Patently protectionist? An empirical analysis of patent cases at the International Trade Commission.

• Author: Chien, Colleen V.

ABSTRACT

The International Trade Commission (ITC) provides a special forum for adjudicating patent disputes involving imports. It offers several advantages over United States district courts to patentees, including relaxed jurisdictional requirements, speed, and unique remedies. Unlike district courts, the ITC almost automatically grants injunctive relief to prevailing patentees, and does not recognize certain defenses to infringement. These features have been justified as needed to prosecute foreign infringers who would otherwise evade U.S. district courts. They have also led to charges that the ITC is protectionist and unfair to defendants and that it fosters inconsistency in U.S. patent law.

Based on an analysis of every patent investigation initiated at the ITC from 1995 to mid-2007, this Article assesses these charges. ITC cases involve domestic defendants as often as they do foreign defendants, and 72 percent of the time in combination. Thus, U.S. companies are just as likely to be named in ITC actions as defendants as are foreigners. When cases were adjudicated, plaintiffs at the ITC were more likely to win than plaintiffs in district court (58 percent vs. 35 percent). However, when cases filed in both venues were compared, most of this difference disappeared (54 percent vs. 50 percent), cutting against claims of an anti-defendant bias. The data, however, provide some support for the third contention. The ITC takes about half as much time to decide cases, is four times more likely to adjudicate its cases (44 percent vs. 11 percent), and more readily awards injunctions to prevailing patentees (100 percent vs. 79 percent) than district court. The ITC cannot award damages though, and its decisions do not bind district courts. The relief provided is thus neither complete nor final. This creates incentives for litigants to file in both venues, which is done at least 65 percent of the time and creates the possibility of duplicative litigation and inconsistent results.

As the number of ITC-eligible cases expands with the growth in overseas manufacturing, the interface between the venues should be revisited. This Article suggests several ways to strengthen coordination between the ITC and district courts to take into account the increase in parallel litigation and concurrent risk of judicial inefficiency. These include (1) limiting patent jurisdiction at the ITC to cases that otherwise could not be heard in a U.S. district court; and (2) reducing the incentive for cases to be filed in both venues by harmonizing their rules and remedies.

INTRODUCTION I. BACKGROUND II. METHODS A. Collected Data 1. Party Data 2. Investigation Data 3. Related Case Data B. Data Generated by Other Scholars III. RESULTS A. Patterns of Use of Section 337 1. Party Nationalities B. Parallel Litigation C. Section 337 vs. District Court Outcomes 1. Plaintiff Win Rates 2. Injunctive Relief 3. Litigant Behavior and Case Durations IV. RETHINKING THE ITC-DISTRICT COURT INTERFACE A. Reduce Overlap Between the Venues B. Harmonize the Venues CONCLUSION INTRODUCTION

The United States has long distrusted its foreign trading partners. In the 1770s, early Americans organized a boycott of cheap goods from China, then seized and dumped cratefuls of underpriced imports from India awaiting entry into the port of Boston. (1) The imports were tea, and this event, the Boston Tea Party, protected the local tea market and spurred the revolution that led to the founding of the United States. (2)

The United States and other countries have historically used a variety of means, in addition to border seizures, to regulate international trade. With the growth in free trade, traditional protectionist measures such as subsidies and tariffs have fallen into disfavor. (3) Intellectual property law, in contrast, has recently gained popularity as a form of trade regulation. (4) There is a sense that, as one politician put it, "if we don't get real careful and protect patents and designs and technology[,] [American] intellectual property[] is going to get stolen by the Chinese or by others." (5) It is perhaps no surprise then, that the United States has pushed for stronger intellectual property protections abroad. (6)

One of the oldest intellectual property measures to reflect this pro-protection sentiment is section 337 of the 1930 Trade Act. (7) Section 337 prohibits unfair competition, often in the form of patent infringement, from imported goods if the effect or threat of such importation is to injure a U.S. industry. (8) Pursuant to the statute, a special venue, the International Trade Commission (ITC), offers advantages unavailable in district courts to domestic industries seeking to defend their rights against imports. (9) Like the Boston Tea Party, section 337 may be enforced at the border, barring infringing products from entry into the United States. (10)

Although section 337 provides a favorable venue for targeting imports, it fosters a two-track patent litigation system that treats domestic and foreign goods differently. Foreign goods are potentially subject to patent litigation in two venues (the ITC and U.S. district courts), while domestic goods are subject to litigation in only a single venue. Although both are subject to the review of the Federal Circuit, the ITC applies different legal standards and offers different remedies than U.S. district courts. (11) Section 337 outcomes are decided on an accelerated schedule, but do not bind district courts that may be obligated to relitigate the same issues. (12)

While these features are perceived to protect domestic industries, they raise international and domestic concerns. Two international trade disputes have alleged that section 337 discriminates against foreign products and violates national treatment: (13) the principle that requires foreign citizens to be treated as well as domestic citizens under national law. (14) Although section 337 has since been amended, suspicion still lingers among scholars and governments that the ITC is protectionist and may violate international law. (15) Due to its favorable procedural and substantive rules, the ITC is also perceived to be biased in favor of plaintiffs, (16) referred to in the ITC as "complainants." For example, critics have raised due process concerns about the venue's speed, lack of counterclaims, and other procedures. (17)

With the growth in imports, (18) the use of section 337 has tripled over the past ten years. (19) Some warn, however, that this expansion will only exacerbate an emerging "incoherency" in patent law, due to the differences in substantive patent law applied by the ITC and the district courts. (20) In May 2007, Congress held hearings on the subject of whether the defenses available in the ITC and district court should be harmonized. (21) Indeed, the ITC's different rules and remedies invite selective filing even as Congress has moved to discourage forum shopping among district courts. (22)

These developments call for a review of section 337. Although its proponents claim that the ITC is necessary to fill a gap left by the district courts, its detractors claim that the venue fosters protectionism, an anti-defendant bias, and inconsistency and incoherency in U.S. patent law. (23) This Article seeks to address these claims by empirically analyzing every section 337 patent case initiated between January 1995 and June 2007.

This study is relevant to other policy debates as well. First, while intellectual property occupies a prominent position on the trade agenda, (24) much of what is known about the impact of strengthened intellectual property rules on trade is anecdotal or hypothesized. (25) Descriptive empirical work in this area could inform how to best further national innovation objectives while taking into account the impact of globalization on intellectual property. Second, while the patent system has come under increasing empirical scrutiny, (26) little attention has been paid to section 337. Finally, there has been legislative interest in creating a specialized patent court at the district court level. (27) The ITC, 85 percent of whose docket consists of patent cases, (28) may provide a useful case study for legislative policymaking.

As reported below, the data suggest that jurisdictional distinctions between the ITC and district courts have blurred. Although created to deal with the special problem of "unfair trade," the ITC has gone "mainstream": 65 percent of the ITC cases studied had a district court counterpart, which indicates that the ITC is often not the venue of only resort as it was originally conceived to be. (29) In addition, section 337 is used just as often against domestic defendants as it is against foreign defendants. This indicates that the ITC is evolving away from its protectionist roots.

Differences between the two venues persist in terms of outcomes, however. While there was little evidence that plaintiffs fared better in the ITC than in district courts--ITC plaintiffs won 54 percent of adjudicated cases versus a 50 percent win rate for district court plaintiffs in parallel cases (30)--plaintiffs had better odds of getting injunctive relief from the ITC than from district court (100 percent ITC injunction rate versus a 79 percent district court injunction rate). (31) ITC plaintiffs also had no chance of being awarded damages, which are only available in district court. Thus, while this study found no evidence of a bias against defendants (also called "respondents") or against foreigners in the ITC, it confirmed differences between the venues in terms of the remedies applied.

Taken together, the data fail to support two major criticisms that have been levied against the ITC--that it is anti-defendant and that it is anti-foreigner. However, the data also portray a venue that has outgrown its original purpose: the ITC is no longer reserved for the specific threat of foreign piracy. In addition, while...