ITC Patent Disputes Continue to Provide Steady, Profitable Work

Annual survey tracks patent disputes heard by the International Trade Commission

In a year that ended dismally for many law firms, one subsection of intellectual property litigation continued to provide steady -- and profitable -- work: the patent disputes heard by the International Trade Commission known as 337 investigations.

Our annual survey found that 36 cases were filed in 2008 -- a slight drop from the 39 filed in 2007, but still 12.5 percent more than the 32 filed in 2006.

International trade boutique Adduci, Mastriani and Schaumberg retook the top spot this year, after losing it last year to Fish & Richardson. Adduci lawyers worked on a dozen cases filed in 2008, followed by Finnegan, Henderson, Farabow, Garrett & Dunner, which saw its ITC caseload rise from six in 2007 to 10 last year. Fish & Richardson remained a formidable ITC player with nine cases, but dropped to third on the survey. Two newcomers to the list: Bryan Cave nearly doubled its ITC workload, taking on five cases in 2008, compared to three the year before, while Covington & Burling clearly benefited from snapping up Heller Ehrman's nine-lawyer ITC practice group after the San Francisco firm collapsed in the fall.

The year's biggest loser: Miller & Chevalier, which scored 11 cases in 2007, but only added a single new one last year and wound up not even making the list. The firm's attorneys nonetheless stayed busy with ITC work in 2008, since five of its cases before the agency went to trial.

Why does a government institution with protectionist trade policies that date back to the 1930s find itself at the peak of its influence amid the globalized economy of the early 21st century? The answer lies mainly in the ITC's power to offer, in the form of exclusion orders, a type of relief increasingly hard to find in federal district court, thanks to the U.S. Supreme Court's 2006 decision in eBay v. MercExchange. That ruling made it harder for patent holders to win injunctions against competitors. An ITC exclusion order, meanwhile, bars an infringing product from being imported into the United States, a sanction that is often as effective as an injunction.

Law firms, eager to tout their expertise in this area to potential clients, are beefing up their ITC practices. At the same time, the commission itself is growing to handle the larger workload. In just the last year, two administrative law judges have been added to hear patent disputes, bringing the commission's total to six.

In addition to the power of the exclusion order, patent holders are drawn to the ITC because of the speed at which the agency moves through complaints. Cases generally go to trial in less than a year -- about one-third of the time it can take a patent lawsuit to make its way through district court.

"Even when you think there's a good chance of settling, you have to litigate the case really aggressively," says Sturgis Sobin, an ITC specialist at Covington & Burling. The breakneck pace can sometimes result in separate attorneys handling settlement discussions and litigation. "You can't afford to let the litigation side slow down," Sobin says.

As the commission has filled up with patent disputes, more traditional ITC practices, like anti-dumping claims, have fallen off dramatically, Sobin adds.

"A 337 [patent] investigation is a much more nuanced instrument to protect an industry than an antidumping claim," says Sobin, noting that companies can use patents to target one rival, rather than coordinating with domestic competitors to sue a foreign country's industrial heavyweights -- something required under anti-dumping laws.

Sobin, who has worked on ITC disputes since the 1980s, was hired by Heller Ehrman three years ago to run the firm's ITC practice. When Heller suddenly collapsed in the fall of 2008, its IP lawyers were among the first to find new homes. Covington & Burling, which now has about 30 attorneys with significant ITC experience, snatched up Sobon's entire nine-person ITC group. As of March, Sobin says, the group was dealing with five "large, active" cases before the commission.

LOOMING LITIGATION TRENDS

As for potential litigation trends on the horizon for this year, ITC watchers have their eyes on two areas in particular. The first: What is the possible impact of the U.S. Court of Appeals for the Federal Circuit's October ruling that exclusion orders don't apply to "downstream products" (pdf)? Since a ban on an infringing chip doesn't necessarily bar the importation of a cell phone containing that chip, patent holders face a quandary: Should they fight infringement by pursuing sweeping exclusion orders that require a higher standard of proof? Or should they opt instead to sue the importers of downstream products directly -- even though bringing such suits would result in pitting the importers against their own customers?

A second potential area of increased activity will be driven by whether the small patent-holding companies sometimes derided as "patent trolls" will make inroads at the commission. The incentive for them to try is high, since patent-holding companies' access to injunctions was virtually shut off entirely by the decision in eBay.

Only patent holders who have a "domestic industry" in the United States can turn to the ITC for relief, but a series of rulings have kept the "domestic industry" bar decidedly low. For instance, foreign companies with just one or two U.S. facilities have no problem passing it. This may be the year when practitioners find out just how low that domestic industry bar sits.

Last December, Saxon Innovations, LLC, a patent-holding company backed by Altitude Capital Partners, a New York patent investment firm, filed an ITC complaint against five technology companies; Saxon filed a second complaint in February. The "domestic industry" seeking government protection? A patent-licensing shop with four employees -- two of them part time.

Saxon's move does not necessarily signal that holding companies are poised to inundate the ITC with complaints. After all, the contingent fee system that pays holding company lawyers doesn't translate well in the ITC context. Taking ITC litigation through trial can easily cost $10 million or more, but the expenditure is spread over about 18 months -- half the time of the typical district court litigation.

Still, some well-funded holding companies have apparently made the calculation that bringing cases to the ITC is worth the expense. Though they can't win money damages from the agency, holding companies that win exclusion orders have extraordinary leverage to extract large cash settlements - not to mention powerful precedents to bring with them into the inevitable district court litigation that would follow.

In February, for example, Japanese technology company Kyocera Corp. filed a lawsuit seeking to invalidate patents held by patent-holding company SPH America, LLC. SPH America had already sued Kyocera once. And just three weeks after Saxon filed its ITC complaint, SPH America - controlled by a former Fish & Richardson associate -- threatened Kyocera again, specifically noting that it had the ability to bring an ITC case.

Looks like 2009 could be a lively year for ITC lawyers