New Opportunities Or How To Circumvent "eBay"

Submitted by patentadmin on Wed, 07/15/2009 - 17:11

A previous blog post discussed the eBay decision, about which we will not comment further, except to note that it effectively removed one weapon from the arsenal of the NPE – the dreaded “non-practicing entity” (also, pejoratively known as a “troll”). No longer could the NPE threaten a patent infringer with the legal equivalent of a neutron bomb – a permanent injunction.

Ever resourceful, the NPEs are now developing a new weapon – the ITC “exclusionary order,” i.e. an order of the International Trade Commission barring the importation into this country of goods found to infringe the complainant’s patent(s).

One of the requirements for bringing an action in the ITC is that the complainant must prove the existence of a “domestic industry” related to articles protected by the intellectual property at issue (not surprisingly known as the “domestic industry requirement”). The question is what constitutes a “domestic industry”?

The law provides (19 USC §1337 (a)(3) for all you anal retentives) that “… an industry … shall be considered to exist … with respect to the articles protected by the patent” if there is “substantial investment in its exploitation, including … licensing.” Thus, “[t]he domestic industry requirement can be satisfied solely based on complainant investing a substantial amount of money in a licensing program to exploit the patent, even if complainant does not manufacture the product.” (emphasis added) Fine, so what constitutes “substantial investment”?

Ever determined to keep things vague – lawyers have to make a living too – the ITC has held that there is “no bright-line test” to determine what constitutes a “substantial investment” in the licensing of patents. They did note, however, that “[p]roof of substantial investment could include factors such as the number of companies that are licensed, licensing revenues, licensing costs, the number of employees involved in the licensing process, legal fees, and whether licensing activities are active and ongoing. Nevertheless, the ITC has made clear investments and/or licensing efforts that fail to result in any license agreements are likely insufficient to be considered a “substantial investment.”

Putting it more bluntly, they noted that “there is no Commission precedent for the establishment of a domestic industry based on licensing in which complainant did not receive any revenue from the alleged licensing activities.” This last position is now being challenged by Saxton Innovations LLC. We await the result with breathless anticipation.

THE LESSON TO BE LEARNED: If you are an NPE and you have already licensed your patent(s), maybe you can pursue foreign infringers in the ITC (or hire the A-Team).

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