professor Doane, would you say that
a bond--but a cost that is an alternative to exclusion is this
at least something that should be a tool in the quiver, if you
will, of the ITC?
Mr. Doane. It is difficult to say without knowing how such
a bond would work, but it's certainly something that can be,
should be discussed.
Mr. Issa. OK. Ms. Hairston, you talked about your various
manufacturers, auto manufactures, and so on. Is this something
where the idea that you're perfectly willing to pay the
damages, capable of paying the damages, if a license--and we're
assuming that we're only talking for a moment about companies
which are licensors; in other words, not a company that demands
an exclusive and only has an exclusive. Is that something that
you think would improve the treatment at the ITC, assuming they
still took the cases?
Ms. Hairston. I think it is something definitely worth
exploring. I'd like to take it back to my member companies to
discuss to get more insight and share that with you at a later
time.
Mr. Issa. Thank you. That's what this hearing is for.
I now go to the gentleman from Virginia, Mr. Cline.
Mr. Cline. Thank you, Mr. Chair.
Professor Contreras, would you agree that there is a rising
trend in abusive investor-funded patent litigation in legal
venues across the United States, including at the ITC?
Mr. Contreras. There's certainly a trend in investor-funded
litigation. Much of this investor-funded litigation is for NPE
litigation, both the District Courts and definitely at the ITC.
Mr. Cline. In fact, increasingly, shell companies and other
intermediaries conceal the involvement of parties, often
foreign, including sovereign wealth funds, hedge funds, and
other opaque entities, in patent litigation against U.S.
companies?
Mr. Contreras. This is an issue across the board in patent
litigation, yes.
Mr. Cline. Do these shell companies target critical
manufacturers and industries which could disrupt fragile supply
chains and undermine the industries and companies that are
vital to America's national and economic security?
Mr. Contreras. That is certainly what happens.
Mr. Cline. Does Section 337 currently require the
disclosure of who is funding the complaint?
Mr. Contreras. No.
Mr. Cline. So, it would be accurate to say that absent
adequate transparency in the disclosure of the real parties and
interests in these ITC cases, the extent of this harm will
remain unknown to the U.S. public and to the government?
Mr. Contreras. That's correct. We just don't know.
Mr. Cline. Would it also be accurate to say that the lack
of routine disclosure of the real parties and interests raises
serious concerns when determining whether ethical conflicts
exist during ITC proceedings?
Mr. Contreras. This is a concern as well, yes. There's
really no reason that there shouldn't be full transparency.
Mr. Cline. I'm pleased that, as a Member of the
Appropriations Committee during the Fiscal Year 2024 and Fiscal
Year 2025 cycles, I was successful in including tort language
in the CJS bill to, essentially, articulate what you just
confirmed and direct the ITC to consider implementing a
standing rule that would require each party to disclose the
real parties and interests in all Section 337 litigation at the
ITC.
This is a temporary victory, but it seems that legislation
is necessary to ensure the disclosure of real parties and
interests. Would you agree?
Mr. Contreras. I would agree.
Mr. Cline. OK. Thank you for that.
Mr. Issa. Would the gentleman yield?
Mr. Cline. Yes, happy to yield.
Mr. Issa. Let me ask a question. The reverse of the
complaint about eBay that I've been hearing here today--and
I'll go, start with Professor Doane--if an Article III Court
were to find infringement, and the ITC then was empowered,
essentially, sua sponte, to issue an exclusion based on that
decision, notwithstanding eBay, would you support that?
Mr. Doane. I don't know if I need to support that. I think
that's how that would work. I think if--
Mr. Issa. Well, even if you haven't been in the ITC, you
would simply go to the--
Mr. Doane. Yes, if you have a finding of infringement, and
you, then, say, ``Well, they're continuing to import, even
though I have this finding of infringement against them,'' the
Commission would be bound by the District Court's order, the
finding of infringement. To the extent there were validity
findings, they would be bound by those as well. If the other
requirements of 337 were met, then, certainly, they can issue
an exclusion order.
Mr. Issa. So, as a summary decision, Professor Contreras,
do you agree that, notwithstanding the eBay decision, that a
Federal Court that finds infringement, and the ITC finds that
the product is still being imported, that an exclusion would be
something you could grant in a matter of, basically, days--not
a year?
Mr. Contreras. Yes, that is certainly possible. It's really
Customs and Border Protection that is the relevant implementer
here. The ITC--
Mr. Issa. The ITC, this could be an effective power that
would dissuade people from going to the ITC at greater expense,
but have everyone recognize that you can't rely on eBay if, in
fact, you're importing?
I'm asking because we're looking to try to find common
ground here. We are not the Committee of Primary Jurisdiction,
even though our Article III Judges find themselves a little
amused that they are stayed while an administrative act that
may not be a complete remedy occurs.
The other two witnesses, any comment on that? You certainly
have Article III against infringers.
Mr. Korte. Yes, certainly, and my only reservation with
that process is the ITC's statutory requirement is to protect
American domestic industry. So, before it takes any action,
including an exclusion order, it should be looking to see if
that exclusion order is in furtherance of that American
investment.
Mr. Issa. Sure. That's why I said days, not hours.
Mr. Korte. Yes.
Mr. Issa. How about for the auto industry? Is this
something that would be comfortable as a possibility that the
ITC would act in an expeditious manner, but after an Article
III case was adjudicated?
Ms. Hairston. I think that certainly sounds reasonable. I
would agree with Mr. Korte's reservations, but that's something
that could be potentially workable.
Mr. Issa. OK. Then, having no other questioners, I'm just
going to quickly give you the synopsis--I'll give you a written
copy--of questions from the other Committee of Jurisdiction,
Ways and Means.
They were particularly interested in activities that are on
the order of the Chinese Government, the Chinese Communist
Party.
One question was:
How might Section 337 be improved to be a more powerful tool to
block imports of products that infringe U.S. patents,
misappropriate U.S. trade secrets, and otherwise undermine
intellectual property of Americans?
So, as you can see, their question is, how do we make it
stronger?
Mr. Doane, Professor Doane, I think you'll enjoy answering,
helping us answer that.
The next one is:
To the extent that some witnesses call for reforms related to
337 litigation, will these reforms be helpful to better hold
China accountable for abuse of intellectual property?
I would assume that's both directions, infringing and perhaps
the patent troll process.
Then:
To the extent that some of the witnesses call for reforms
related to 337 litigations, to what extent would the problems
you identified be solved by administrative action by the ITC
rather than a statutory change?
In other words, can they heal thyself is the question?
That is an important question that occurs to me, too; that
we may--sometimes our hearings provoke changes at agencies.
Mr. Issa. Do you want to make any closing statements?
Mr. Johnson. No, I have none. I'm just ready to get to my
next Committee.
Mr. Issa. Seeing that there are not, I would ask, in
closing, would you all agree, pursuant to our normal closing
statement, that there would be five legislative days in which,
for Members of the Committee, either that did ask questions or
those that weren't able to, to send you questions for the
record, in addition to the ones you got from the Ways and Means
Committee?
Mr. Doane. Yes.
Mr. Contreras. Yes.
Mr. Korte. Yes. Thank you.
Ms. Hairston. Yes.
Mr. Issa. Thank you.
That's actually the only thing I need to ask. So, thank you
very much, again, for attending. We will take your additional
remarks, in addition to questions, if you have further thoughts
during that same period. Well, five days to get it to you and a
reasonable time for you to answer.
Mr. Issa. Thank you very much. We stand adjourned.
[Whereupon, at 12:15 p.m., the Subcommittee was adjourned.]
All materials submitted for the record by Members of the
Subcommittee on Courts, Intellectual Property, and the Internet
can
be found at: https://docs.house.gov/Committee/Calendar/ByEvent
.aspx?EventID=117532.