Balancing acts: using a mixed test to ensure better results in rule of reason patent misuse analysis within section 337.

• Author: Shelbourne, Syvil

INTRODUCTION I. SECTION 337, THE ITC, AND THE FEDERAL CIRCUIT A. What is Section 337? B. Section 337: The International Trade Commission and Patent Litigation C. Section 337 Appeals and the Federal Circuit II. PATENT MISUSE IN SECTION 337 APPEALS A. Patent Misuse B. Per Se Patent Misuse C. Patent Misuse Under the Rule of Reason III. PRESCRIPTIVE MODEL: PATENT MISUSE UNDER THE RULE OF REASON ANALYSIS CAN KEEP A BETTER BALANCE OF ANTITRUST AND PATENT POLICY WITH A MIXED TEST A. The Problem with the Rule of Reason Analysis B. Resolving the Rule of Reason Problem with a Mixed Analysis CONCLUSION INTRODUCTION

"[I]ntellectual property laws and the antitrust laws share [a] common purpose[] of promoting innovation and enhancing consumer welfare." (1) Patent laws grant exclusive rights to inventors in exchange for the disclosure of their creations into mainstream society. (2) on the other hand, antitrust laws allow for reasonable consumer access to such discoveries by preventing inventors from unfairly exploiting their creations. (3) Although patent and antitrust laws promote similar goals, they do so in contention with each other. "Because a patent is a special grant of power to exclude competition, and exclusionary power has historically been scrutinized strictly under the antitrust laws, the patent and antitrust laws have historically coexisted in tension with one another." (4) "[T]here is tension between the patent and the antitrust laws that flows naturally from the need for courts and the antitrust enforcement agencies to determine the circumstances in which the principles underlying one body of law will prevail over those of the other." (5)

The balancing act described above is exactly what occurs at the International Trade Commission (ITC) when it reviews [section] 337 claims. The ITC has two functions under [section] 337: (1) to protect domestic industry and (2) to enforce domestic patents. (6) Respondents subject to [section] 337 claims likely will assert that the patent is invalid, turning to patent law, or that the patent is misused, relying on antitrust to justify its behavior. (7) In some cases where the latter is asserted, the ITC is forced to make a choice between protecting domestic industry and enforcing a domestic patent. The assertion of a patent misuse defense also presents interesting issues on appeal, especially those decisions appealed to the Court of Appeals for the Federal Circuit. The Federal Circuit's jurisdiction and expertise is based in patent law, which leads to the question of how antitrust issues are handled within our highest patent court.

This Comment, then, addresses the tensions faced by the Federal Circuit in reviewing the ITC's patent misuse decisions that address [section] 337 claims. Patent misuse is the only antitrust-related doctrine that the Federal Circuit court has addressed in a [section] 337 appeal. There are two types of patent misuse: per se misuse and the rule of reason misuse.

First, this Comment provides relevant background information by explaining [section] 337 itself, the administrative power and function of the ITC under [section] 337, and the Federal Circuit's jurisdiction and deferential stance to the ITC regarding [section] 337 appeals. Subsequently, this Comment examines both per se and rule of reason patent misuse defenses, within the context of ITC appeals to the Federal Circuit of [section] 337 claims, by laying out their doctrinal frameworks as set out by the Federal Circuit in U.S. Phillips Corp. v. ITC. (8) With the preface that patent misuse jurisprudence is rather limited within the spectrum of ITC cases appealed to the Federal Circuit under [section] 337, this Comment analyzes the Federal Circuit's treatment of patent misuse defenses by considering the court's holdings in U.S. Phillips Corp. This analysis finds that while the Federal Circuit's result in Phillips was well reasoned, the test set out for patent misuse under the rule of reason is problematic under the [section] 337 framework. The rule of reason test balances procompetitive benefits against anticompetitive effects, focusing solely on antitrust; [section] 337 is a patent-antitrust statute and defenses asserted under it should be evaluated by both patent and antitrust policy. This problem does not arise within the per se patent misuse doctrine. There, Congress has already considered the patent and antitrust justifications and decided what specific circumstances the doctrine encapsulates. Accordingly, this Comment proposes that patent misuse analysis, under the rule of reason doctrine and in the context of [section] 337 appeals, should involve a mixed test that will balance patent and antitrust policy, in order to keep both considerations in sight.

1. SECTION 337, THE ITC, AND THE FEDERAL CIRCUIT

   This part of the Comment will discuss [section] 337 by examining (1) the statute, the capacity, and function of its governing agency; (2) the ITC under [section] 337; and (3) the jurisdiction of the Federal Circuit to hear appeals regarding [section] 337 matters from ITC final decisions.

   1. What is Section 337?

      Section 337 of the Tariff act of 1930, as amended, is the authorizing statute of the ITC. It gives the agency the power "to conduct investigations into allegations of unfair practices in import trade" (9) that adversely affect the U.S. economy. The statute makes unlawful "[u]nfair methods of competition and unfair acts in the importation of articles ... into the United States, or in the sale of such articles by the owner, importer or consignee, the threat or effect of which is (i) to destroy or substantially injure an industry in the United States ...." Section 337 also deems that it is illegal to import into "the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that (i) infringe a valid and enforceable United States patent...." (11) To bring a patent infringement complaint before the ITC under [section] 337, "there [must] be importation of infringing articles....[and] the complainant [must] demonstrate that a domestic industry in articles practicing a claim of the patent in suit 'exists or is in the process of being established.'" (12) Although this Comment focuses on patent litigation, [section] 337 also protects other intellectual property rights such as copyrights and trademarks. (13)

   2. Section 337: The International Trade Commission and Patent Litigation

      Section 337 provides two initial requirements for patent complaints: (1) the establishment of domestic industry and (2) jurisdiction. As mentioned above, the domestic industry element is satisfied by showing that a domestic industry exists or is in the process of being established, which is related to the articles protected by the patent. (14) The domestic industry requirement is then furthered divided into two prongs, one where the ITC reviews technical considerations and another where they consider economic considerations. (15) A complainant satisfies the technical prong by showing that "it or its licensees or 'practices at least one claim of the asserted patents[.]'" (16) The economic prong is satisfied by a showing of "domestic activities, with respect to the patent or patented article, that involve: (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." (17) Whether the prongs are met is a subjective determination by the ITC; (18) however, these initial requirements are usually easy to meet. (19)

      The jurisdiction element of the initial requirements is generally also easily met. In a potential proceeding, the ITC will exercise in rem jurisdiction over the allegedly infringing product. (20) Accordingly, the ITC does not need personal jurisdiction over the manufacturers or importers of the product, which provides an easy way to gain jurisdiction in matters that involve foreign defendants. (21) Despite the way in which jurisdiction attaches, the manufacturers or importers are not foreclosed from participating in the proceedings. These parties are "given [the] opportunity to participate in the proceeding ... [and] may raise any equitable or legal defense, such as patent invalidity." (22)

      Once the initial requirements are deemed satisfied within a complaint, "the ITC [] decide[s] if action is merited. If [the ITC] chooses to proceed, it will open an investigation." (23) After the investigation is opened, it will be assigned to one of six ALJs [Administrative Law Judges], that ALJ will then conduct an evidentiary hearing. (24) Also at this point, "the ITC's office of Unfair Import Investigations assigns a staff attorney to represent the public interest [in the case], and the attorney will serve as an [active] party in the investigation....The attorney ... can influence the outcome of the case." (25) A short discovery period will follow, and "[t]ypically after six or seven months, the ALJ will hold a...