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Universities should consider ITC for IP protection

By Evan H. Langdon, Shawn G. Hansen, and Seth D. Levy
Nixon Peabody LLP

This article appeared in the February 2020 issue of Technology Transfer Tactics. Click here for a free sample issue or click here to subscribe.

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University research is a vital engine of technological and economic development in the United States, generating some of the most valuable intellectual property in the world. But in an era of globalized supply chains, products incorporating university IP are frequently made abroad in jurisdictions where IP protection is unavailable or ineffective. That’s among the reasons that, in their enforcement efforts, universities and other research institutions should not overlook a powerfully effective venue: the U.S. International Trade Commission (ITC).

An independent administrative agency, the ITC has the authority under 19 U.S.C. § 1337 of the Tariff Act of 1930, commonly known as Section 337, to investigate “unfair methods of competition” and “unfair acts” relating to imports. Section 337 makes it unlawful, among other unfair acts, to import or sell after importation any article that infringes a valid and enforceable U.S. intellectual property right. Most often, this involves patent infringement.

The ITC’s popularity as a venue for patent disputes has been steadily rising. In its 2018 and 2019 fiscal years, the number of active investigations reached 130 and 127, respectively. This is the ITC’s highest two-year total since fiscal years 2011 and 2012, which saw 129 active investigations in both years. However, despite the growing trend of patent owners turning to the ITC to vindicate their rights, there have been less than a handful of investigations initiated by academic institutions.

The ITC’s advantages

This rising popularity can be explained, at least in part, by the powerful remedies the ITC provides for patent holders and the leverage it gives them over respondents. Complainants who successfully demonstrate infringement and the existence of a domestic industry can obtain an exclusion order, preventing the importation into the United States and sale after importation of infringing products. In addition to exclusion orders, the ITC can also issue cease-and-desist orders that bar respondents from selling, marketing, advertising, distributing, transferring, or soliciting the infringing products, and that apply to a respondent’s affiliated companies, parents, subsidiaries, licensees, or other related business entities, or their successors or assigns. Breach of an ITC cease-and-desist order can lead to significant civil penalties — a major incentive for compliance. The severe penalties for violating a cease and desist order are the ITC equivalent of the threat of a district court contempt proceeding.

In federal district court, by contrast, plaintiffs must clear a high bar to obtain injunctive relief, the closest equivalent to the ITC’s exclusion and cease-and-desist orders. Following the U.S. Supreme Court’s 2006 decision in eBay Inc. v MercExchange, L.L.C., injunctions are no longer an effectively automatic remedy, particularly for entities that do not themselves compete in the market for products practicing their inventions, as is the case with most academic institutions. More often, plaintiffs negotiate a settlement for monetary damages or perhaps a license agreement for ongoing sales, but without the important and powerful negotiation leverage brought by a genuine threat of injunctive relief. By analogy, this is like a landlord negotiating rent with a tenant that knows it cannot be evicted — an inherently weaker bargaining position than if the threat of eviction were present.

Another advantageous feature of the ITC is the speed of its proceedings, which typically go to hearing in nine months, issue a final initial determination in a year, and conclude within 18 months. In district court, on the other hand, final adjudication can take several years. That period can be further delayed during detours through the U.S. Patent & Trademark Office (USPTO) for inter partes review or reexamination proceedings, contesting the validity of the asserted patents.

The ITC is under a statutory mandate to conclude “at the earliest practicable time” and does not delay its proceedings to await the results of an inter partes review, nor are the results of such a review binding on the ITC absent appellate review and confirmation of the USPTO’s decision. Coupled with the availability of injunctive relief that is generally unavailable in district court, the speed of the ITC gives patent owners enormously enhanced bargaining power relative to district court enforcement.

The success rate of complainants at the ITC has also been generally climbing in recent years. Over the last four fiscal years, the ITC has found, on average, a violation in over 70 percent of cases decided on the merits.

Establishing a domestic industry

Despite these benefits, the ITC is not a venue where universities have had much experience. Over the last few decades, only a handful have sought relief at the ITC.

But this is not for lack of opportunity.

To be actionable, a complaint must allege:

(1) unfair methods of competition and unfair acts; (2) in the importation into the United States, the sale for importation, or the same within the United States after importation of infringing articles; and (3) the existence of a domestic industry. The domestic industry requirement typically is met by efforts to make commercial products practicing patented inventions — a model universities do not neatly fit into. Importantly, though, that is not the only way to show a domestic industry.

In 1988, Congress amended Section 337 to broaden the range of activities that could be relied on to establish a domestic industry, expressly to open the doors of the ITC to universities and other research institutions. Congress changed the definition of domestic industry so that it “does not require actual production of [an] article in the United States” and specifically noted that the definition could “encompass universities.”

The 1988 amendment codified three possible ways for a complainant to establish a domestic industry: (A) significant investment in plant and equipment with respect to articles protected by the patent; (B) significant employment of labor or capital with respect to articles protected by the patent; or (C) substantial investment in exploitation of the asserted intellectual property right, including engineering, research and development, and licensing.

Most academic institutions do not manufacture, produce, or sell commercial products. But they do expend significant resources on researching and developing their inventions and exploiting those inventions through licensing them to the private sector. Indeed, the fundamental premise of technology transfer is that the private sector will honor universities’ IP so that companies both large and small will take licenses that bring academic innovations to the market while providing compensation to the university in return. Unfortunately, however, that is not always what happens, particularly in industries where patent rights are amassed largely for defensive purposes rather than to specifically realize the benefit of any single patented invention.

Openness, infringement, and tech transfer

Companies around the world regularly exploit the academic openness of universities and trample on their IP in the process. They absorb the academic insights shared through publications, presentations, and other routine dissemination of academic innovation and incorporate those innovations into their products without securing licenses to the underlying patents. Those products, which are increasingly manufactured overseas in most industries, routinely make their way into the U.S. market. To continue the landlord analogy, university IP owners regularly find themselves in the position of a landlord facing squatters that can’t readily be evicted, destroying the value of the underlying property.

By flooding the domestic market with unauthorized products, these infringers — domestic and foreign — kneecap university technology transfer programs that seek to license the intellectual property developed at universities. This practice undermines the universities’ rightful opportunity to share in the revenue generated through commercialization of their intellectual property — revenue that would support further research, education, and development of cutting-edge technologies and new scientific insights that benefit the public.

While conventional patent litigation in district court has its place as a means to recover monetary damages, it may not provide sufficient leverage to achieve the reasonable license agreements that academic institutions deserve for exploitation of their IP. The ITC offers a powerful but underutilized tool for academic institutions to restore the bargaining power that is essential to success in technology transfer activities.

Evan H. Langdon, Shawn G. Hansen, and Seth D. Levy, partners in Nixon Peabody’s Intellectual Property Practice Group, currently represent The Regents of the University of California in an investigation pending at the ITC involving filament LED lighting products.

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