Discovery Costs Pile Up in International Trade Commission Patent DisputesAugust 2nd, 2012
During the past several years, patent holders increasingly have chosen the International Trade Commission to adjudicate claims against importers of goods that allegedly infringe U.S. patents. A quick perusal of the ITC’s pending docket reads like a who’s who of technology companies: Apple, Samsung, Research in Motion, LG, HTC, Nokia, Sony, Canon, HP.
While it’s not unusual to find these technology giants on opposite sides of an ITC proceeding (as in the recently resolved investigation of Kodak’s complaint against Apple and RIM), more and more matters involve claims asserted by “non-practicing” entities (NPEs) against well-known corporate citizens. (NPE is a polite term most often associated with patent trolls.) During July, this noticeable increase in ITC activity involving NPEs prompted two separate Congressional oversight hearings on ITC practices and procedures. But before jumping into the details of those proceedings, let’s deal with some background.
The Tariff Act of 1930, 19 U.S.C § 1337 authorizes the ITC to conduct unfair trade practices investigations. Importantly, however, the ITC has limited remedies when it determines that a corporation is unfairly importing a product that violates a valid U.S. patent. Specifically, the ITC cannot provide monetary relief to the patent holder and instead can only issue an exclusion order enjoining the future importation of the product.
While this perceived limitation on the ITC’s power might appear to be a deterrent, it has instead served as a powerful incentive for certain parties — particularly NPEs — to pursue ITC investigations in lieu of traditional litigation. This is because in 2006, the Supreme Court, as part of its decision in eBay Inc. v MercExchange, determined that federal district courts should not issue injunctions in patent matters unless monetary damages would not adequately compensate the patent holder. For this reason, during recent congressional testimony on the issue, DOJ and FTC representatives acknowledged that it is easier to get an order enjoining infringement at the ITC. During separate testimony, it was noted that this ability to obtain an injunction provides strong incentive for non-practicing entities to seek relief from the ITC rather than in Federal Court. Finally, the ITC oftentimes provides a secondary benefit for the NPE’s as more it potentially can serve as an end run around the recently enacted America Invents Act’s prohibition on adding multiple unrelated defendants to a lawsuit (under the AIA, a plaintiff can join multiple defendants to a federal court action only if all the defendants may be liable jointly, separately, or in the alternative for common acts, events or questions of common fact).
This rising tide of NPE claims is costing companies millions to defend. That’s because the ITC can be one of the most expensive, if not the most expensive, forum for adjudicating a patent dispute, with a disproportionate amount of the cost being attributable to the ITC’s antiquated, expansive and accelerated discovery requirements. Specifically, the ITC’s discovery rules, which are codified at 19 C.F.R. Part 210, have stood mostly untouched since 1994 and do not contain provisions specifically directed to electronic discovery. Moreover, the ITC is perhaps the fastest “rocket docket” when it comes to patent litigation, as discovery often kicks off within 10 days of the commencement of an investigation and must be completed prior to an investigatory hearing that occurs approximately six months later. This often results in overly expansive electronic discovery efforts that must be conducted in incredibly compressed time frames. Neal Rubin, Cisco’s vice president of litigation, confirmed this trend in his recent congressional testimony, noting that the cost of an ITC matter often “doubles or triples” the cost of a similar proceeding in federal court. This is even more pronounced in situations where NPEs, which presumably possess less discoverable information, assert charges against huge, sprawling corporations that sell products ubiquitous in modern society.
So what is being done to address these issues? For the past year, the ITC has been considering modifications to its e-discovery practices that would bring ITC proceedings in line with the 2006 FRCP e-discovery amendments. To that end, the ITC has solicited and received proposals from both the American Bar Association’s IP section and the ITC Trial Lawyers Association on appropriate modifications to the ITC’s discovery rules. Importantly, while both of these proposals in large part mirror the current discovery standards for federal court proceedings, they do not include presumptive limits on e-mail discovery, as recently promulgated by both the Federal Circuit and Eastern District of Texas. More importantly, the ITC’s rulemaking practices and procedures dictate that any changes likely will not happen until 2013 at the earliest.
Until then, high-tech firms and others facing ITC investigations should conduct electronic discovery as efficiently and effectively as possible utilizing appropriate e-discovery strategies gleaned from federal court proceedings — while recognizing that for many patent holders, an ITC proceeding may be in their future.