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Section 337 Caseload Increasing but “Patent Troll” Cases Still Low, ITC Says

Tuesday, June 17, 2014
Sandler, Travis & Rosenberg Trade Report

The International Trade Commission released June 10 a memo reviewing facts and trends concerning its investigations of intellectual property rights infringement and other unfair methods of competition under Section 337 of the 1930 Tariff Act. Highlights of the information in this document include the following.

Proceedings. The number of new Section 337 investigations has remained at elevated levels over the past several years, peaking at 69 in 2011 and falling to 42 in 2013. There were 39 new investigations and 13 new ancillary proceedings instituted in FY 2013, marking the third year of a downward trend, but 72 investigations completed, the highest level ever. There were 124 active investigations and ancillary proceedings in FY 2013, up from 103 in FY 2010, and there were an average of 60 active proceedings per month, compared to 22 in 2004.

Products. A substantial number of Section 337 investigations involve IPR-based matters regarding high-tech products. Computer and telecommunications products accounted for about 30% of new investigations in 2012 and about 38% in 2013, followed by other consumer electronic products at 23% and 7%, respectively. However, new Section 337 investigations also involve a wide range of other types of products, including small consumer items (10%/12%) and pharmaceuticals and medical devices (5%/14%).

Non-Practicing Entities. Section 337 complainants must show that they have made sufficient investments in the U.S. with respect to articles protected by the right concerned; such investments may include manufacturing, research and development, engineering and/or licensing activities. Complainants must also show that there is an article that practices the right concerned. There has been some question as to whether certain non-practicing entities (referred to by some as “patent trolls”) should be permitted to obtain relief against infringing imports at the ITC.

For analytical purposes, the Commission uses the following categories for NPEs: Category 2, which covers entities that do not manufacture products that practice the asserted patents and whose business model primarily focuses on purchasing and asserting patents; and Category 1, which covers all other entities that do not manufacture products that practice the asserted patents, including inventors who may have done R&D or built prototypes but do not make a product covered by the asserted patents and therefore rely on licensing to meet the domestic industry requirement; research institutions, such as universities and laboratories, that do not make products covered by the patents and therefore rely on licensing to meet the domestic industry requirement; start-ups that possess IP rights but do not yet manufacture products that practice the patent; and manufacturers whose own products do not practice the asserted patents.

Some observers have said that NPE filings account for the increased Section 337 caseload at the ITC, but the data do not support that argument. The numbers of Category 1 and Category 2 investigations instituted annually have each remained below ten since 2007, compared to at least 30 in most years for non-NPE investigations, and each category represents only 10% of the total Section 337 investigations initiated during that time. Only four NPEs have been successful in obtaining exclusion orders (which ban imports of infringing goods) over that period, and in each of these cases the involved NPE or its subsidiary developed the technology at issue.

Settlements. Nearly half (46.4%) of all Section 337 investigations instituted since 2006 have ultimately been terminated based on settlements or consent orders, although only 39.3% of completed investigations involving Category 1 or Category 2 NPEs were settled, compared to 48.2% for all others.

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