Congressman Nadler Statement on Patent Litigation Before the International Trade Commission (ITC)

Apr 14, 2016 Issues: Civil Liberties, Jobs, Labor and the Economy

Washington, D.C. – Today, Congressman Jerrold Nadler (NY-10), Ranking Member of the House Judiciary Subcommittee on the Courts, Intellectual Property and the Internet, delivered the following statement at a hearing on International Trade Commission (ITC) patent litigation. In his statement, Congressman Nadler notes recent ITC changes to address abusive litigation and asks whether any further legislative or regulatory changes are warranted.

The full statement, as delivered, is below:

“Today, we consider patent litigation at the International Trade Commission. The ITC is not widely known or understood outside of a narrow group of practitioners and interested parties, but it plays an important role in shaping trade policy in the United States. Among its duties is to adjudicate cases involving imports that allegedly infringe intellectual property rights, and to potentially exclude such products from entering the United States. Because the ITC has become an increasingly popular venue for bringing patent infringement claims in recent years, it is appropriate for this subcommittee to examine how the ITC handles patent litigation, and whether any legislative or regulatory changes are warranted.

 “When we last considered this topic, in 2013, we did so in the context of the ongoing crisis of abusive patent litigation. We heard testimony that patent trolls had identified the ITC as a friendly forum, and were flooding the system with abusive and frivolous claims, particularly after the Supreme Court's 2006 decision in eBay v. MercExchange. Prior to the eBay case, injunctions in patent cases were viewed as almost automatic. However, the Court ruled that patent holders in district court cases must satisfy the same four-factor test applied to other plaintiffs seeking an injunction, including showing that monetary damages are insufficient to compensate the plaintiff and that a plaintiff will suffer irreparable harm without an injunction. By some estimates, the eBay standard reduced the chances of an injunction being granted to just one in three.

“Concerns were raised that, after this decision, non-practicing entities, or NPEs, were flocking to the ITC, which does not apply the eBay analysis, and where an exclusion order is almost automatic if infringement is found. The drastic step of an exclusion order can serve as a death-knell for a business. As manufacturing has increasingly moved overseas in recent years, even an American company may find its products excluded from the U.S. if they are found to be infringing. Because the consequences of having one's product prevented from being imported into the U.S. are so great, NPEs were exploiting this risk to pressure defendants into settling even frivolous cases.

“Since we last considered this issue, the ITC has taken steps that attempt to address some of the concerns over NPEs and abusive litigation. For example, as ITC case law continues to evolve, NPEs, whose entire business model depends on litigation, may find it more difficult to establish that there is a domestic industry that would be threatened by the importation of a particular product, as is required under Section 337 of the Tariff Act.

“In addition, the ITC has begun a pilot project, which it proposes to codify and expand, allowing the Commission to identify potentially case-dispositive issues when an investigation begins, and direct the presiding judge to issue an Initial Determination of those issues within 100 days. If used to its full extent and made permanent, this may help weed out weak claims at an early stage and discourage many others from even being filed. Indeed, recent statistics indicate that filings by NPEs has dropped from its peak between 2008 and 2011.

“I hope our witnesses will help us to understand whether this reduction in filings is just temporary, or whether the ITC has adequately addressed the concern over abusive litigation through these and other measures. And if further action is necessary, does the ITC have sufficient tools at its disposal, or is congressional action required?

“I also look forward to a discussion of whether patent litigation at the ITC serves as a complement to district court litigation or whether they conflict with each other. As an independent, quasi-judicial federal agency focused solely on trade, the ITC operates under a different set of rules with a different mandate than Article III courts.

“What sorts of incentives do plaintiffs have to pick district court or the ITC as an appropriate forum, or to file parallel litigation in both arenas? Are defendants being treated fairly in this process? And what are the implications for developing a uniform understanding of patent law when it is being administered and interpreted by two different judicial bodies? Are any reforms needed and, if so, should Congress enact legislative changes, or should they be accomplished through the regulatory process?

“I look forward to hearing from our witnesses about these and other important matters, and I yield back the balance of my time.”