By Eric Schweibenz
On April 15, 2013, the International Trade Commission (“ITC” or the “Commission”) issued an article highlighting the sustained increase in the agency’s Section 337 caseload over the last five years and providing detailed statistics regarding the use of Section 337 investigations by non-practicing entities (“NPEs”).

According to the article, the number of new Section 337 investigations has increased significantly over the last five years and is expected to remain at elevated levels.  This increase drove the Commission to construct a new courtroom specially equipped to handle complex cases to maintain expeditious target dates for investigation completion.

High tech products dominate Section 337 investigations.  Computer and telecommunications products were the basis of 25% and 30% of the investigations in 2011 and 2012, respectively.  Liquid crystal displays and TVs accounted for 15% and 5% of the investigations in 2011 and 2012, respectively, and other consumer electronic products were at issue in 15% and 20% of the investigations in 2011 and 2012, respectively.

In 1988, Section 337 was amended to allow IP rights-holders that do not manufacture products, i.e., NPEs, to obtain remedies at the ITC.  In order to analyze the prevalence of NPE activity at the ITC, the Commission classified NPEs into two distinct categories — Category 1 and Category 2 NPEs.  Category 1 NPEs include entities that do not manufacture products that practice the asserted patents, including “inventors who may have done R&D or built prototypes, but do not make a product covered by the asserted patents and are therefore relying on licensing to meet the domestic industry requirement; research institutions, such as universities and laboratories, that do not make products covered by the patents, and therefore are relying on licensing to meet the domestic industry requirement; and start-ups that possess IP rights but do not yet manufacture a product that practices the patent, and manufacturers whose product does not practice the asserted patent.”  Category 2 NPEs included entities that “do not manufacture products that practice the asserted patents, and whose business model primarily focuses on purchasing and asserting patents.”

Some commentators have argued that the Supreme Court’s eBay v. MercExchange decision in 2006, making it more difficult to obtain injunctions in district court, may be driving NPEs to use the ITC.  However, the Commission’s data does not support this conclusion.   Since the eBay decision, the ITC instituted 301 investigations (through the first quarter of 2013).  Of these, 11% were based on Category 1 NPEs and 9% were based on Category 2 NPEs.  Yet, only four NPEs were successful in obtaining exclusion orders, two Category 1 NPEs and two Category 2 NPEs.  The ITC also notes that each of these NPEs (or a subsidiary) developed the technology at issue in the investigation.

As to the suggestion that NPEs are using the ITC to obtain settlements with respondents (whom are likely involved in parallel district court proceedings against the NPE-complainant) the report finds that the data is inconclusive due to the relatively small number of NPE investigations.  However, despite the small sample size, the data shows that 35.7% of all Section 337 investigations involving Category 1 NPEs resulted in a settlement, while 54.6% of all investigations involving Category 2 NPEs resulted in a settlement.  By way of comparison, the settlement rate for all other investigations is 49.5%.

Lastly, the Commission reported that its data regarding the number of respondents named in Section 337 investigations varies substantially from year to year across all complainant categories, preventing the agency from accurately commenting on whether the total number of respondents in NPE investigations has increased significantly in recent years.  For example, in 2012 investigations based on complaints from Category 1 NPEs ranged from 2 to 35 respondents.  Complaints from Category 2 NPEs ranged from 2 to 45 respondents, and all other investigations ranged from 1 to 35 respondents. 

The ITC has previously suggested that large numbers of respondents may stem from the Federal Circuit’s decision in Kyocera v. Int’l Trade Comm’n, which prohibits the scope of remedial orders issued by the ITC from reaching non-party downstream products containing accused components.