Impact of the AIA on Patent Litigation: Changes that May Affect Your Choice of Forum

Vol. 4 No. 5

By

Carl Charneski is Of Counsel to Brinks Hofer Gilson & Lione. He is a former U.S. International Trade Commission administrative law judge and his practice focuses primarily upon ITC matters. He can be reached at ccharneski@brinkshofer.com.

The passage of the America Invents Act (AIA)1 has opened up a new frontier for those who like to predict things. How will this new legislation change intellectual property law and practice? For those with the time and inclination to speculate as to the future impact of new legislation, the new AIA offers an opportunity of “mother lode” proportions.

This article will discuss the AIA’s impact upon the forum choices for an owner of a U.S. patent intent on instituting an action for patent infringement. The forum choices discussed here are district court and the United States International Trade Commission (USITC). These forum choices certainly existed before the enactment of the AIA. The question now is whether the AIA changes the dynamics in a patent infringement action in either forum, such that it might impact a patent owner’s decision on where to institute the patent infringement action.

An Overview of the United States International Trade Commission

Presumably, most intellectual property counsel are familiar with district court practice. Also, presumably, most intellectual property counsel are not familiar with the USITC. Therefore, as a preliminary matter, it will be helpful to explain what the USITC does.

The USITC is a quasi-judicial agency with jurisdiction over “investigations” arising under § 337 of the Tariff Act of 1930.2 The USITC hears appeals of investigations (by any measure, exacting trials) conducted by its administrative law judges (ALJs). The investigations before the ALJs are conducted pursuant to the Administrative Procedure Act, 5 U.S.C. §§ 554–56.3 The USITC’s decision may be appealed to the Court of Appeals for the Federal Circuit.4

The USITC has jurisdiction over “unfair methods of competition” and “unfair acts” such as the misappropriation of trade secrets and trade dress infringement.5 The USITC’s jurisdiction also extends to patent, trademark, mask work, and design infringement.6 The vast majority of the USITC’s investigations involve patent infringement.

In a § 337 patent infringement investigation, there are a few jurisdictional requirements that a complainant must satisfy. One requirement is the importation of the accused infringing product.
Section 337(a)(1)(B)(i) makes unlawful “[t]he importation 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 . . . infringe a valid and enforceable United States patent.”7

Another jurisdictional requirement in a § 337 patent infringement investigation is the establishment of a domestic industry. Complainants must demonstrate that an industry, relating to the articles protected by the asserted patent, exists or is in the process of being established within the United States.8 The domestic industry requirement consists of an economic prong (i.e., an actual industry in the United States) and a technical prong (i.e., that industry must relate to articles protected by the intellectual property being asserted).9

Finally, the USITC provides injunctive relief to a complainant who has established importation of the accused products, a domestic industry, and patent infringement by prohibiting infringing products from entry into the United States.10 It is important to note that the USITC can provide injunctive relief only. The USITC cannot award monetary damages.

In that regard, § 337(d)(1) provides for the issuance of a limited exclusion order (LEO). This is the remedy most often issued by the USITC.11 Section 337(d)(2) also allows for the issuance of a general exclusion order (GEO) under certain circumstances. A GEO is a broader remedy than an LEO because, unlike an LEO which is restricted to named respondents, a GEO may prohibit the importation of infringing products, regardless of their source. Thus, a GEO can exclude infringing products of a company not named as a respondent in the underlying USITC investigation.12 Finally, pursuant to § 337(g), the USITC may issue cease and desist orders to respondents who maintain a commercially significant inventory of infringing products in the United States.13

 

Pre-America Invents Act: Advantages of the USITC over District Court

In order to understand how the AIA impacts forum choice between district court and the USITC, it is necessary to first understand the forum choice equation that existed prior to the passage of this Act.

For example, if the owner of the U.S. patent rights wants monetary damages, then district court is the only game in town. If the patentee wants injunctive relief only (as noted, this is the exclusive remedy that the USITC can provide), then the USITC is generally the more attractive forum.

One reason for the USITC’s popularity is the speed of its proceedings. From the time that the USITC institutes an investigation and assigns the matter to an ALJ, to the time that the USITC issues its decision on appeal, as little as only 18 months have passed.14 This is substantially faster than most district court infringement cases.15

Another reason why the USITC is the more attractive forum is that in a § 337 investigation, the USITC has in rem jurisdiction over imports that are alleged to infringe a U.S. patent. There is no need to establish personal jurisdiction over an alleged infringer, although this is often done as well.16 There are also no venue problems. All filings and activities related to the investigation take place at the USITC, which is located in Washington, D.C.

Finally, if importation, domestic industry, and infringement are established by the complainant at the USITC, the remedy is an LEO or a GEO, and a cease and desist order as well (where a commercially significant inventory of the infringing goods is located in the United States). By contrast, obtaining injunctive relief in district court is more difficult.17

Thus, prior to the passage of the AIA, the USITC offered significant advantages over district court to owners of U.S. patent rights seeking injunctive relief for patent infringement where the infringing goods are imported. The question now is what effect, if any, the AIA has upon these advantages and how any such effect could impact forum choice between district court and the USITC.

 

The America Invents Act and Its Impact upon Forum Choice

There are only a few provisions of the AIA that specifically mention the USITC. Those references generally appear in section 6 of the AIA and they address post-grant review and inter partes review.18 The AIA provision most likely to have the greatest impact upon USITC practice, however, does not even mention the USITC. Instead, that provision addresses nonpracticing entities in district court actions.

 

NPEs

The term “nonpracticing entities,” otherwise known as “NPEs,” refers to a category of patent holders that, for the most part, doesn’t have many friends in the intellectual property community, either domestically or internationally. Section 19 of the AIA is entitled, “Jurisdiction and Procedural Matters.”19 Specifically, § 299 provides:

(a) Joinder of Accused Infringers.—With respect to any civil action arising under any Act of Congress relating to patents, other than an action or trial in which an act of infringement under section 271(e)(2) has been pled, parties that are accused infringers may be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, or counterclaim defendants only if

(1) any right to relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and

(2) questions of fact common to all defendants or counterclaim defendants will arise in the action.

(b) Allegations Insufficient for Joinder.—For purposes of this subsection, accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit.20

Section 299 unquestionably makes it more difficult (and likely more expensive) for an NPE to proceed in district court against multiple accused infringers. Now, for an NPE to proceed against multiple accused infringers, the accused infringers must either be jointly and/or severally liable; the alleged infringement must relate to the same transaction or occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and questions of fact must be common to all defendants. As a result, the net cast by NPEs in district court is going to be substantially smaller than it was prior to the AIA and certainly substantially smaller than the net cast in a USITC proceeding.21

Given the AIA’s joinder provisions, it will now be difficult, if not impossible, for an NPE to pursue an infringement action in district court against accused infringers on a volume basis. If the NPE cannot satisfy the joinder requirements of § 299, multiple suits will have to be brought against the accused infringers in district court, likely resulting in multiple venues. This will also result in increased litigation costs to NPEs, and it could affect their litigation strategy as well, such as causing them to proceed against fewer targets. NPEs cannot be happy with this turn of events.22

As noted, the USITC does not have joinder provisions like those of § 299. Indeed, USITC investigations are known for having numerous respondents whose only connection is that allegedly they infringe the same patent. The asserted claims need not be the same as to all respondents, and the alleged infringement need not arise out of the same transaction or occurrence. Moreover, questions of fact need not be common to all the respondents. The 648 investigation, Certain Semiconductor Integrated Circuits Using Tungsten Metallization & Products Containing Same, Inv. No. 337-TA-648, USITC Pub. 4252 (2009), a patent infringement case, illustrates well the wide-open nature of proceedings at the USITC (even though the complainant in that investigation was not an NPE).

In the 648 investigation there were 23 named respondents. Only one patent and three claims were asserted (claims 1, 3, and 4). The 23 respondents were unrelated and came from all corners of the globe—e.g., Taiwan, China, Japan, Korea, Switzerland, Germany, Israel, and the United States. When the investigation finally went to trial, only seven respondents remained. Of the seven remaining respondents, two were alleged to have infringed all three claims; two respondents were alleged to have infringed only claims 1 and 4; and three respondents were alleged to have infringed claim 1 only. The respondents in the 648 investigation were not jointly or severally liable. Further, the alleged acts of infringement did not arise out of the same transaction or occurrence or a series of transactions or occurrences. Rather, the only thing that this diverse group of respondents had in common was that the complainants had alleged that all infringed the same asserted patent. This was enough for the USITC to institute the investigation.

Thus, with the passage of the AIA, the USITC may well become the NPEs’ forum of choice.23 Of course, inasmuch as the USITC can provide injunctive relief only, in choosing this forum and proceeding under § 337 of the Tariff Act of 1930, the NPE must be willing to forego monetary damages (at least for the time being) that are otherwise available in district court.24 In sum, the USITC will be an NPE’s only chance of bringing a large number of loosely related respondents into one forum.25

 

Post-Grant Review

The post-grant review provisions of the AIA are set forth in section 6 (amending part III of title 35, United States Code).26 They provide for an administrative proceeding before the United States Patent and Trademark Office (USPTO), where the validity of a recently issued patent can be challenged.27 Post-grant review must be sought within nine months after issuance of the patent. With limited exceptions, the challenged patent must have a priority date that is on or after March 13, 2013.28

Pursuant to § 321(b), “A petitioner in a post-grant review may request to cancel as unpatentable 1 or more claims of a patent on any ground that could be raised under paragraph (2) or (3) of section 282(b) (relating to invalidity of the patent or any claim).”29 In this post-grant review, a patent can be challenged on virtually any ground relating to validity.

The post-grant review provisions provide for a “Stay of Civil Action” (i.e., a district court action), but not for a stay of proceedings before the USITC.30 (In the typical case, one would not expect there to be a pending USITC proceeding at this time in any event.)

With respect to the estoppel effects of post-grant review upon “Civil Actions and Other Proceedings” (a USITC action qualifying as an “other proceeding”), however, § 325(e)(2) provides:

The petitioner in a post-grant review of a claim in a patent under this chapter that results in a final written decision under section 328(a), or the real party in interest or privy of the petitioner, may not assert either in a civil action arising in whole or in part under section 1338 of title 28 or in a proceeding before the International Trade Commission under section 337 of the Tariff Act of 1930 that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review.31

It might well be that in some cases, given the preclusive effect of these estoppel provisions, a would-be petitioner may wish to preserve its validity challenge for a potential district court action (or USITC proceeding) and not initiate post-grant review. The estoppel provisions (i.e., “raised or reasonably could have raised”) relating to post-grant review, when applicable, will have an enormous impact upon a USITC proceeding. Insofar as choosing between district court and the USITC, however, the post-grant review provisions are essentially inconsequential.

Also, a post-grant review may not be instituted if, before the date on which the petition for review was filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent.32 This bar applies only to a district court action. It does not apply to a USITC proceeding (again, a USITC proceeding is unlikely at this time). In addition, a civil action filed on or after the date of filing a petition for post-grant review will automatically be stayed unless: (1) the patent owner moves to lift the stay, (2) the patent owner files a civil action or counterclaim alleging that the petitioner or real party in interest has infringed the patent, or (3) the petitioner or real party in interest moves the court to dismiss the civil action.33 Again, these stay provisions apply only to a district court action.34

 

Inter Partes Review

The inter partes review provisions of the AIA are also found in section 6 of the Act.35 “A petitioner in an inter partes review may request to cancel as unpatentable 1 or more claims of a patent only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications.”36

With respect to inter partes review, § 315 contains stay provisions that apply only to “civil actions” challenging the validity of the patent-at-issue.37 As is the case regarding post-grant review, only the estoppel provisions relating to inter partes review specifically mention the USITC. In that regard, § 315(e)(2) provides:

The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not assert either in a civil action arising in whole or in part under section 1338 of title 28 or in a proceeding before the International Trade Commission under section 337 of the Tariff Act of 1930 that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during the inter partes review.38

As with post-grant review, the estoppel provisions regarding inter partes review can significantly impact a subsequent USITC proceeding, but they will not impact a party’s decision on whether to file an infringement action in district court or the USITC.

 

Conclusion

The enactment of the AIA is not likely to have much of an impact upon a non-NPE’s choice of forum between district court and the USITC. If the owner of U.S. patent rights were otherwise disposed to proceed in a particular forum, it is unlikely that the AIA will cause a rethinking of this litigation strategy. The AIA, however, will likely result in more NPEs filing complaints at the USITC, instead of in district court.

It is less certain what effect, if any, the AIA’s post-grant review and inter partes review provisions will have on forum choice. At this point, only time will tell.

 

Endnotes

1. Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011).

2. 19 U.S.C. § 1337.

3.  Id. § 1337(c).

4.  Id.; 28 U.S.C. § 1295(a)(6).

5. 19 U.S.C. § 1337(a)(1)(A).

6.  Id. § 1337(a)(1)(B)–(E).

7.  Id. § 1337(a)(1)(B)(i).

8.  Id. § 1337(a)(2).

9. Certain Ammonium Octamolybdate Isomers, Inv. No. 337-TA-477, USITC Pub. 3668, at 55 (Jan. 5, 2004).

10. The USITC’s injunctive relief comes in the form of exclusion orders. The exclusion orders are enforced by the U.S. Customs and Border Protection.

11. 19 U.S.C. § 1337(d)(1). In Kyocera Wireless Corp. v. Int’l Trade Comm’n, 545 F.3d 1340 (Fed. Cir. 2008), the Federal Circuit held that the USITC may not issue limited exclusion orders that encompass downstream products of companies not named as a respondent in the investigation.

12. 19 U.S.C. § 1337(d)(2).

13. Id. § 1337(g). The USITC has the authority to enforce cease and desist orders by bringing a civil action in district court pursuant to § 337(f)(2). Id. § 1337(f)(2). The penalty for noncompliance is the greater of $100,000, or twice the domestic value of the articles entered or sold on each day in violation of the order.

14. Due to the complexity of some investigations, the increasing number of respondents, as well as the increasing number of patents and claims asserted, some investigations may take as long as 24 months.

15. The USITC also possesses a high level of institutional experience in patent infringement cases. This is true as well with respect to a number of district courts such as the Northern District of California, the Eastern District of Texas, and the Eastern District of Virginia.

16. See Certain Toner Cartridges & Components Thereof, Inv. No. 337-TA-740 (Oct. 5, 2011).

17. See, e.g., eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (“According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.”).

18. 125 Stat. 301, 308. See section 12 of the AIA (Supplemental Examination), wherein § 257(c)(2)(B) provides: “In an action brought under section 337(a) of the Tariff Act of 1930 (19 U.S.C. 1337(a)), . . . paragraph (1) shall not apply to any defense raised in the action that is based upon information that was considered, reconsidered, or corrected pursuant to a supplemental examination request under subsection (a), unless the supplemental examination, and any reexamination ordered pursuant to the request, are concluded before the date on which the action is brought.” 125 Stat. 326 (emphasis added). See also section 18 of the AIA (Transitional Program for Covered Business Method Patents), referencing the USITC with respect to estoppel. Id. at 330.

19. Section 19 amends chapter 29 of title 35, United States Code, by adding § 299, “Joinder of parties.” 125 Stat. 332–33.

20. Id. (emphasis added). These new AIA joinder provisions apply to any civil action commenced on or after September 16, 2011, the effective date of the AIA. Id. at 333.

21. Of course, NPEs may well choose to file suit against individual defendants in various districts and then petition for them to be consolidated as multidistrict litigation pursuant to 28 U.S.C. § 1407. See Carolina Bolado, Expect Whistleblower Suits, Patent Disputes in 2012, Law360, Jan. 1, 2012, at 1–2 (quoting Ralph Gabric, Brinks Hofer Gilson & Lione).

22. Interestingly, section 34 of the AIA provides for a Government Accountability Office (GAO) study of patent litigation “of the consequences of litigation by non-practicing entities, or by patent assertion entities.” Further, section 34(b)(6) states that the study is to include “[t]he benefit to commerce, if any, supplied by non-practicing entities or patent assertion entities that prosecute such litigation.” 125 Stat. 340.

23. Because of the traditional speed of USITC proceedings (most cases are tried by the ALJ and a decision rendered on appeal by the USITC within 18 to 24 months), the USITC has already become an attractive forum to holders of U.S. patent rights. Indeed, investigations were instituted at the USITC in 2011 at a record pace. Also, recent Supreme Court and Federal Circuit decisions already have pointed complainants in the direction of the USITC. See, e.g., eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (holding that a finding of patent infringement does not automatically entitle the patent holder to an injunction); Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) (rejecting the 25% rule-of-thumb for determining reasonable royalty rate); Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009) (holding that entire market value requires the patentee to prove that the patent-related feature is the basis for customer demand); In re TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008) (issuing mandamus to transfer patent case out of the Eastern District of Texas).

24. It is quite common, however, for there to be parallel actions in district court and the USITC. In that event, a party in the district court action that is also a respondent in the USITC proceeding may obtain a stay of the district court action, as a matter of right, pursuant to 28 U.S.C. § 1659.

25. If an NPE chooses to file a complaint at the USITC, it will still have to satisfy the domestic industry requirements of § 337(a)(2). The complainant bears the burden of proving the existence of a domestic industry. Certain Methods of Making Carbonated Candy Products, Inv. No. 337-TA-292, USITC Pub. 2390, at 34–35 (June 1991). This domestic industry requirement (i.e., establishment of technical and economic prongs) must be satisfied as to each asserted patent. 19 U.S.C. § 1337(a)(2).

26. 125 Stat. 305.

27. Id. at 284.

28. “[A]ssuming that the current backlog at the USPTO persists and that a patent filed under the first-inventor-to-file provision does not grant until three years after filing, it will be about four-and-a-half years until the first post-grant review petition can even be filed.” Eric J. Sosenko, The AIA: A Transformative Change in the US Patent System, in The Impact of the Leahy-Smith America Invents Act 8 (Thomson Reuters/Aspatore eds., 2011). Inter partes review, discussed below, “will be instituted more quickly.” Id.

29. 125 Stat. 306, 334.

30. See 35 U.S.C. § 325(a)(2), 125 Stat. 307.

31. 125 Stat. 308 (emphasis added).

32. Id. at 325.

33. Id.

34. The civil action bar and stay provisions that apply to post-grant review under the AIA are similarly found in the new inter partes review provisions. Id. at 301.

35. Id. at 299.

36. 35 U.S.C. § 311, 125 Stat. 299. Inter partes review is more limited in scope than post-grant review. Also, it cannot be instituted until after the expiration of the period for post-grant review or after the termination of a pending post-grant review proceeding. Id.

37. 125 Stat. 301.

38.       Id. at 301–02 (emphasis added).

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