VirnetX Holding Corp. (VHC) dropped its bid to get a U.S. trade panel to ban imports of the iPhone in March, after winning a $368 million jury verdict over Apple Inc. (AAPL)’s use of patented networking technology without permission.
A U.S. appeals court in January made clear patent owners such as VirnetX that don’t make products can seek to halt imports of foreign-made items. That they have that right has brought Apple together with Google Inc. (GOOG) and Samsung Electronics Co, its opponents in smartphone patent fights around the world, to lobby Congress to stop companies like VirnetX from using the threat of trade cases to force legal settlements or win royalties.
“It’s part of a leverage game. It’s part of a litigation tactic,” said Matt Tanielian, executive director of ITC Working Group, which in addition to the three smartphone makers is backed by Ford Motor Co. (F), Cisco Systems Inc. (CSCO), Intel Corp. (INTC) and Oracle Corp. (ORCL) “It has nothing to do with the merits and has nothing to do with international trade.”
Patent-licensing companies say such legislation would address a situation that doesn’t exist.
The International Trade Commission, whose mission is to protect the U.S. economy from unfair competition, hasn’t in the past six years issued a single import ban requested by patent owners who didn’t either make products or invent the technology in question, a trial lawyers’ group found.
Eighteen percent of ITC cases during that time were filed by patent licensing companies, according to a June report by the agency.
The ITC Working Group spent $550,000 last year lobbying Congress, according to the Center for Responsive Politics. The group’s mission is to force patent licensing companies -- sometimes referred to by the pejorative “trolls” -- to sue in federal court for relief instead of seeking import bans at the ITC.
The House Judiciary Committee last week held a hearing on curbing “abusive” patent litigation. Lawmakers including Senators Ron Wyden, an Oregon Democrat, and John McCain, an Arizona Republican, have written letters expressing concerns about patent-licensing companies being able to get import bans. No such proposals have been introduced in committees that oversee the ITC this year.
District court is the only proper forum for companies like VirnetX, Tanielian said. The threat of a possible import ban is being used to force manufacturers into settling for more than they would normally pay, he said.
Some patent-licensing companies see the push to involve Congress as part of a battle to dilute their rights, which includes efforts to limit software patents and make the loser in a patent case pay the winner, said Matthew Vella, president of Acacia Research Corp. (ACTG), of Newport Beach, California, a licensing company that filed a case against Ericsson AB in January.
Vella called the lobbying effort “a thinly designed attempt to depress the value of intellectual property.”
“If you’re going to take away the forum from everybody, that’s a public policy argument,” Vella said in an interview. “But that’s not what they’re proposing. What they’re proposing is arbitrarily drawing a line and saying certain inventors get to use the forum and certain inventors don’t.”
Officials with VirnetX, based in Zephyr Cove, Nevada, which lost a patent trial in district court with Cisco last week, had no comment for this story.
Intel in February won a patent-infringement case brought to the ITC by X2Y Attenuators LLC. The case drew the attention of lawmakers from both political parties who said granting X2Y’s request to block Intel chip imports would cost jobs at U.S. plants that do initial manufacturing before products are assembled overseas.
The ITC has issued only three import bans in cases involving patent owners that don’t make products. Each of those owners -- Rambus Inc., Tessera Technologies Inc. and the University of Nebraska Medical Center -- had developed the technology, according to the ITC Trial Lawyers Association.
“We don’t have a lot of evidence yet that this is a huge problem,” said David Foster of Foster Murphy in Washington, who helped write the report. “If you engage in legislation you could have some unfortunate effects.”
Patent-licensing companies are turning to the trade agency in part because a 2006 Supreme Court ruling made it harder to win federal court orders halting sales of products found to infringe U.S. patents. The U.S Court of Appeals for the Federal Circuit, which handles all patent appeals, said that decision doesn’t apply to the ITC, which is bound by trade law.
Total cases at the ITC increased 530 percent from 2000 to 2011, driven by the fight over mobile devices between Apple and its rivals like Samsung.
The commission has tightened its rules on what qualifies as protected licensing activities, and is taking evidence about whether import bans are in the public’s interest.
VirnetX, which owns patents that let employees access work computers while at home, announced it was dropping its ITC case against Apple the day after U.S. District Judge Leonard Davis denied the company’s request for an order against Apple over patent infringement. Had VirnetX pursued the ITC case and won, the iPhone, a product that made up half of Apple’s $156.5 billion in sales last year, could have been halted at the U.S. border.
Other non-manufacturers have dropped their cases at the agency. Immersion Corp. on March 12 said it was withdrawing its complaint against HTC Corp. and instead pursuing cash compensation in district court. Beacon Navigation, a Swiss company that had filed a complaint against automakers over global-positioning systems, did the same in June.
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