Senate Committee Examines ITC Exclusion Orders for Patent Holders

The FTC and Department of Justice took to Congress July 11 to express concern about technology companies with standard-essential patents (SEPs) running to the International Trade Commission for exclusion orders. An exclusion order directs CBP to bar infringing articles from entry into the country. The DOJ Antitrust Division is particularly concerned with standard-essential patents involving mobile devices, because wireless devices depend on many standards for interoperability, he said.

Speaking at a Senate Judiciary Committee hearing on the impact of exclusion orders on competition, FTC Commissioner Edith Ramirez and Acting Assistant Attorney General Joseph Wayland argued exclusion orders are generally inappropriate remedies for companies that own patents used in industry standards. When a standard incorporates patented technology, and that standard becomes established, it creates the potential for patent owners to take advantage of their market power by excluding a competitor, or obtaining a higher price than would have been possible before the standard was set, Wayland said. To reduce the risk of “patent hold-up,” standard-setting organizations often require participants to agree to “fair, reasonable, and non-discriminatory” (F/RAND) terms.

In eBay v. MercExchange, the Supreme Court established a case-by-case application of traditional equitable principles, which makes it more difficult for RAND-encumbered SEP holders to show money damages are inadequate because they have already committed to license their intellectual property on RAND terms, Ramirez said. But the ITC isn’t required to follow eBay, and the FTC worries that patent holders are bringing suit there instead of trying to obtain an injunction in federal court, she said. “ITC issuance of an exclusion or cease and desist order in matters involving RAND-encumbered SEPs, where infringement is based on implementation of a standardized technology, has the potential to cause substantial harm to U.S. competition, consumers and innovation,” she said. The FTC expressed similar sentiments last month in response to ITC requests for comment in investigations involving iPhones and Xbox 360s.

Wayland and Ramirez shied away from endorsing a blanket prohibition on exclusion orders; there may be circumstances when an exclusion order is appropriate, Wayland said, such as when dealing with an entity not subject to the jurisdiction of U.S. courts, or one who won’t participate in a reasonable F/RAND process. But DOJ is concerned about the potential of patent hold-up to "affect the lives of millions of consumers" and lead to billions of dollars in damage, Wayland said.

Committee Chairman Patrick Leahy, D-Vt., said he was concerned about the potential for companies to harm consumers by preventing access to their favorite devices. “When inventors and developers are willing to license their technologies to one another at reasonable rates, the cross-fertilization of ideas benefits us all,” he said. “But I am concerned that the recent trend of seeking exclusion orders from the International Trade Commission, rather than negotiating and seeking license fees, may have the opposite effect.” At a hearing last month on the implementation of the America Invents Act, Leahy said he had written to the Obama administration about the potential anti-competitive effects of companies who might use the ITC to forestall use of patents “after promising to license them on reasonable terms.” Senator Dick Durbin, D-Ill., cautioned that any calls to limit the availability of ITC exclusion orders for SEPs, or limit the use of ITC as a forum for disputes for imported products that allegedly infringe on SEPs, “should be made based on actual data that demonstrates that our current system has a problem --- and not on the mere possibility of a problem.”