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variety of industries and private practitioners attend this event for worthwhile benchmarking and networking with the whos who of the 337 bar, including senior decision-makers from the ITC, companies and practitioners involved in some of the most high profile cases to date.

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  • 1. Finnegan, Henderson, Farabow, Garrett & Dunner, LLPNPEs and the Domestic Industry Licensing Requirement Chester Day (Google) Richard Rainey (GE) Kathleen Zylan (Cisco) Tom Jarvis (Finnegan/Moderating) 1 Tom.Jarvis@Finnegan.com

2. ITC Statistics ITC makes distinction between categories of NPEs Category 1 NPEs do not make a product practicing the asserted patents Investments in research, development, or engineering Includes universities, companies that failed to commercialize Category 2 NPE/PAEs do not manufacture products that practice the asserted patents business models focused on purchasing and asserting patents secondary market for IP rights2 3. ITC StatisticsFrom FACTS AND TRENDS REGARDING USITC SECTION 337 INVESTIGATIONS Prepared by the U.S. International Trade Commission (June 18, 2012)3 4. ITC 337 Investigations Instituted Per YearITC Patent Infringement Investigations56 30200635372007200862 38292009201020112012Source: RPX Proprietary Research 2006 Cisco Systems, Inc. All rights reserved.Cisco Restricted Attorney Client Privileged; Attorney Work Product4 5. NPE CASES INCREASING IN THE ITC Respondents in NPE ITC InvestigationsNPE ITC Investigations232 16201 1497 6 4443822006820072008200920102011201215200620072008200922201020112012Source: RPX Research and EDIS 2006 Cisco Systems, Inc. All rights reserved.Cisco Restricted Attorney Client Privileged; Attorney Work Product5 6. ITC 337 Investigations Instituted Per Year4NPE Cases16Non-NPE Cases 426 6283131200620072008 2006 Cisco Systems, Inc. All rights reserved.14 524625200924201020112012Cisco Restricted Attorney Client Privileged; Attorney Work Product6 7. Statutory Question Domestic industry: A. significant investment in plant and equipment; B. significant employment of labor or capital; or C. substantial investment in its exploitation, including engineering, research and development, or licensing. Difference between a traditional DI based on manufacturing and a DI based on licensing?7 8. Issues Manufacturing, Research & Development, and Engineering Analysis Economic Prong: significant investments Technical Prong: products practice asserted patent Licensing analysis: Economic Prong: substantial investments Technical Prong: investments related to the asserted patents8 9. Certain Multimedia Display and Navigation Devices, Inv. No. 694 Pioneer asserted 3 patents of a portfolio of more than 1,600 patents. The ALJ found no violation, but that the economic prong of DI was satisfied. The Commission reversed the ALJ on DI, holding that: US investments relate to the asserted patents and licensing For a portfolio license, complainant must show that its investments are focused on: the asserted patent or the relative importance or value of the asserted patent9 10. Certain Electronic Devices Including Handheld Wireless Communication Devices, Inv. Nos. 667/673 NPE complainant alleged DI based on licensee activities. The ALJ found on MSD that a DI existed through licensee R&D, even though that activity was not directly related to patented features of the products at issue. ID non-reviewed by the Commission Investigations settled.10 11. John Mezzalingua Assocs., Inc. v. ITC, 660 F.3d 1322 (Fed. Cir. Oct. 4, 2011) Licensor appealed from the Commission decision in Inv. No. 650 that it failed to show DI. Federal Circuit affirmed, finding expenses incurred in asserting and defending validity of its design patent did not constitute a substantial investment in exploitation of its patent through licensing. Judge Reyna dissented that the Commission erred in rejecting litigation expenses. 11 12. Certain Video Game Systems & Controllers, Inv. No. 743 The ALJ found no DI, Commission non-reviewed the ID in relevant part. ALJ found no existing DI at the time of the complaint and no DI in the process of being established complainant had ceased any exploitation of the patent well before filing the complaint at the ITC litigation expenses found insufficient to establish a DI. Federal Circuit Appeal pending. 12 13. Certain Liquid Crystal Display Devices, Including Monitors, Televisions, and Modules, and Components Thereof, Inv. Nos. 741/749 5 patents asserted against multiple parties ALJ found a DI, Commission affirmed, finding: Ongoing licensing programs related to the asserted patents; Licensing negotiations focused on the asserted patents Only a subset of the patents in the portfolio had accompanying claim charts, including the asserted patents Despite apportioning the licensing with respect to other patents, Commission found investments substantial Settled13 14. Certain Integrated Circuits, Chipsets, & Products, Inv. No. 786 1 patent asserted against multiple respondents. ALJ found no DI; the Commission affirmed, finding: Failure to show what proportion of expenses were foreign versus domestic Failure to show how expenses related to the asserted patent Failed to provide sufficient information as to how the asserted patent fit into overall licensing program.14 15. InterDigital Communications, LLC v. Int'l Trade Comm'n, 2010-1093, 2013 WL 124064 (Fed. Cir. Jan. 10, 2013) Appeal from Commission decision in Inv. No. 613, finding no violation - no infringement and no DI. The Federal Circuit reversed and remanded on claim construction, but affirmed on DI. Respondent filed a combined petition for panel rehearing and for rehearing en banc on DI.15 16. InterDigital Communications, LLC v. Int'l Trade Comm'n, 2010-1093, 2013 WL 124064 (Fed. Cir. Jan. 10, 2013) Federal Circuit denied combined petition; held that substantial investment in R&D of intellectual property was with respect to the articles protected by the patent, within the meaning of Tariff Acts domestic industry requirement. Judge Newman dissented that complainant does not make the patented invention in the US, and seeks to impose on respondent that is not a license to manufacture any patented product in the United states; it is a license to import products made in foreign countries. 16 17. Nexus between licensing and asserted patents Whether the patents at issue are directly connected to a licensing domestic industry Whether the licensees efforts relate to a protected article Number of patents in the portfolio Relative importance/value of asserted patents to the portfolio Successfully litigated by complainant Relates to a technology industry standard Considered a base patent or pioneering patent Prominence of the asserted patents in licensing discussions 17 18. Policy Objectives of 337 & Licensing Issues Is there a distinction between revenue-driven and production-driven (industry creating) licensing, and is such a distinction useful? Largest USA companies are selling patents into the secondary market that will obviously be used for licensing and litigation Licensing market has changed since statute amended; what actually constitutes a licensing industry now? 18 19. Policy Objectives of 337 & Licensing Issues Licensing based in research & development spurs adoption of technology Does the value of patents sold (or purchased) in the secondary market funnel back to the original entity who performed the research, and thereby spur further R&D? Originally, ITC focused on threats of foreign competition 19 20. Policy Objectives of 337 & Licensing Issues Are there articles to be protected in a licensing DI, and does there need to be? Has a requirement been read out of the statute? What connection to a real DI exists in licensing? Do the justifications underpinning 337 make sense in the licensing context, with no connection to protected articles? 20 21. Disparity of leverage litigating before the ITC? Licensing entities typically have no products, usually not risk of counter claims or counter suits Licensing profit from settlements, not market exclusivity.21 22. Distinctions between NPEs and PAEs Distinctions between PAEs and NPEs Legal Economic Is a company who makes products, but not in the U.S., but depends on licensing for a DI an NPE or PAE? Has the PAE/NPE issue become politicized? Have any PAEs obtained an exclusion order? Have any NPEs obtained an exclusion order? 22 23. High Costs of DI Economic Prong Defenses Defending against PAE/NPE DI claims Expensive Risky Rarely resolved on summary determination Procedural solutions?23 24. Possible Procedural Solutions: Pre-Institution Ask Commission allow the ALJ to take evidence on Public interest Issues of licensing DI Ask Commission find the complaint deficient if a licensing DI is insufficiently supported Commission could require more details in complaint, possibly supported by third-party affidavits 24 25. Public Interest Issues Implicated by Licensing DI Identify injury to the real licensing DI Evaluate nexus to: licensing exploitation (revenue driven v. production driven) articles (emerging or established industry) Consult with other government agencies responsible for trade policy, protecting competition and jobs in US economy, and protecting consumers. 25 26. Possible Procedural Solutions Summary determination often delayed or precluded by unsubstantiated claims of on activities of licensees requiring subpoenas to third parties Ask the ALJ to accelerate discovery of claims of investments of licensees, and to stay other discovery until complete26 27. Possible Procedural Solutions Early Summary Determination motions on DI Economic prong issues Request oral arguments (mini-hearing) Request an accelerated decision Require details on allocation of investment per patent; no allocation, insufficient information to show DI. 27 28. Possible Procedural Solutions Limiting Response to MSD to evidence set forth in the complaint Complainants know their own domestic industry Technical prong and/or other technology-related issues would be minimized, as a pure licensing claim requires no technical prong of DI.