Patent trolls have become increasingly adept in recent years at using the system that was created to protect American innovation to damage this fundamental pillar of the economy. Such abuses must be curbed … immediately.
One place is to ensure that the International Trade Commission stops taking the side of patent trolls in litigation. Sometimes referred to as patent assertion entities, these organizations do not invent or manufacture new products or technologies. Instead, they acquire a number of patents to find the ones that they can use to sue innovative firms that are actually making things. These patent trolls discovered they could file legal cases and extort large settlements from innovators by gaming the legal system. This is a particularly serious problem at the ITC, given how the agency conducts intellectual property-related investigations.
The ITC has unwittingly been partnering with patent trolls by allowing them to threaten productive American companies with the frightening prospect of market bans if the companies don’t pay massive sums. A patent assertion entity can wipe out a major product line of a firm based on one trivial alleged patent issue if ITC grants a Section 337 exclusion order as part of their investigation, which essentially stops all sales of a product that contains an alleged infringed intellectual property in the United States. This harsh remedy has stacked the deck in favor of the patent trolls by giving them overwhelming leverage in settlement negotiations.
The ITC may now be doubling down on its support of patent assertion entity activity and brushing aside the needs of productive companies entirely. A recent twist in an intellectual property case involving chip design software has found the ITC actively intervening in federal court proceedings to support aggressive and wasteful patent troll cases. Not only does this raise troubling questions about the separation of powers, but it should also be a cause for alarm for innovators and risks the efficiency of key supply chains.
The litigation involves Bell Semiconductor, a Pennsylvania-based technology and intellectual property licensing company that has sued nearly 100 defendants. On the surface, the case is relatively straightforward, with Bell claiming that its patent for chip design software has been infringed. But here is where things get interesting.
Instead of directly litigating against the companies that make the chip design software Bell claims has been infringed, Bell is harassing third-party customers of the software companies, litigating directly against them for infringement based on their licensed use of the software. This is of serious concern for these businesses now bearing a huge litigation burden based on their use of software they legally purchased.
The scale of Bell’s actions also represents a huge waste of judicial resources and taxpayer dollars. Over seven months, Bell launched 87 legal actions in district courts across the country as well as three separate ITC investigations. Seeking to end this madness, the companies that develop and supply the chip design software in question filed suit in a Delaware District Court. The goal was to consolidate the mountain of identical infringement allegations into a single proceeding in a federal courtroom, where the actual suppliers could defend their patents rather than continue to burden their third-party customers with a variety of court actions and ITC investigations on an issue they know nothing about.
One might have expected the ITC, which has a statutory mission to support domestic industry and to act in the public interest, to back the suppliers in their quest to give their customers relief and allow the parties to the dispute to hash out the issues in a single court proceeding. But the ITC, instead, came down on the side of the patent troll.
Lawyers for the ITC have argued that its proceedings should take precedence over everything else and that Bell should be allowed to continue its multiple investigations against U.S. innovators. What is more puzzling is that they made this argument even though the ITC proceedings wouldn’t be the final word on the dispute, as any ruling in federal court would ultimately supersede any decision made by the ITC.
In other words, the ITC is actively working to waste resources and to push defendants against Bell’s actions into pre-trial settlements by impeding an efficient resolution of the claims in federal court. If repeated in other cases, the ITC’s behavior will encourage patent trolls to file even more Section 337 cases and further chill innovation.
The ITC’s inability to see the misguided nature of its response and the real-world consequences of its decisions is disheartening. By taking the side of patent trolls, it harms the interests of the companies, small and large, that are engaged in promoting innovation. It also allows a troll to wreak havoc on the part of a critical supply chain since the technology in question involves chip design software. Given that chip manufacturing is a priority for the United States, the seriousness of this situation is hard to overstate.
The Bell Semiconductor case shows that the ITC has lost sight of its mission and its proper role in the dispute settlement system. Congress should remind the agency of both. A good start would be asking the ITC to explain itself in oversight hearings. In the meantime, we can hope this is the last time the ITC intervenes in litigation in favor of patent trolls.