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Stricter Rules for Barring Imports of IPR Infringing Goods Proposed in New Bill

Tuesday, June 03, 2014
Sandler, Travis & Rosenberg Trade Report

New legislation introduced in the House of Representatives May 29 seeks to make it tougher for so-called patent trolls to secure International Trade Commission exclusion orders banning imports of goods for intellectual property rights infringement. Reps. Tony Cardenas (D-Calif.) and Blake Farenthold (R-Texas) say the Trade Protection Not Troll Protection Act (H.R. 4763) targets cases brought by patent assertion entities, which “hurt consumers and the economy by reducing market choice, hampering innovation, and inflicting unnecessary costs.”

PAEs (also known as patent trolls) are firms that purchase and assert patents after a product is already in production. PAEs do not manufacture a competing product in the U.S. or anywhere else, the two lawmakers state, and in most cases do not license their technology to anyone who is producing a competing product. Often they are mere shell corporations set up for the purpose of litigation, are sometimes based overseas and have few U.S. employees. Prior to 2006 there were virtually no PAE complaints under Section 337 of the 1930 Tariff Act (which aims to prevent the unfair importation of products that infringe patents, copyrights or trademarks, among other things), a fact sheet notes, but as of 2012 PAEs were bringing 39% of patent investigations at the ITC.

H.R. 4763 is based on the belief that PAEs are increasingly taking advantage of the ITC as another venue in their litigation business model against U.S. companies by alleging that they need trade protection as a domestic industry despite not engaging in a demonstrable commercial activity. In nearly all recent cases, the legislators said, these entities have judicial recourse for allegedly infringing activities and are pursuing that parallel litigation at the same time as filing in the ITC. To address this situation, H.R. 4763 would make the following changes.

- modifies the current domestic industry standard to clarify that investment in licensing must be substantial and must lead to the adoption and development of articles that incorporate the patent in question

- clarifies that complainants may not use licensees to establish a domestic industry unless the license entered into by the licensee leads to the production of an article that incorporates the patent for sale in the U.S

- requires the ITC to conduct a preliminary investigation as to the domestic industry standing for any complainant that relies on IP activities in whole or in part, sets forth process protections and limits for the preliminary investigation and requires an initial determination within 45 days

- enables the ITC to make a public interest determination early in the case (rather than at the end, as is customary); allows the ITC to consider the current statutory provisions, whether an exclusion order will actually protect any articles, and whether the complainant or its licensees can meet market demand for protected articles when making such determination; and authorizes the ITC to terminate Section 337 cases based on such determinations if appropriate

- clarifies that the ITC may hear all equitable defenses, including equitable defenses and principles considered in U.S. district courts, in making a Section 337 determination

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