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80–459 PDF 2013

ABUSIVE PATENT LITIGATION: THE ISSUES IMPACTING AMERICAN COMPETITIVENESS AND 

JOB CREATION AT THE INTERNATIONAL 

TRADE COMMISSION AND BEYOND 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COURTS, INTELLECTUAL PROPERTY, 

AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 16, 2013 

Serial No. 113–24 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

SPENCER BACHUS, Alabama 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

MARK AMODEI, Nevada 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

KEITH ROTHFUS, Pennsylvania 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

HOWARD COBLE, North Carolina, Chairman 

TOM MARINO, Pennsylvania, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

TED POE, Texas 

JASON CHAFFETZ, Utah 

MARK AMODEI, Nevada 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

KEITH ROTHFUS, Pennsylvania 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

JUDY CHU, California 

TED DEUTCH, Florida 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

JOE KEELEY, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 
(III) 

C O N T E N T S 

APRIL 16, 2013 

Page 

OPENING STATEMENTS 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Chairman, Subcommittee on Courts, Intellectual 

Property, and the Internet .................................................................................. 1 

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Courts, Intellectual Property, and the Internet .......................................................................... 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Ranking Member, Committee on the Judiciary, and 

Member Subcommittee on Courts, Intellectual Property, and the Internet ... 4 

WITNESSES 

Kevin H. Rhodes, Vice President and Chief Intellectual Property Counsel, 

3M Innovative Properties Company 

Oral Testimony ..................................................................................................... 7 

Prepared Statement ............................................................................................. 9 

Colleen V. Chien, Santa Clara University School of Law 

Oral Testimony ..................................................................................................... 40 

Prepared Statement ............................................................................................. 42 

Jon Dudas, former Under Secretary of Commerce for Intellectual Property 

and Director of the United States Patent and Trademark Office 

Oral Testimony ..................................................................................................... 49 

Prepared Statement ............................................................................................. 51 

Russell W. Binns, Jr., Associate General Counsel, IP Law and Litigation, 

Avaya, Inc. 

Oral Testimony ..................................................................................................... 60 

Prepared Statement ............................................................................................. 62 

Deanna Tanner Okun, Partner, Adduci, Mastriani & Schaumberg, LLP, 

former Commissioner, U.S. International Trade Commission 

Oral Testimony ..................................................................................................... 74 

Prepared Statement ............................................................................................. 76 

F. David Foster, Chairman, Legislative Committee, U.S. International Trade 

Commission Trial Lawyers Association 

Oral Testimony ..................................................................................................... 88 

Prepared Statement ............................................................................................. 90 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Chairman, Committee on the 

Judiciary ............................................................................................................... 120 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the National Retail Federation and Shop.org ................ 135 

(1) 

ABUSIVE PATENT LITIGATION: THE ISSUES 

IMPACTING AMERICAN COMPETITIVENESS 

AND JOB CREATION AT THE INTERNATIONAL TRADE COMMISSION AND BEYOND 

TUESDAY, APRIL 16, 2013 

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

COMMITTEE ON THE JUDICIARY

Washington, DC. 

The Subcommittee met, pursuant to call, at 2:25 p.m., in room 

2141, Rayburn Office Building, the Honorable Howard Coble, 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Coble, Goodlatte, Marino, Chabot, Poe, 

Chaffetz, Farenthold, Collins, DeSantis, Watt, Conyers, Chu, DelBene, Jeffries, Nadler, Lofgren and Jackson Lee. 

Staff present: (Majority) Vishal Amin, Counsel; Olivia Lee, Subcommittee Clerk; and (Minority) Stephanie Moore, Minority Counsel. 

Mr. COBLE. The Subcommittee on Courts, Intellectual Property, 

and the Internet will come to order. Without objection, the Chair 

is authorized to declare a recess of the Subcommittee at any time. 

We welcome all our witnesses today. 

Before we get into the hearing as such, I want to convey our condolences to our New England friends who were the victims of the 

inexcusable and indefensible tragedy that struck Boston yesterday. 

I know the victims are all in our thoughts and prayers. 

I will give my opening statement now. 

It is clear that abusive patent litigation serves as a drag on our 

economy and our future competitiveness. The America Invents Act 

of 2011 was the most substantial reform to the U.S. patent system 

since the 1836 Patent Act. Though the America Invents Act set our 

patent system on solid footing, there are still a number of patents 

that have been issued or are currently being reviewed under the 

old system. Many, if not most, are good patents, but there are a 

number that probably never should have been granted in the first 

place. Though these patents will eventually work their way out of 

the system as they expire, that does not mean that they are not 

causing real harm to American entrepreneurs and job creators 

today. 
2 

Today’s hearing builds on the Subcommittee’s March 14th hearing regarding abusive patent litigation, and on the July 18, 2012 

hearing on the International Trade Commission. The ITC has a 

long history, but in the last few years it has become an attractive 

forum for patent cases. In fact, the average number of ITC complaints filed annually during the past decade is nearly triple the 

average for the previous decade. Some may say that the situation 

is starting to get out of control. 

Recent decisions at the ITC to expand the domestic and industry 

requirement have led to more cases migrating to the agency. When 

a patent holder brings a case at the ITC, the alleged infringer faces 

the ultimate punishment, the exclusion order. The ITC serves a 

narrow role. It is not meant to be an alternative to district court, 

and it is not equipped to deal with the complexities of today’s various technologies. 

When it is one patent to one product, the decision may be clear. 

But when you are talking about a product with thousands of patents spread across hardware and software, the issues become much 

more complex. Patent assertion entities, PAEs, have increasingly 

been using the ITC to drive litigation settlements. With unlimited 

discovery and a punishment that is absolute, a PAE knows that it 

will just make economic sense for an infringer to simply pay up. 

And even when the case is litigated at the ITC, since it is just a 

Federal agency, the PAE can go to the ITC, lose, and still go to the 

district court and sue again. 

Clearly, the ITC has veered away from its statutory mandate 

into uncharted waters. The ITC can still fix the problem that they 

have created by taking several simple steps which include narrowing the domestic industry requirement and conducting their 

public and economic interest tests upfront when deciding whether 

or not to even allow a case to proceed at the ITC before discovery 

begins. 

American innovation cannot be held hostage to frivolous litigation from weak or over-broad patents. To ensure that the American 

economy does not suffer legal gamesmanship that is currently taking place by patent assertion entities, or patent trolls, it is important for us to consider ways to remedy the situation. I hope we will 

hear today what potential steps can be taken to promote America’s 

innovation economy and create jobs. 

I again thank the panel for your presence here today, and I am 

now pleased to introduce the gentleman from North Carolina, the 

Ranking Member, Mr. Mel Watt, for his opening statement. 

Mr. WATT. I thank the other gentleman from North Carolina, our 

Chair, and join him in expressing my shock and condolences to 

those who were injured and the families of those who were killed 

yesterday in Boston also. 

Today we continue our examination of litigation abuses in the 

patent arena, turning our focus for the first time in this Congress 

to the International Trade Commission. I am very pleased that we 

have before us the immediate past chair of the Commission, Ms. 

Okun, and I would like to thank her publicly for accepting the invitation to testify today. 

Last Congress, then Chairman Smith, Ranking Member Conyers 

and I wrote a letter to Chairman Okun expressing our concerns 
3 

about the policy implications of companies using the ITC to seek 

exclusion orders on standard essential patents. We noted that, ‘‘The 

ability to leverage standard essential patents to obtain an exclusion 

order may result either in these products being excluded from markets altogether or in companies paying unreasonable royalty rates 

to prevent an exclusion.’’ 

Although today’s hearing does not focus specifically on standard 

essential patents, it does touch on the issue of whether certain 

companies that are often called ‘‘patent trolls’’ unfairly wrestle unreasonable royalties from legitimate U.S. manufacturers with 

threats of obtaining exclusion orders. More precisely, we are seeking to evaluate whether the practices and procedures before the 

ITC, including the domestic industry requirement, invite abuse by 

those seeking to extract unjust settlements from manufacturing 

and production companies that employ thousands of Americans. 

It is for that reason that it is very valuable to have Chairman 

Okun at our witness table today. That, of course, is not designed 

to minimize the importance of the presence and testimony of our 

other expert witnesses on today’s panel. 

Mr. Chairman, let me make four brief points. First, I think it is 

evident that there is no satisfactory definition based on business 

models of what constitutes a troll. The fact that an entity, whether 

a university, an independent inventor, or a patent aggregator does 

not exploit its patents in the same manner in which a production 

company may use the patented devices or technology does not 

mean that the entity is a troll, or that it stifles innovation, or is 

otherwise non-essential to the patent ecosystem. The existence of 

a robust secondary market in patents is vital to the patent system, 

and responsible non-practicing entities often play an important role 

in that market. 

Second, there are multiple players with distinct purposes operating in this space that we all must be cognizant of. I hope that 

I need not remind members of the Intellectual Property Subcommittee that the principal objective of the patent system is to 

promote the progress of science and the useful arts by providing incentives to innovators to keep innovating. 

I also hope I need not remind members of the Judiciary Committee that the judicial system exists to provide a civil forum for 

the unbiased resolution of disputes between private parties, and is 

largely premised upon the principle of open access to all litigants 

with standing to sue, with particularized sanctions for misuse or 

abuse of the system. 

And the ITC, which exercises in rem jurisdiction, is a trade 

forum whose core task is to protect U.S. industries from unfair 

trade practices. It would be foolhardy to dismantle any of these 

players, even at the margins, or unhinge their foundational 

underpinnings to solve a particular perceived problem, including 

the problem of trolls. 

Third, I think there is a need for substantially more information 

to avoid uninformed or precipitous action by this Committee. While 

I don’t discount the costs that abusive non-practicing entities inflict 

on the marketplace, or the concern of production companies about 

the number of settlements they enter into. Because most settlements are confidential, it is impossible to assess whether the num-
4 

bers reflect that extortion is taking place or, on the other hand, 

whether some of these settlements might actually reflect fair compensation for infringed property rights. 

If infringement is taking place, we certainly don’t want to turn 

a blind eye to it simply because we don’t like the plaintiff or can 

conveniently categorize that plaintiff as a troll. 

Finally, although this Subcommittee does not have specific jurisdiction over the inner workings of the ITC—we do have a jurisdictional interest in how intellectual property is impacted by its investigations. In that vein, I would caution those who advocate for solutions directed at ill-defined entities as opposed to specific abusive 

conduct to examine carefully the implications of those proposals. 

For example, isn’t it possible that the Shield Act’s loser pay requirement in patent litigation in Federal court of a bond for nonpracticing entities to initiate suit could have the unintended consequence of driving even more patent enforcement activity to the 

ITC, the very complaint we are here trying to address today? In 

other words, if we erect overly onerous barriers to access the Federal courts, wouldn’t non-practicing entities that can meet the requirements at the ITC likely migrate to that forum? 

As I have indicated in our previous hearings, I continue to believe that focusing on the activity as opposed to the actor would 

yield better results. 

With that, Mr. Chairman, I yield back the balance of my time 

and look forward to hearing the testimony of our witnesses today, 

and again welcome Ms. Okun and all of the witnesses. 

Mr. COBLE. I thank the gentleman from North Carolina. 

The Chair now recognizes the distinguished gentleman from 

Michigan, the Ranking Member for the full Committee, for his 

opening statement. 

Mr. CONYERS. Thank you, Chairman Coble. I welcome all of the 

witnesses, particularly the former chair of ITC and the chairman 

of the legislative committee of the trial lawyers. 

Now, it can’t be disputed, and Mel Watt has done an excellent 

job of this, that there has been an increase in the number of new 

Section 337 investigations over the years. But we should examine 

whether the increase in the number of these investigations is really 

due to abusive behavior by the non-profits or is there some other 

reason. For my part, let me just say that these incredible increases 

of challenges tripled over 10 years is not good. Sixty-five percent 

of them proceed simultaneously in the Federal district court, and 

I remain skeptical of current proposals to abuse patent litigation 

by reforming ITC legislatively. 

There is not as much abuse as I first suspected, but this is what 

we are holding the hearing for. I want to find out from our experts. 

We know that these cases are being watched closely. Any proposed 

change must not adversely impact American innovators. 

Now, the patent law is not efficient, the other reason that we are 

here, 700,000 backlog. And although they are shrinking, they are 

not shrinking fast enough. So let’s find out what is going to be revealed at this hearing. 

I thank the Chairman, and I return my unused portion of time. 

Mr. COBLE. I thank the gentleman from Michigan for his comments. 
5 

I think Chairman Goodlatte was on his way, but I see he has not 

arrived as yet. 

We have a very distinguished panel of witnesses today, as I previously indicated. Each of the witnesses’ written statements will be 

entered into the record in its entirety. I ask that each witness summarize his or her testimony in 5 minutes or less. To help you stay 

within that time frame, there is a timing light on your table. When 

the light switches from green to yellow, that is your indication that 

you have 1 minute to remain and the ice upon which you are skating is thin. [Laughter.] 

No one will be keel-hauled. But if you can keep it within 5 minutes, that would be appreciated. When the light turns red, that 

does signal that the 5 minutes have expired. 

I will begin by swearing our witnesses in today before introducing them. If you would, please, rise. 

[Witnesses sworn.] 

Mr. COBLE. Let the record reflect that all answered in the affirmative. 

Now I will introduce each witness, and then we will proceed with 

the testimony. 

Our first witness today, Mr. Kevin Rhodes, Vice President and 

Chief Intellectual Property Counsel, 3M Innovative Properties 

Company. In his position, Mr. Rhodes manages 3M global intellectual property assets in its worldwide affiliates. Mr. Rhodes joined 

3M in 2001. Prior to that, he was a partner at Kirkland & Ellis 

in Chicago, specializing in intellectual property and litigation. Mr. 

Rhodes is a member of the Board of Directors of the Intellectual 

Property Owners Association Educational Foundation. 

Mr. Rhodes received his J.D. magna cum laude from Northwestern University, and his B.A. in Chemistry from Grinnell College. 

Our second witness, Mr. Jon Dudas, former Undersecretary of 

Commerce for Intellectual Property and Director of the U.S. PTO. 

Mr. Dudas was appointed as Director in 2004 and served in this 

position until 2009. He also served 6 years on the House Judiciary 

Committee, including time as counsel of this Subcommittee in the 

area of intellectual property, having worked on major company patent rights and trademark policies and laws. After leaving the U.S. 

PTO, Mr. Dudas joined the law firm of Foley & Lardner as a partner and became President of FIRST, For Inspiration and Recognition of Size and Technology. Mr. Dudas currently serves on the 

Board of Directors of MOSAID Technologies, Inc. 

Mr. Dudas received his J.D. degree from the University of Chicago and his B.S. in Finance summa cum laude from the University of Illinois. 

I understand that our third witness, Professor Colleen Chien, is 

a constituent and friend of Congresswoman Zoe Lofgren, and Ms. 

Lofgren has asked for the opportunity to introduce Professor Chien, 

and I am now pleased to yield to her for that purpose. 

Ms. LOFGREN. Well, I appreciate that very much, Mr. Chairman, 

and it is an honor to introduce Professor Colleen Chien. She is a 

Professor of Law at the University of Santa Clara, my alma mater, 

and where I serve on the Board of Visitors. She is nationally 

known for her research and publications about patents, and espe-
6 

cially domestic and international patent law and policy issues. She 

is an expert on the International Trade Commission and has authored many articles about it, and is a co-author of the practice 

guide, the Section 337 Patent Investigation Management Guide. 

She is an engineering graduate of Stanford University, got her 

juris doctorate from Boalt Hall. Before serving as a professor, she 

prosecuted patents with Fenwick & West in San Francisco, and 

also did stints as a consultant at Dean and Company, a spacecraft 

engineering company at NASA Jet Propulsion Lab. She is the inaugural Eric Yamamoto Emerging Scholar at Santa Clara University 

Law School, and she is one of Silicon Valley’s Women of Influence, 

and I think all of the Santa Clara University community is proud 

that she is a witness here today. 

I yield back, Mr. Chairman. 

Mr. COBLE. Thank you, Ms. Lofgren, and it is good to have Ms. 

Chien with us as well. 

Our fourth witness, Mr. Russell Binns, is Associate General 

Counsel in IP law and litigation with Avaya. In his role, Mr. Binns 

is responsible for all aspects of Avaya’s worldwide intellectual property legal operations, including IP litigation and patent procurement. Prior to joining Avaya, Mr. Binns worked as an IP litigator 

with Goodwin Procter in New York and in Boston. He also serves 

as board member for the Intellectual Property Owners Association. 

Mr. Binns received his J.D. from the Franklin Pierce Law Center 

and his Bachelor of Science in Electrical Engineering from 

Clarkson University. 

Our fifth witness is Ms. Deanna Tanner Okun, about whom we 

heard earlier, a partner at Adduci, Mastriani & Schaumberg, and 

former Chairman of the U.S. International Trade Commission. Ms. 

Okun served two terms as chairman during her 12 years of service 

at the ITC. Ms. Okun also served as counsel for international affairs to Senator Frank Murkowski, associate attorney and member 

of the International Trade Group at Hogan & Hartson, and research associate specializing in trade at the Competitive Enterprises Institute. 

Ms. Okun received her J.D. with honors from Duke University 

School of Law and her B.A. with honors from Utah State University. 

Our final witness, the sixth and final witness is Mr. David Foster, Chairman of the Legislative Committee at the U.S. International Trade Commission Trial Lawyers Association, also known 

as U.S. ITCTLA. He is also a partner at Foster Murphy Altman & 

Nickel, where he focuses on international intellectual property matters, particularly international licensing and litigation. Mr. Foster 

has worked extensively on Section 337 of the Tariff Act beginning 

in 1974 while working at the ITC’s General Counsel office, and 

then as the Trade Counsel for the Senate Finance Committee, and 

now represents complainants and respondents litigating patent disputes at his firm. 

Mr. Foster received both his law degree and his bachelor’s degree 

from Arizona State University. 

Welcome to all of you. 

Mr. Rhodes, if you will kick it off, and keep a sharp eye on the 

time clock, if you will. Thank you. 
7 

TESTIMONY OF KEVIN H. RHODES, VICE PRESIDENT AND 

CHIEF INTELLECTUAL PROPERTY COUNSEL, 3M INNOVATIVE PROPERTIES COMPANY 

Mr. RHODES. Thank you. Chairman Coble, Ranking Member 

Watt and Members of the Subcommittee, thank you for the opportunity to testify today. Because of the importance of a well-functioning patent system to 3M’s business model, which is based on 

bringing innovative new products to its customers, 3M has been engaged with Members of this Subcommittee and other stakeholders 

for many years as we have discussed issues of patent law and policy. We appreciate the opportunity to continue that dialogue today. 

3M brings a balanced perspective to the question of patent litigation abuse. We have litigated patent disputes in district courts 

across the country and in many ITC investigations. 3M is a plaintiff as often as it is a defendant, and we recognize that abusive litigation practices can be perpetrated by defendants as well as plaintiffs, and by practicing patent owners as well as non-practicing patent owners. It is the abuse that should be targeted, not particular 

types of patent owners. 

Any legislation to curb litigation abuse should ensure that a patent owner’s right to enforce against infringement—a core value of 

the patent grant, the right to exclude others—is not unduly weakened by overly broad reactions to litigation abuse by a few patent 

owners. 

Regarding calls for legislative action at this time, there are a lot 

of moving parts right now in the patent system. Many of them will 

impact patent litigation outcomes and procedures, including the reforms just now fully being implemented by the Leahy-Smith America Invents Act. Until the combined impacts of these changes become clear, 3M urges caution in making major changes that may 

risk unintended consequences or otherwise upset the balance of the 

patent ecosystem as a whole. 

Now, against that background and call for caution, I will turn to 

the ITC. The ITC is an important venue for 3M and other U.S. patent owners to protect their inventions against infringing imports. 

The ITC is too important to weaken unless and until a compelling 

case is made that it is broken and that it cannot fix itself. I do not 

believe that case has been made. 

Just yesterday, the ITC released updated caseload statistics. I 

encourage you to review them. People look at these statistics and 

the caseload data in different ways, but what is telling to me is 

that the ITC itself has looked at its data and it has concluded that 

the increase in its caseload has not been caused by so-called patent 

assertion entities who seek exclusion orders. And to the extent that 

there are legitimate concerns, which there are, the ITC already has 

the tools and the authority to guard against abuse. It has shown 

awareness of the concerns being expressed, sensitivity to those, and 

it has taken action to address them. I will give you a few examples 

of the most recent actions it has taken. 

In 2011, the ITC, in a case, clarified the elements needed to establish a licensing-based domestic industry, and that is how PAEs, 

patent assertion entities, seek to prove they have established a domestic industry through licensing. Since that time, only one party 

has been successful in establishing a domestic industry through li-
8 

censing investments, and that case was in July of 2012. In that 

case, the ITC held that the party, in establishing the domestic industry, could not rely on money it had spent on purchasing patents, on patent litigation, and on patent reexamination proceedings. 

Just last month, in an investigation brought by a PAE, the ITC 

ordered the judge to issue an expedited initial determination within the first 100 days solely on the threshold issue of whether that 

PAE can show a domestic industry through licensing. The investigation will not proceed unless this threshold showing is made. So 

this is a great example of active case management identifying 

when domestic industry is a key threshold issue, accelerating that 

determination to the front of the investigation, and if that showing 

isn’t made, the investigation won’t continue. 

The ITC recently issued new rules that provide for a more complete record on public interest considerations. These have to be considered even before an investigation is begun, and they must be 

taken into account before issuing any exclusion order. 

Finally, just last week, the ITC published new rules of practice 

and discovery rules, and it has also proposed new rules for E-discovery that are based on the Federal circuit’s recently issued E-discovery model order. So the ITC is looking at all facets of its law 

and its practice to address the concerns that have been expressed. 

We believe it is prudent to monitor and assess the impact of 

these efforts the ITC already has underway before considering 

what, if any, further legislative changes may be warranted. 

As always, 3M remains committed to working with Congress and 

all stakeholders to find fair and balanced solutions to curb abusive 

litigation practices in patent cases. I will be pleased to answer any 

questions or to supply any additional information for the record. 

Thank you very much. 

[The prepared statement of Mr. Rhodes follows:] 
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Mr. COBLE. Thank you, Mr. Rhodes. 

Ms. Chien? 

TESTIMONY OF COLLEEN V. CHIEN, 

SANTA CLARA UNIVERSITY SCHOOL OF LAW 

Ms. CHIEN. Thank you so much, Chairman Coble. Thank you so 

much. It is really an honor and privilege to be here, Chairman 

Coble, Members of the Subcommittee, and especially thank you to 

Representative Lofgren for your wonderful remarks. 

It is my privilege and honor to be here today, and I commend you 

Members for your close attention to the abuses that plague our patent system. 

I have two points to make today. First, I believe that we are 

spending too much time and money fighting about patents. I believe this fighting is a problem because it drives companies to settle 

even if their case is weak. That means that the profits that come 

from patent assertion get increased, and this breeds more fighting 

and more filing, even for weak patents. 

Second, I believe Congress and agencies can stop this abuse by 

reducing waste and duplication, and by helping companies help 

themselves to resist patent demands over weak patents. 

Point One: We are spending too much time and money fighting 

about patents. I am talking here about campaigns of companies 

like Lodsys against app developers that make the terrific applications that we have on all of our smartphones. Many of them have 

received demands based on implementing functionality that is 

basic. These patents are in litigation. Apple says it already has 

rights to them, and Google has placed these patents into reexamination. Still, the letters and suits continue to plague hundreds of 

app developers. I am talking about the filing of cases in the ITC 

and district court at the same time. 

Earlier, the statistic of 65 percent of overlap was cited. When we 

went back and checked for 2012, we found that over 90 percent of 

cases in the ITC that were patent cases also had a district court 

counterpart, which has different remedies and procedures but 

much overlap otherwise. 

Does it make sense to make litigants go to both venues? If litigants can get exclusion orders in one place but not the other, or 

if SHIELD applies in one place but not the other, this invites 

forum shopping and abuse. 

I am talking about small companies that call me and don’t have 

the resources to send their own representatives to these hearings. 

Companies that make $10 million or less in revenue are the majority of unique defendants to PAE suits. 

Startups are crucial sources of new jobs, but patent demands 

hinder their ability to hire and meet other milestones, cause them 

to change their products and shut down lines of business, according 

to a survey that I conducted. Forty percent of them were targeted 

because of technology they did not make but implemented or used. 

Why is this happening? My sense is it is because the market is 

impatient, and now the market is driving patent assertion, because 

for all the epithets that are thrown at patent assertion entities, 

they have very compelling economics. They sell the market need by 

making patent enforcement affordable and less risky. In fact, the 
41 

economics are so compelling that there are now over 15 publicly 

traded companies that bankroll patent lawsuits. Intellectual property funds generate returns between 10 and 20 percent, reports 

Julie Steinberg in her Wall Street Journal article entitled, ‘‘Stocks, 

Drugs, Rock ’n Roll.’’ 

Foreign governments are getting into the game: Korea’s Intellectual Discovery Fund, France’s Brevets, and the Innovation Network 

Corporation of Japan are examples. It is only in this context that 

we can understand the filing of a complaint by Swiss investorbacked PAE Beacon Navigation GmBH against U.S. car companies 

that employ thousands of people at the International Trade Commission, a venue that is designed to protect domestic industries. 

As PAEs increase, so do the burdens on our courts and the public. Last year, PAEs filed over 50 percent of patent cases in district 

courts and, according to my estimates, about 30 percent of ITC 

cases. These cases are complicated. They are time-consuming. They 

can be torturous for jurors, and they clog our dockets. But they also 

are rightful vindications of patent rights. How can we streamline 

litigation to reduce the over-incentive for enforcement but still 

allow for meritorious claims to go through? In this testimony, I provide three suggestions for consideration. 

First, I believe we should look carefully at the duplication in our 

patent system by trying to improve coordination between patent 

entities. It makes no sense to have more than one entity simultaneously decide a patent’s validity or whether the same act constitutes infringement. PAEs are now suing multiple users of goods 

rather than single suppliers or manufacturers of that good. Congress should reduce the duplication that results by immunizing or 

eliminating liability for innocent end-users or implementers that 

use the invention. 

As I mentioned before, 90 percent of patent litigation in the ITC 

were also filed in District Court. While that interface is regulated 

by Section 1659, Congress should look carefully at this overlap and 

make sure that there is no unnecessary duplication between these 

efforts. We should also reduce waste in our patent system, following the example of the Federal Circuit Advisory Council’s Model 

Order Initiative. Congress should facilitate the benchmarking of 

courts trying innovations in the patent pilot program so that the 

best practices for reducing waste can be observed and disseminated. 

Finally, I believe that we should reduce the government’s role in 

deciding patent disputes. The government should give members of 

the public, and in particular the members of the public that are not 

patent-savvy or well-funded, information from which they can help 

themselves rather than going to a court or lawyers. Courts should 

require governmental data storehouses to provide data on patent 

litigations, reexaminations, ITC actions and ownership information 

either by themselves or to third party providers who promise to 

consolidate and make it available to the public in an accessible 

form. The FTC or PTO should provide authoritative information 

about patents and options for responding to demand letters. Many 

people now are getting a demand letter and don’t have anything to 

do or know about the patent system. They need basic information 

about their options. 
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The duplication, redundancies, and lack of access to information 

in our patent system invite abuse and forum shopping. They clog 

our docket and consume our precious judicial resources. They create lucrative opportunities for patent assertion that is attracting financing and more suits. 

I would be happy to take your questions in a question-and-answer period. 

[The prepared statement of Ms. Chien follows:] 
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Mr. COBLE. Thank you, Ms. Chien. 

Mr. Dudas? 

TESTIMONY OF JON DUDAS, FORMER UNDER SECRETARY OF 

COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR 

OF THE UNITED STATES PATENT AND TRADEMARK OFFICE 

Mr. DUDAS. Thanks very much, Mr. Chairman, Ranking Member 

Watt, and all the Members of the Committee. It is a real opportunity and an honor to testify before you today. 

While I am not an ITC subject-matter expert, I do offer my perspective as former undersecretary and a former staffer of this Subcommittee. 

For the last year, I also served on the Board of Directors of 

MOSAID Technologies, Inc. In addition to holding 1,450 issued and 

pending patents from its own R&D, MOSAID Technologies has a 

core expertise in managing high-quality patent portfolios. 

In my government role, I was honored to promote the United 

States system of intellectual property throughout the world. Nothing has given me more professional satisfaction and pride than to 

explain our system and its economic benefits and growth to officials 

from other Nations. Is it a perfect system? Certainly not. But it is 

the best in the world, and its tremendous value makes it worth 

your efforts to improve it. 

This is an important point, because in an effort to advance a particular point of view or an effort to advance a particular model, our 

entire patent system has often come under attack. Many have essentially claimed that the strength and value of innovation lies not 

in the invention itself, not in the idea or the model, but in who 

owns it. There is a growing lexicon of ad hominem names for entities that own intellectual properties but do not make products: 

‘‘troll,’’ ‘‘privateer’’ are among the most common. Name-calling is a 

distraction and plays no role in addressing the actual problems facing our system, and there are real problems. 

It turns out there are many entities that own intellectual property and do not make products, but they add tremendous value to 

the system. It is not who owns the property that matters but what 

they own and how they conduct themselves in their ownership. 

There are certainly individuals or entities that own patents, do not 

make products, and engage in abusive and inappropriate practices. 

Likewise, there are those who own patents, do make products, and 

engage in abusive and inappropriate practices. 

The solution will be to address abusive and inappropriate practices, not to discriminate against certain business models. Focusing 

on conduct allows judges to fashion remedies that fit particular circumstances. 

One example of focusing on conduct occurred just last week. District Judge Scola noted of two companies locked in a patent lawsuit, ‘‘The parties have no interest in efficiently and expeditiously 

resolving this dispute. They instead are using this and similar litigation worldwide as a business strategy that appears to have no 

end. That is not proper use of this court.’’ The judge did not discriminate against the companies based on whether they made a 

product or did not, but because of what he described as obstreperous and cantankerous conduct, Judge Scola ordered the parties 
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to narrow the case or he would put it on hold, a remedy to the actual conduct. 

As the Committee considers proposals for potential additional 

modifications to patent law, please consider the following principles. 

Do no harm. The solution we seek should not cause more harm 

than the problem—something that this Committee has looked at 

many times in patent law. 

Do not discriminate. The intellectual property is what matters, 

not who owns it. 

Please consider being conduct focused. Root out bad behavior regardless of the actor, and make sure proposed change will actually 

address the targeted conduct. That is one thing I worry about, is 

are we going to actually resolve the issue, or if there are really bad 

actors out there, and we know there are, are they just going to find 

another way around the law? 

Respect the role of the Federal judiciary and recognize that some 

measure of judicial discretion will be necessary and that the Federal judiciary already has the toolkit. 

I will close my oral testimony with a story I find particularly 

compelling. To me, it is an example of how the U.S. innovation and 

intellectual property system has proven to be an inspiration to the 

world. The head of the State Intellectual Property Office of China, 

Tian Lipu, is a brilliant man. He understands how strong intellectual property laws will benefit China and any other country. He 

was one of the partners we had to build, try to build a stronger intellectual property system in China. In a symposium 2 years ago, 

Commissioner Tian noted that Chinese manufacturers paid $19.70 

in patent royalties for each DVD player they produced. His quote, 

‘‘This is 10.2 times their profit, which is only $1.93 for each DVD 

player. In the year 2007 alone, the patent royalties charged by 

multinational companies from Chinese manufacturers amounted to 

$2.85 billion.’’ 

His point is clear and well understood. What matters is not so 

much who made the product but who had the innovation and who 

had the idea. There is much more to be done in China, for certain, 

on the intellectual property front, but it was a great moment for 

me to see a leader of China make that point, that the ideas are 

what are important. I would hate to sit across the table and explain why in the U.S. system we treat different patent owners differently from other patent owners when we are negotiating with 

the Chinese to make certain that they treat our innovators in 

China with the same respect that we demand through international treaties. 

In closing, allow me to thank you again for the chance to share 

my views and answer any questions you may have. Please know I 

welcome the opportunity to participate in the process going forward. I am also certain that the company where I serve as a corporate director, MOSAID Technologies, would welcome the opportunity to participate as well. 

The only professional regret I have, I just want to say at this moment, was when I was on this Committee, I often sent really hard 

questions up to Members of Congress to hassle the witnesses, and 

I don’t sleep at night now knowing that I did that. [Laughter.] 
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Thank you very much. 

[The prepared statement of Mr. Dudas follows:] 
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Mr. COBLE. Good to have you back on the Hill, Mr. Dudas. 

Thank you, sir. 

Mr. Binns? 

TESTIMONY OF RUSSELL W. BINNS, JR., ASSOCIATE GENERAL 

COUNSEL, IP LAW AND LITIGATION, AVAYA, INC. 

Mr. BINNS. Mr. Chairman and Members of the Committee, thank 

you for convening this hearing and for the opportunity to testify 

about the impact of abusive patent litigation today. I am the head 

of intellectual property law at Avaya, a leading provider of business 

and government communication systems worldwide, with approximately 7,000 employees in the United States and over 3,000 U.S. 

patents and patents pending. Avaya has a long history of innovation that traces its roots back to Alexander Graham Bell and Bell 

Labs. Avaya has been the victim of substantial abusive litigation 

and believe we are representative of many U.S. companies facing 

these issues. 

Despite the best efforts of Congress and the courts, patent assertion entities continue to have a deeply damaging effect on the U.S. 

economy and consumers through both Federal court litigation and 

the ITC. These abuses cost U.S. companies billions of dollars that 

could be used to create jobs, invest in R&D, and bring new products to consumers. The abuses are even more clearly evident at the 

ITC, where patent assertion entities are frequently bringing cases 

against companies with operations in the U.S. seeking remedies 

that they don’t want—namely, exclusion orders. Yet exclusion orders go contrary to the very business model of patent assertion entities. 

A typical patent case costs millions through trial, and ITC actions are much more expensive and compressed. Regardless of the 

merits of the patents at issue, defendants are put in the position 

of rolling the dice in this system. These complex cases often coerce 

settlements that are out of line with the value of an asserted patent that represents a miniscule part of a targeted product. Patent 

assertion entities use their profits from one suit to file additional 

suits, and as the cycle continues and expands, no businesses are 

furthered, no jobs are created, and progress of science or the useful 

arts are not promoted. All of these costs are eventually shouldered 

by consumers. 

I think there are unintended consequences caused when licensing 

was added in 1988 as a former domestic industry for standing at 

the ITC without envisioning how 25 years later a cottage industry 

of patent assertion entities would develop and burden the patent 

system and U.S. operating companies. The ITC was not created as 

a patent court for everyone but is a trade court with limited jurisdiction. It should only be used by those that need an exclusion 

order. The question everyone should be asking is why should licensing entities that are only seeking money have access to the 

ITC? From my experience, licensing entities use it for ulterior motives, to coerce settlements for more than what they could obtain 

in Federal court. 

Avaya, along with several other major U.S. companies, recently 

faced an ITC dispute against a patent assertion entity that was 

only seeking licensing revenue on products that we had developed 
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and had been commercializing for many years. Its patent had nothing to do with communications, but was seeking to exclude essentially all of our phones and gateways. Knowing that its patent was 

for a small feature within a system and did not justify the large 

damages in Federal court, it filed an ITC action threatening an exclusion order. 

During the case, settlement demands were based on a disproportionate share of the entire revenue of these products, and due to 

the cost of litigation and the chance of an exclusion order issuing, 

Avaya settled for a substantial sum of money. I believe the harm 

caused to companies such as Avaya by even a few of these cases 

is problematic enough to warrant change, and there are several 

ways Congress can improve the system. 

First, institute a hearing into the equities of each 337 investigation in an early stage of the proceeding. It is not rocket science to 

determine if a complainant is using the ITC for an exclusion order 

to prevent harm or rather using it to obtain licensing revenue to 

support its business model. The hearing should be the first matter 

undertaken by an ALJ and would allow the ITC to prevent abusive 

patent assertion entities from initiating non-trade-related investigations. The inquiry could be similar to that used by the courts 

in applying eBay before awarding injunctive relief. 

Second, Congress should amend Section 337 to change the domestic industry requirements by limiting qualification to those who 

engaged in production-based licensing and not allow complainants 

to rely on revenue-based licensing to satisfy domestic industry. 

This can be accomplished and is appropriate as licensing entities 

are seeking only money and the ITC cannot award damages. These 

changes will preserve legitimate uses of the ITC while constraining 

patent assertion entities that have an adequate remedy at law in 

the Federal courts, where they belong, thus protecting U.S. industry, jobs, and technology from abusive and damaging litigation in 

ITC. 

Thank you for holding this hearing and addressing this problem 

that is harming American companies. I would be happy to discuss 

these issues further with any of you at your convenience, as these 

are critically important issues to Avaya. Thank you. 

[The prepared statement of Mr. Binns follows:] 
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Mr. COBLE. Thank you, Mr. Binns. 

Ms. Okun? 

TESTIMONY OF DEANNA TANNER OKUN, PARTNER, ADDUCI, 

MASTRIANI & SCHAUMBERG, LLP, FORMER COMMISSIONER, 

U.S. INTERNATIONAL TRADE COMMISSION 

Ms. OKUN. Thank you, Chairman Coble, Ranking Member Watt, 

and Members of the Subcommittee. Thank you for the opportunity 

to testify. It is an honor to engage in this important discussion 

with you today and to appear on this panel of distinguished witnesses. 

Mr. Chairman, thank you for your introduction. Let me reiterate 

that I appear in my individual capacity and not on behalf of the 

firm or any of its clients, nor do I speak for the U.S. ITC or my 

former colleagues. My purpose is to share my perspective based on 

my recent experience as commissioner and chairman. I will focus 

my oral remarks on a few key points for consideration by the Subcommittee. I will refer Members to my written statement, and I 

will be pleased to answer questions. 

First, the ITC is an expert trade agency that, in administering 

Section 337, provides an effective remedy to combat the pervasive 

problem of infringing imports, thereby providing essential protection to U.S. IPR owners and fostering U.S. competitiveness and innovation. 

Second, through its decisions and administrative actions, it is my 

view that the ITC has sent a strong message that only entities 

with substantial domestic ties will succeed under Section 337. The 

data demonstrate that PAEs are not succeeding at the ITC. 

Third, the ITC, perhaps because it is small, non-partisan, and 

quasi-judicial, has been nimble in addressing litigation issues by 

pursuing case management and rules changes to reduce the cost 

and burden of litigation. 

Allow me to elaborate briefly on those three points. 

As this Committee knows well, innovation is a primary driver of 

U.S. economic growth and competitiveness. IP licensing is one of 

the few industries in which the United States enjoys a significant 

trade surplus. Unfortunately, the infringement of IPR is a pervasive problem that harms companies and consumers. 

The advantages of Section 337 include expeditious adjudication, 

experienced ITC judges, in rem jurisdiction, and effective remedies. 

The prevalence of high technology products with short life cycles 

underscores why these attributes make the ITC an attractive venue 

for domestic industries battling infringing imports. I respectfully 

submit that Section 337, by serving as a mechanism for protecting 

U.S. IPR, promotes American competitiveness and domestic job creation. 

Critics claim that NPE’s are easily satisfying the domestic industry requirement through dubious investments in licensing activities. To the contrary, since August 2011, only one NPE has proved 

the existence of a licensing-based domestic industry. In addition, 

and I want to underscore this really important administrative development, the Commission, in a recent case with an alleged PAE 

complainant accusing 15 respondents of patent infringement, ordered the presiding ALJ to hold an early evidentiary hearing, find 
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facts, and issue a decision within 100 days as to whether the complainant had established a domestic industry. 

The Commission’s decision to order an early hearing demonstrates that PAEs must be prepared to prove their domestic industry before addressing other aspects of the case. This puts significant pressure on the PAE and reduces its leverage to extract a 

settlement. Moreover, the expense to respondents is potentially reduced as the case could be dismissed on domestic industry grounds 

early on. 

Next, I would like to focus on the data regarding NPEs at the 

ITC. I want to note, yesterday the ITC posted on its website an update on facts and trends regarding U.S. ITC Section 337 investigations. According to the fact sheet, from May 2006, when eBay was 

decided, through the first quarter of 2013, the U.S. ITC instituted 

301 investigations. Of these, Category 1 NPEs accounted for 33 investigations or 11 percent, and Category 2 NPEs, which would resemble a PAE under many definitions, accounted for just 27 investigations or 9 percent. 

The second data issue concerns results, are PAEs obtaining exclusion orders. Again, the facts do not support the hype. The Commission has issued over 50 exclusion orders since 2006, only four 

of them on behalf of NPEs, and those NPEs developed the technology, or their affiliates. 

Let me briefly touch on public interest issues. Before issuing any 

remedial order, the Commission is required by statute to consider 

the effect of such relief on the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the U.S., and consumers. The ITC has 

tailored remedies based on legitimate public interest concerns. In 

the most recent example, the Commission delayed enforcement of 

remedial orders by 4 months to provide network carriers time to 

replace the infringing smart phones and permitted the respondent 

to import replacement parts to be provided to customers under 

warranties and insurance contracts. In addition, in 2011, the ITC 

issued new rules allowing ALJs to develop the factual record on 

how a complainant’s request for relief would affect the public interest. 

Finally, I want to call the attention of the Committee to the rulemaking initiatives of the Commission to increase the efficiency and 

reduce costs for all litigants. While I was chairman, the Commission initiated new rules and pilot programs governing discovery, including e-discovery, inspired in part by Chief Judge Rader’s efforts 

to encourage courts and the ITC to adopt rules that reduce the cost 

of litigation. The first set of new rules, including limits on depositions and interrogatories, issued last week, and new rules on e-discovery are expected soon. These changes are additional evidence of 

a nimble agency finding reasonable ways to best address the matters under its jurisdiction. 

Thank you, and I look forward to your questions. 

[The prepared statement of Ms. Okun follows:] 
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Mr. COBLE. Thank you, Ms. Okun. 

Mr. Foster? 

TESTIMONY OF F. DAVID FOSTER, CHAIRMAN, LEGISLATIVE 

COMMITTEE, U.S. INTERNATIONAL TRADE COMMISSION 

TRIAL LAWYERS ASSOCIATION 

Mr. FOSTER. Thank you, Mr. Chairman and Ranking Member 

Watt, and Members of the Committee. The U.S. International 

Trade Commission Trial Lawyers Association appreciates the opportunity to appear today. Many of the comments I was going to 

make have been made by Mr. Rhodes and Ms. Okun, so I won’t repeat those, but I will focus on just a few issues. 

One is that, as has been noted, while NPE use of Section 337 has 

increased, the development of the Commission’s practice and jurisprudence is addressing their use of Section 337, and in particular 

their access to Section 337 and perceived excessive leverage, the 

very issues that are addressed by some of the proposed legislative 

changes that are being made. 

The Commission, as administrator of the law, is well suited to 

developing the application of Section 337 to NPEs and PAEs and 

the issues raised thereby. Given that this process involves the application of expertise and very complex fact and law situations, we 

believe that thought should be given to according the Commission 

deference in this process prior to amendment of the statute. 

The second point I would like to make, in addition to the points 

that have already been made, is that in considering amendments 

to Section 337, we would urge great caution, and I will just reference one particular proposal and some of the implications of that 

proposal. 

Under one proposal, the Commission would be required to apply 

in Section 337 investigations the same equitable principles required by the eBay Supreme Court case to be applied in district 

court patent cases when the court must determine whether an injunction should be issued or whether monetary relief only should 

be made available. The differences, however, between Section 337 

investigations and district court cases dictate that such a proposal 

should be carefully evaluated as to its appropriateness given the 

consequences that would likely result. Unlike district courts, the 

Commission does not have the ability to award damages if a violation is found. 

Section 337 is a trade, a border enforcement statute. It operates 

in addition to any other provision of law, but it has at its disposal 

only one remedy, the exclusion order. Congress determined that 

only the remedy of exclusion should be applied in Section 337 cases 

subject to consideration of the public interest, which the Commission has to undertake in every case when it is considering whether 

or not to issue an exclusion order. 

The House report on the 1988 act specifically noted a temporary 

right to exclude others was the essence of the patent right, citing 

Article 1, Section 8, Clause 8 of the Constitution, and it was this 

1988 act that amended Section 337 in significant fashion. 

In Section 337 investigations, if no exclusion is issued, no relief 

would be given even though infringement is occurring. This effectively makes the eBay criteria of adequacy of legal—that is, mone-
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tary—relief simply inapplicable to Section 337 investigations. The 

consideration of equity in these circumstances is totally different 

than in district court cases, where relief is always available, at 

least in the form of damages. 

So again, this is sort of an example of potential unintended consequences or potential effects that would happen with proposed 

amendments. And again, the Association would urge Congress that 

in considering potential amendments, they take into account the 

fact that you may have unintended consequences, and also to allow 

the Commission to further develop the jurisprudence which, in our 

view, is addressing many of the issues that are raised by NPEs and 

PAEs. 

Thank you for your consideration. I will be happy to answer any 

questions. 

[The prepared statement of Mr. Foster follows:] 
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Mr. COBLE. Thank you, Mr. Foster. 

Ladies and gentlemen, thank you all again for your contribution 

today. 

We try to comply with the 5-minute rule as well, so we will be 

appreciative if you all could keep your responses as terse and as 

brief as possible. 

I will start with you, Mr. Rhodes. Do you believe that the patent 

assertion entities, PAEs, or those that accumulate large numbers 

of patents for purely offensive purposes should be subject to antitrust scrutiny? 

Mr. RHODES. Thank you for the question, Chairman Coble. I 

think that it is difficult to generalize the business models for patent monetization. I think there are a lot of different approaches to 

the market by a lot of different entities. I don’t think that the business model of acquiring patents to exploit them, whether it be by 

licensing with litigation or in conjunction with litigation, because 

sometimes litigation is needed to reach licensing agreements, ought 

to receive any special antitrust scrutiny. I don’t think that is in the 

nature of the patent rights that have been granted. I don’t think 

it automatically should confer special scrutiny. 

Mr. COBLE. Thank you, sir. 

Ms. Chien? 

Ms. CHIEN. Thank you for the question. I believe that scrutiny 

is appropriate. I don’t know if the antitrust actions are the right 

ones to regulate PAEs. I am not an antitrust expert, but I think 

that exposing and understanding the business model more fully is 

something that is within the antitrust authorities, and I commend 

the FTC for considering instituting a 6B investigation. We just 

don’t know enough about these entities. They have different names. 

They have different organizations. We don’t know enough about 

who is behind certain suits, and these types of practices can be exposed through scrutiny. 

Mr. COBLE. Mr. Dudas? 

Mr. DUDAS. All industries should be subject to antitrust scrutiny 

as long as it is based on conduct and they are doing something 

wrong. As a licensing company, some of the revenues that have 

come out of patent licensing have led to 700 patents in research 

and development for a new product that might start a new industry. That is not anticompetitive. But even some of the companies 

that engage in certain licensing agreements with each other to 

keep people out, anything that looks like it is really violating antitrust laws should be scrutinized. But I don’t think a particular industry, licensing or any other, should be subject because of what 

it is to antitrust laws. 

Mr. COBLE. Thank you, sir. 

Mr. Binns? 

Mr. BINNS. Yes. I am not an antitrust expert, but I would think 

that, as Mr. Dudas has said, that there should not be any entity 

that is exempt from antitrust laws. If they are conducting actions 

that are in violation of antitrust laws, they should be susceptible 

to those, and that could be a possible course of conduct against 

them. 

Mr. COBLE. Thank you, sir. 

Ms. Okun? 
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Ms. OKUN. I am not an antitrust expert, so I would prefer not 

to answer the question. 

Mr. COBLE. All right. 

Mr. Foster? 

Mr. FOSTER. I could say exactly the same thing, but I will at 

least comment that I echo the comments of Mr. Dudas, that there 

is no exemption from the antitrust law, but I don’t think that categorizing somebody as an NPE means that they should be subject 

to any particular scrutiny other than based on their particular conduct and the conduct of that group. 

Mr. COBLE. Thank you, sir. 

This is for all witnesses again. I think we all understand the 

value of having a strong patent system, but do we see operational 

inefficiencies in the current patent litigation system where the cost 

to defend far outweighs the cost to accuse? How can we better improve our patent litigation system to get it on a par with a newly 

modernized post-AIA patent system? 

Mr. RHODES. Thank you for the question, Chairman Coble. I suggested three possible areas of exploration in my testimony. One is 

to encourage more fee shifting against non-meritorious behavior in 

patent cases; two, to look at ways to impose more discovery, rationality, proportionality, and cost shifting in appropriate circumstances; and three, to provide for a codification of the right to 

stay downstream cases against customers or end-users in favor of 

the manufacturer or primary supplier of the product having the 

battle with the patent owner in the first instance. 

In addition to that, I would add that there are a few follow-up 

actions from the AIA that I think would be appropriate. One is to 

fix the estoppel provision that could have raised from post-grant review, to lessen that to what it was intended to be without the 

could-have-raised estoppel. 

Mr. COBLE. Thank you, sir. 

Ms. CHIEN. I agree with Mr. Rhodes. One other point I would 

like to make is that I think that the interface between the PTO 

and the district court should be carefully monitored. As I mentioned before, these overlaps between the different entities in the 

patent system need to be looked at, but in particular with respect 

to staying cases, the district court judges that I talked to want to 

give their litigants relief, and so they are reluctant sometimes to 

stay cases. But it doesn’t make sense to have the PTO going on one 

course that could potentially invalidate a patent and still have parties spend millions of dollars on discovery. So I urge that there be 

a closer look at that interface. 

Mr. COBLE. Thank you. 

Mr. Dudas? 

Mr. DUDAS. I would just make one point, that companies that are 

excellent portfolio management companies, they are not litigation 

companies, they are licensing companies, and I am not sure that 

their litigation costs aren’t as high as defendants, because they are 

there to really license. I think the big problem is those companies— 

and there are many of them out there that are abusing the situation—if they are there for the cost of litigation, I think that is what 

we are talking about. If they are frivolous suits to begin with and 

they want to settle out on costs of litigation, then yes, we really do 
114 

need to identify that, and I agree with some of the statements 

made by other witnesses. Well, I would say my own, which is that 

attorneys’ fees, rule 11, more transparency in the system, there are 

ways to address that so that we can root out the frivolous bad actors. 

Mr. COBLE. Thank you, sir. 

Mr. BINNS. Thank you. The costs are very asymmetrical between 

a patent assertion entity and an operating company that gets sued, 

whether it be in Federal court or the ITC. A licensing entity typically doesn’t have very many employees. It doesn’t have a terribly 

large number of documents. It usually has all the documents prepared on a CD before they even start the suit, and the defendant 

has to usually spend a tremendous amount of time not just on lawyers but on internal resources, devoting people that should be 

doing R&D and other functions at the company full-time on discovery efforts. These cost differences are a big problem, and I think 

that the judges need to act as better gatekeepers on discovery. 

There should be more sanctions offered when things are disproportionate or when plaintiff is being just abusive with the discovery 

to try to force a party into settlement. 

Mr. COBLE. Thank you, sir. 

Ms. OKUN. Yes. I think it is very important for the ITC to continue to address lowering the cost to all litigants, and I think the 

rulemaking that was begun and is continuing where companies, 

such as the ones you are hearing from today, can comment but 

they have limited interrogatories at the Commission now, limited 

depositions, and then the other administrative action I mentioned 

earlier of holding a 100-day hearing on a threshold issue of domestic industry can reduce costs to respondents as well. So I encourage 

the Commission to continue that and to look, I would say, on the 

sanctions side where there is frivolous or abusive litigation, to use 

that as a tool as well. Thank you. 

Mr. COBLE. Thank you, Ms. Okun. 

Mr. Foster? 

Mr. FOSTER. I would just echo the comments of former Chairman 

Okun and indicate that I think the Commission and its judges are 

making increased efforts to try to control costs and try to penalize 

dilatory and inappropriate behavior, and motions for sanctions are 

on the increase, and the Commission and judges are not shy about 

imposing fees for abusive discovery, for example. I think that is 

likely to continue and hopefully will help to control some of the 

costs. 

Mr. COBLE. Thank you, sir. I see my red light has illuminated, 

so I will recognize the gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. Ms. DelBene, one of our 

new Members, has made me aware of an irreconcilable conflict she 

has, so I am going to yield my time to her and go all the way at 

the end of everybody else. 

Ms. DELBENE. I would like to thank the Ranking Member for 

giving me the time, and thank you all for being here and for your 

testimony. 

Ms. Okun referenced the fact sheet that the ITC just put out, 

and in it it talks about the number of cases from non-practicing entities, and in particular talks about entities that do not manufac-
115 

ture products that practice the asserted patents and whose business model primarily focuses on purchasing and asserting patents. 

In this data, 9 percent of the cases are of those types of non-practicing entities, and I think, Professor Chien, you said maybe 35 

percent of the cases were from non-practicing entities. I just wondered how you calculated your data and whether you agree or 

think of it differently. 

Ms. CHIEN. I haven’t seen this data sheet, but I know of their 

methodology from before, and they separate patent assertion entities into two types, or two types of NPEs. The data you cited also 

is over the 2006 to 2013 period, and what I cited was 30 percent 

from the last year alone. So I wouldn’t expect there to be very 

many cases in earlier years, but now as patent assertion entities 

have become prevalent in district court litigation, just in that way 

they are also coming to the ITC. 

Ms. DELBENE. And, Ms. Okun, I just wanted to ask for your response on that because I am trying to get an idea of what the numbers actually are. 

Ms. OKUN. Sure. So, Ms. Chien is correct in terms of the fact 

sheet references the period post-eBay since there was a lot of discussion of was there a flood after eBay was decided, and I think 

these numbers would show no. In an individual year, if you look 

at—2011 was a high point in cases filed at the ITC altogether, so 

all cases went up. In 2012, the caseload at the ITC went down by 

30 percent. The number of NPEs, total NPEs, remained about the 

same. So the percentage is higher in 2012 than in 2011, but the 

overall caseload is down, and down again. 

Ms. DELBENE. And so you think that trend is consistent even 

though that 1 year is slightly different? 

Ms. OKUN. I think over time looking at this, it is just not a large 

portion of the caseload given that most of the other cases that are 

brought are more traditional. 

Again, it is there, and I think that is the reason you have seen 

the Commission, both through its decision-making on the cases 

that have come before it and in these administrative actions, look 

for even these few cases that have been filed as ways to say are 

they meeting the domestic industry requirement as a threshold 

issue. They have to show substantial ties. Litigation expenses alone 

are not enough, according to the ITC. The ITC in its case law has 

said it looks to productive versus revenue-driven licensing even 

though all of it is looked at. But it is very case specific. If you read 

the cases that have dealt with PAEs and NPEs, I think that has 

been a very fact-specific inquiry to make sure that the ITC is administering the statute consistent with what Congress intended 

when it was amended in 1988. 

Ms. DELBENE. Thank you. 

Professor Chien, you look like you had something else to say. 

Ms. CHIEN. Right. No, I agree with the remarks of Chairman 

Okun, especially that the ITC is paying more attention to domestic 

industry. 

One thing in terms of just statistics to be aware of, though, is 

that not only the number and share of cases is important, but also 

the number of defendants and the share of respondents. So because 

the ITC does not apply the rules that were enacted as part of the 
116 

AIA, you can still name a lot of defendants there. So the number 

of defendants, when you count by that, we counted that to be about 

50 percent of defendants in 2012. 

At the same time, I do want to acknowledge that the ITC is 

evolving its domestic industry case law, and I think this 100-day 

case management that was just proposed is a great development. 

I think it also provides an example for the rest of the court system. 

Earlier the question was asked how do we reduce waste and duplication in the system. One way is to have early disposition of dispositive motions heard, whether it be about standing or about 

whether or not the patent is subject-matter eligible. For example, 

if Apple can say, well, we actually have exhaustion doctrine that 

would cover all the people here, why should we go on with the case. 

So those types of things in terms of spacing out and ordering the 

cases properly can result in great efficiencies. 

Ms. DELBENE. Thank you. And again, I would like to thank the 

Ranking Member, and I yield back my time. 

Mr. COBLE. I thank the gentle lady. 

The gentleman from Pennsylvania, Mr. Marino. 

Mr. MARINO. Thank you, Chairman, and welcome, members of 

the panel. 

Mr. Foster, I want to start with you, if you would, please. Should 

Congress try to define PAEs in order to limit their activity, or instead try to define abusive behavior and limit that? 

Mr. FOSTER. Well, I am not certain that Congress needs to do either. I think at least in terms of what the Commission is doing, the 

Commission has its statute, has its requirement for domestic industry, and the law permits a licensing industry. And whether it 

is a PAE that is just an aggregator and has nothing but patents, 

or whether it is an NPE that has production of one type but has 

additional patents that it is trying to monetize, the Commission 

looks at the statute and makes a determination of whether there 

is an industry. It really doesn’t look, so to speak, and try to define 

the complainant as either an NPE or not. It simply says whoever 

you are, what are your assertions as to what your domestic industry is, and then it applies its regulations, its rules, the statute to 

that and makes a determination as to whether or not there is a licensing industry. 

So from that perspective, what the Commission is doing is really 

not just sort of focusing on NPEs and saying we are going to address the NPE issue. They are simply saying if you come here, you 

have to have a recognizable industry as required by the statute. If 

you don’t, you won’t get relief. 

Mr. MARINO. Ms. Okun, please. 

Ms. OKUN. Yes. If I could just add that I really think the focus 

on abusive behavior is the correct one, particularly for the Commission or the court, because that is something that helps all litigants. 

Again, I don’t think it is based on who the litigant is. There can 

be abusive behavior whether you are a PAE or a regular litigant. 

But the Commission should care about that, and reducing the cost 

of litigation, and finding ways to help its judges do these things 

more expeditiously. I think it is good for the system. So I think 

that is where the focus properly should be. 

Mr. MARINO. Professor, you look like you want to say something. 
117 

Ms. CHIEN. Well, I think a lot of comments here have been about 

focusing on the behavior and not the entity, and I do endorse those 

sentiments. But I think that they are linked together, because a lot 

of the asymmetries and advantages from PAEs flow from the business model, which is if you don’t have customers, they don’t make 

anything, they are not in the market. Normal companies don’t sue 

their customers, but PAEs don’t have customers, so they can’t sue 

end-users, and they do so. Normal companies have a reputation to 

defend. They don’t start fights unless they really believe it is important for the competition. PAEs don’t have to worry about their 

reputation. They are not in the marketplace. They don’t have to 

worry about people thinking that they are engaging in litigation 

just for the sake of the litigation. That is their business. They don’t 

have to worry about the threat of retaliation in terms of a countersuit, or about production of documents. 

So the business model itself is set up in a particular way, and 

it is very compelling. It is not something that I think—I am not 

saying that the people that are working in it are bad actors. There 

are legitimate investors and different entities that are investing in 

PAE activities. Even large companies sometimes are partnering 

with them. So it is the business model itself which can lead to 

abuses. 

Mr. MARINO. So with that thought in mind, what would you do 

concerning the PAEs and the entities that do not produce? 

Ms. CHIEN. Well, I would look carefully at their behavior, but I 

would really focus on these things that they do that normal companies don’t and just be aware that some of these asymmetries, for 

example, which could be fixed by fee shifting, for example, are related again to this model. So I think, again, looking at the behavior, but also the model and just being aware, and understanding 

the model very deeply is what will lead to narrowly tailored interventions that will actually work. 

Mr. MARINO. Mr. Dudas, would you please, if you want to respond to that, but I also want an explanation from you as to what 

is the intent, why do we need PAEs. 

Mr. DUDAS. So responding to that, I would just say that MOSAID 

is a company that does want everyone to know about their licensing, about their technology, about how they have 1,450 patents. So 

they do care about that. I think there are some points that are correct about how the model works, but that is one of the things I 

think can be a difference. 

How can we address that? More transparency. For those who 

don’t want anyone to know who owns the patents, whether it is in 

litigation or whether it is before the Patent and Trademark Office, 

let’s make sure they do know. Addressing abusive practices in litigation itself, again, a ‘‘loser pays’’ model that applies to everybody 

is something to really consider. 

And, I’m sorry, your next question was about why do we need 

them at all? 

Mr. MARINO. Yes. 

Mr. DUDAS. I think because we are becoming a much more 

knowledge-based economy, the idea that actually owning the ideas 

is something that we celebrate in every Nation, the idea that we 

transfer to a knowledge-based economy. There is more efficiency. 
118 

The reason there are companies that come to MOSAID—MOSAID 

started out as a company that had a lot of research and development and found out that their patents were being infringed. They 

developed a licensing model because they had to. Otherwise, they 

weren’t getting paid for any of their R&D. They developed an expertise in that. Some companies don’t have as deep of an expertise. 

If a company can license its IP really well in-house, that is fantastic. But a number of companies have come to MOSAID to say 

you can do a better job of developing this technology. 

And another that was just raised as well, it doesn’t subject itself 

to traditional cross-licensing type of thing, where I won’t sue you 

if you don’t sue me. 

Mr. MARINO. Thank you. I see my time has expired. I yield back. 

Mr. COBLE. I thank the gentleman. 

The Chair recognizes the gentleman from Michigan, Mr. Conyers. 

Mr. CONYERS. Thank you, Chairman Coble. 

I am wondering what the thought is about the SHIELD Act. I 

am wondering whether the statute is disproportionately applied by 

NPEs and PAEs. And finally, I am wondering if ITC should not 

have jurisdiction if the infringer is not subject to the Federal 

court’s jurisdiction. What do you think? 

Mr. RHODES. Thank you for the question, Representative Conyers. First of all, I think that the SHIELD Act is a flawed approach 

to litigation abuse reform. I think it suffers from the flaw that we 

just discussed, and that is it targets the actor and not the bad action. It is not truly a fee shifting. It is just a ‘‘loser pays’’ for certain 

types of patent owners who are penalized, as compared to other 

litigants who might be engaging in exactly the same behavior and 

not be challenged. 

I have put in my written statement and I have said this afternoon that I do believe a relaxation of ‘‘loser pays,’’ or I should say 

to have more ‘‘loser pays’’ is an appropriate approach to remedy 

some of the abuse, but only if it is applied equally and targeted at 

behavior and not litigants. 

As to your second question about ITC jurisdiction if there is also 

Federal court jurisdiction, for us I think it is important to point out 

that these are complementary procedures and they really do work 

in conjunction with each other. If we have a situation which we 

have had many times in the past where there is infringing importation that we want to remedy, we are willing to go to the ITC. We 

are not looking for every remedy. We are not looking for damages. 

But we can get a fast, very efficiently run proceeding with knowledgeable ALJs and well-defined procedures to see if we can stop 

that importation from occurring, and we have done that on everything from canary yellow Post-it notes to lithium ion batteries in 

the past, and it has been very effective, and I think it is an essential tool when a U.S. patent-holder wants to prevent infringing imports. It is not designed for everything. It is not commensurate 

with the district court, but it is complementary in my view. 

Mr. CONYERS. What do you think, former chairman, about the 

statute being disproportionately applied to NPEs and PAEs? 

Ms. OKUN. Thank you for the question. I think the statistics that 

I mentioned earlier and most recently in the official statistics released by the Commission indicate that it is not disproportionately 
119 

being used by NPEs, that they are a small portion. Yes, the caseload has grown generally at the ITC. 

On that point, I would note that if you look at our trade balance, 

what you find at the ITC is if you have a lot of imports coming in, 

you have more infringing imports, and so we think we have seen 

growth in the caseload because of that. But I don’t think it is disproportionate, and it is not only not disproportionate in terms of 

their filings, they certainly are not succeeding at the ITC. Out of 

50 orders that the ITC has issued, only four were for NPEs, and 

those NPEs were—either the NPE or their affiliate developed the 

technology. So it is not even in this other category of a PAE. 

So I think the statistics don’t support that it is disproportionate. 

I don’t think the results support that. Therefore, I think that the 

Commission, through applying the statute—and for those of you 

who have had a chance to read the Commission’s decisions on licensing, again, it is a high threshold. You have to show ties to the 

domestic industry. It is substantial, and most NPEs don’t make it, 

only one since 2011. 

So all those things I think support that it is not disproportionate. 

Thank you. 

Mr. CONYERS. Should the patent disputes be limited to infringers 

not in the Federal court jurisdiction? 

Ms. OKUN. Sorry, I forgot the second part of your question about 

the jurisdiction. I think Mr. Rhodes is an example of explaining 

why there is a trade statute designed to stop infringing imports. It 

is an unfair competition statute. It is not a patent statute. Yes, a 

lot of patent holders use it, but they use it to stop infringing imports. So at its base, it is a trade statute and was set up by Congress to be in addition to other provisions. 

So, yes, you can bring a case, but I think, as Mr. Rhodes pointed 

out, and what I saw when I was at the Commission, is where you 

have technology that needs to come to market and you have infringing imports, your ability to stop that allows you to get your 

product to market. If you are forced to stay the ITC, as some have 

suggested, and go through the district court first, with all due respect to district courts, they have a lot on their plate. They don’t 

get to these things quickly. It is not an expeditious forum, and the 

IPR holder whose rights are being infringed sits there. Yes, he 

might get damages at the end, but he may not succeed in the market if the infringing imports are allowed to go through during that 

time period. Thanks. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Mr. COBLE. Thank you, Mr. Conyers. 

The Chair recognizes the Chairman of the full Committee, who 

has now arrived, Chairman Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. I appreciate you 

holding this hearing, and I wish I had been here earlier to read my 

great statement into the record, but instead I will just ask unanimous consent that it be put in the record so I can ask some questions of these great witnesses. 

Mr. COBLE. Without objection. 

[The prepared statement of Mr. Goodlatte follows:] 
120 

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Chairman, Committee on the Judiciary 

U.S. House Judiciary Committee Chairman Bob Goodlatte Subcommittee on 

Courts, Intellectual Property and the Internet Hearing on: ‘‘Abusive Patent Litigation: The Issues Impacting American Competitiveness and Job Creation at the 

International Trade Commission and Beyond’’ Statement Submitted for the Record 

During the last Congress we passed the America Invents Act (AIA). That bill was 

the most significant reform to the patent system in my lifetime. The AIA modernizes our patent system and sets it on the right path for decades to come. 

The AIA included a number of provisions that went directly to addressing the 

issues surrounding patent quality. The PTO has new programs in place to ensure 

higher quality patents that can stand up to review, setting the bar higher so that 

quality control starts on the front end rather than relying on the federal courts system to fix problems. 

The U.S. patent system is designed to be fair, meeting our international obligations and not discriminating against any field of technology. The strength of the 

U.S. system relies on the granting of strong patents, ones that are truly novel and 

non-obvious inventions, those that are true innovations and not the product of legal 

gamesmanship. 

While the AIA paved the way for higher quality patents on the front end, there 

were a few issues that were left on the cutting room floor during the last Congress 

that could help go more directly to the immediate issues surrounding patent assertion entities (PAEs) or patent trolls. 

Abusive patent litigation is a drag on our economy. Everyone from independent 

inventors, to start-ups, to mid and large sized businesses face this constant threat. 

Many of these lawsuits are filed against small and medium-sized businesses, targeting a settlement just under what it would cost for litigation, knowing that these 

businesses will want to avoid costly litigation and probably pay up. And it is this 

type of tactic that has now made the International Trade Commission (ITC) an attractive venue for patent cases. 

The ITC has at its disposal the ability to issue exclusion orders that block the 

importation of ‘‘infringing’’ products into the United States. Since the ITC is a federal agency and not an Article III court, it makes sense that it is limited to this 

single remedy. 

In recent years, however, PAEs have used the Commission as a forum to assert 

weak or poorly-issued patents against American businesses. 

It is evident that there are cases that have come before the ITC that probably 

should be litigated exclusively in our U.S. District Courts. Nowhere is the disharmony between patent law and Article III court precedent more on display than the 

application of exclusion orders in technology cases at the ITC. 

For example, Congress established an important counter-balance to the blunt 

sanction of the exclusion order in the public-interest test provided under Section 

337. The statute requires the ITC to consider public health and welfare, and the 

impact of an exclusion order on competition in the marketplace before issuing an 

exclusion order; yet the ITC rarely exercises its responsibility to apply the publicinterest test. This failure to follow the law has particularly damaging results in today’s technology markets in which products are often reliant on hundreds or thousands of patents. The ITC has the ability to take certain immediate steps within 

its statutory authority to correct these problems. 

Three key adjustments that the ITC should consider undertaking include: A return to a pre-2010 domestic-industry standard that does not allow legal expenses, 

airplane flights, and the like to satisfy the domestic-industry requirement. 

Second, application of the public-interest test and economic-interest test at the beginning of a Section 337 review for purposes of determining claims consideration as 

well as the issuance of exclusion orders. 

And third, based on the public-interest and economic-interest test analysis, articulation of standards that clarify which patent disputes should be adjudicated by the 

ITC and those which are more properly addressed by U.S. district courts. 
121 

The patent system was never intended to be a playground for trial lawyers and 

frivolous claims. We need to work on reforms to discourage frivolous patent litigation and keep U.S. patent laws up to date. Abraham Lincoln once said that ‘‘the 

patent system added the fuel of interest to the fire of genius.’’ Well I for one would 

not want to see the spark of innovation and job creation go out because of a few 

folks who are adding water to the proverbial gas tank. 

Abusive patent troll litigation strikes at the very heart of American innovation 

and jobs. That is why Congress, the Federal Courts and the PTO should continue 

to take the necessary steps to ensure that the patent system continues to be one 

that lives up to the vision of our Founders, truly promoting the progress of science 

and the useful arts. 

I look forward to hearing from all of our witnesses on the issue of abusive patent 

litigation and potential solutions to this growing problem, in order to ensure that 

we continue to promote American ingenuity, innovation and jobs. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

First, I will direct a question to several of you. I’ll start with you, 

Mr. Rhodes. 

When it comes to the patent system, especially patent ownership, 

do you believe that it is appropriate for entities to assert a patent 

far beyond the value of its contribution to the art? Are there or 

should there be limits to asserting patents in litigation? 

Mr. RHODES. Well, thank you for the question. That is a very difficult question, of course. Certainly, we all would hope that patents 

would be asserted commensurate with their contribution to the art, 

but those are the disputes of which Federal court litigation is 

made, what is their contribution. I think it is a problem that has 

existed but one that the courts are looking at and working on, primarily in the area of the development of damages jurisprudence. 

So if you look at some of the decisions that have come out of the 

Federal circuit, in the Lucent case for example, that really dealt 

with the entire market value rule and how components of a larger 

product should be valued for purposes of infringement determinations and damages, the Uniloc case which talked about the rules 

of thumb that the Federal circuit threw out, I think that issue is 

being addressed, and I think we all have the same goal—to try to 

measure what the contribution is—and we are working in that direction. 

Mr. GOODLATTE. Professor Chien? 

Ms. CHIEN. Damages and settlements should be driven I think 

precisely as you say, by the economic value of that patent and its 

contribution to that product. Right now, however, what is happening instead is that the cost of litigation avoidance is a big factor, as well as what a jury might be persuaded to value the patent 

as. 

I actually endorse in my testimony doing a study that can help 

us bring damages calculations down to earth and actually inject a 

real-life ex-ante negotiation for what is this patent actually contributing to this product in its decision, when I am making a product 

and I am deciding between alternative technologies, what is the 

value of this technology over another technology. Those types of 

analyses should be done. We should understand what is happening 

in the real world for the evaluation of patents. 
122 

Mr. GOODLATTE. Let me ask another question since you are all 

giving good answers, but they are long and I have a couple of other 

questions. 

Let me ask Mr. Dudas, do ITC patent investigations complement 

or conflict with patent litigation in the U.S. District Court? Should 

the ITC’s jurisdiction over patent cases be limited to disputes in 

which the accused infringer is not subject to the court’s jurisdiction? I think the Ranking Member just asked something similar to 

that. I don’t think you had an opportunity to answer. 

Mr. DUDAS. I still look at them as two different remedies. A way 

over-simplification of this is if someone stole your car, I wouldn’t 

want the police officer to tell me, well, just sue them in court. You 

want to make sure that person doesn’t get your car. 

Mr. GOODLATTE. True, but you wouldn’t sue them in two different courts. 

Mr. DUDAS. Right. But I guess my point is that I think, again, 

as long as it is applied equally and there is fairness to it. When 

I was at the Patent and Trademark Office, one thing I was concerned about when we did reexaminations is if there was something parallel in court while we are doing something there. I know 

there are different standards, there are different notes, but we 

tried to talk about that in this Committee as well. 

I guess what I am getting at is, on intellectual property, if you 

have someone importing goods and they are infringing your property, you want that to stop. That is a completely separate remedy. 

You don’t want anybody selling anything that is your intellectual 

property. Separately from that, you want damages to collect. 

Mr. GOODLATTE. Mr. Binns? 

Mr. BINNS. Thank you. This brings me back to my key point, 

which is that there are parties that go into the ITC that don’t want 

an exclusion order. An exclusion order would actually hurt their 

business because they don’t participate in the market. They are not 

selling products. They don’t have anything to protect. All they want 

is money. Almost I would say 100 percent of the time, when a true 

patent assertion entity files an ITC action, they are filing a district 

court action at the same time. They should be just in the district 

court. 

Mr. GOODLATTE. Thank you. 

Ms. Chien, let me ask you this. Do you believe that there is a 

perception that the ITC provides a friendly forum for those engaging in patent troll type behavior? Is there more that the ITC could 

do to prevent abuse? 

Ms. CHIEN. I think the ITC is evolving its case law, and I don’t 

think that there is greater activity at the ITC than district court 

with respect to patent assertion entities. 

Mr. GOODLATTE. And what are some of the ways that Congress 

can ensure that patent rights are able to be enforced while discouraging abusive entities from shaking down? We know there are 

some bills out there, but what would be some of the things that you 

would favor the most? What could we do that would be the most 

productive? 

Ms. CHIEN. I personally recommend in my testimony that the 

overlap and the duplication in the system be reduced, because that 

is what invites abuse, forum shopping, and—— 
123 

Mr. GOODLATTE. So what Mr. Binns just said. 

Ms. CHIEN. Yes. 

Mr. GOODLATTE. Mr. Dudas, what would you do? 

Mr. DUDAS. I would focus on transparency and who owns the 

patents, and I would also focus on what I think is litigation abuse. 

So I think the idea, from a personal standpoint—— 

Mr. GOODLATTE. So let me ask you about the litigation abuse, because there is litigation abuse, but the Federal courts have been 

loath to impose Rule 11 sanctions. Some of the legislation that has 

been proposed would add new statutory provisions like ‘‘loser pays’’ 

on parties that abuse the process. You may or may not be abusing 

the process with ‘‘loser pays.’’ But what kind of litigation sanctions 

would you suggest that we can count on being enforced, as opposed 

to just being on the books? 

Mr. DUDAS. When I was the counsel on the Subcommittee for 

Courts and Intellectual Property, we looked at expanding Rule 11 

and we looked at ‘‘loser pays’’ rules, abusive practices and fines, 

and I even think of the amendment when it was in a different context. If the Department of Justice pursued you frivolously, vexatiously or in bad faith, there is the opportunity to recover fees. I 

think there are a number of models out there that would get at 

that. 

Mr. GOODLATTE. Very good. 

Thank you, Mr. Chairman. 

Mr. COBLE. Thank you, Mr. Chairman. 

The gentlelady from California, Ms. Chu. 

Ms. CHU. Thank you, Mr. Chair. 

Mr. Binns, I would like to get your view as to why the patent 

assertion entities are filing in the ITC. In your testimony you state 

that they are looking for money. Then why are the patent assertion 

entities using the ITC to adjudicate patent infringement cases if 

the ITC can’t award damages? Why would they want an exclusion 

order from the ITC? 

Mr. BINNS. That is a good question. They actually don’t want an 

exclusion order, but they use it as a hammer to drive up settlements that they couldn’t get otherwise in Federal court. My experience is that no company, an operating company that is selling a 

significant amount of product in the United States, would ever 

want to risk having those products excluded. I think as the injunctions have been taken away from patent assertion entities in the 

district court, they now have moved over to the ITC because there 

is only one remedy, the exclusion order, and they wave that over 

your head, demanding large settlement amounts. 

Typically, we have patents that cover just a very small—every 

patent assertion entity case I have had has covered a miniscule 

component of an overall system, and they want damages on the 

overall system. They can’t get that, as Mr. Rhodes pointed out, 

under the current case law in the Federal circuit. They go into ITC 

and they try to get an exclusion order on the entire system. These 

cases almost always settle, which is one reason why I disagree with 

Ms. Okun, because she talks about success. 

I think that a patent assertion entity succeeds by getting a settlement in the ITC. They don’t succeed by getting an exclusion 

order. They succeed by getting settlements. If you only measure 
124 

patent assertion entities by getting an ITC all the way through to 

completion, you are measuring the wrong thing. 

Ms. OKUN. May I have an opportunity to respond to that, Ms. 

Chu? 

Ms. CHU. Yes, please. 

Ms. OKUN. In terms of settlement rates, the ITC fact sheet that 

was referenced today goes through the settlement rates, and it 

shows that for Category 2, most like PAE, the settlement rate is 

not much different for all settlements at the ITC. So again, about 

50 percent settle, and the numbers are somewhat consistent. 

From Mr. Binns’ perspective about what you should measure, 

that raises a point, and that is why I highlighted one of the recent 

Commission actions of ordering a 100-day hearing, because I think 

if there is a questionable PAE who has to come to the Commission 

and prove the domestic industry within 100 days and their case 

goes away if they can’t do it, and their ownership is not enough, 

litigation expenses are not enough—the test is tough—that has to 

reduce the ability to force a large settlement. 

Now, I think it also helps if they are not successful at the ITC. 

So I think all these things—and then finally, just to go back briefly, you also need to lower the cost, because if it is so expensive for 

these companies that they are forced to settle, then the Commission should be looking for additional ways to lower the costs, reduce depositions, reduce discovery. Thank you. 

Ms. CHU. And, Mr. Binns, how do you respond to that? 

Mr. BINNS. No, I think the ITC is taking some steps in the right 

direction. I think having an early hearing—I think 100 days is 

probably longer than you need to do. District courts are able to do 

preliminary injunctions in much shorter amounts of time, typically. 

During that 100 days, you are still under the full burden of ITC 

discovery, as I understand. 

Once a case has been initiated, the damage is already done because you are going to be spending millions of dollars. You are paying your attorneys $750,000 an hour for that 100 days, and all the 

internal resources that go to bear. I mean, it is a step in the right 

direction. I don’t think it is enough, but it is a step in the right 

direction. 

Ms. CHU. Professor Chien, your testimony stated that the ITC 

was originally created as a solution to the problem of forum piracy, 

and yet these patent cases are growing as a proportion of the overall caseload. And what about the ITC’s ability to investigate effectively if this problem persists? What impact does this have on the 

agency’s ability to investigate overseas competition, and should we 

be worried that the ITC may not be able to pursue other intellectual property violators? 

Ms. CHIEN. I think that is a great question. I think it looks into 

the future a bit because—and actually related to the 100-day idea 

that has been mentioned before. The judge in that case said I am 

going to have to put off my other cases so I can concentrate on this 

issue. 

So, as we see more cases of piracy come in or we think about 

using the ITC for other reasons, as has been contemplated by the 

OPEN bill, for example, I think we do need to think about what 

is the ITC really good at. They are good at exclusion orders. If they 
125 

are not giving those in most cases, those cases probably shouldn’t 

be there. 

Ms. CHU. Thank you. I yield back. 

Mr. COBLE. I thank the gentlelady. 

The gentleman from Texas, Mr. Poe, is recognized. 

Mr. POE. Thank you, Mr. Chairman. 

Thank you all for being here. I admire the study of patents that 

you have all done. Being a prosecutor and a judge, spending time 

at the criminal courthouse for 30 years, it is a lot easier to understand bank robberies, stealing, pillaging, and auto theft than it is 

patent law. So, God bless you for your work there, and all those 

judges and lawyers that work in that area. It is highly important, 

but it is complicated. 

As a general rule—I want everybody to answer this—as a general rule, are you in favor of the concept of ‘‘loser pays?’’ 

Mr. Rhodes, I will start with you. Just yes or no. 

Mr. RHODES. Yes. 

Mr. POE. Professor? 

Ms. CHIEN. I think the devil is in the details. 

Mr. POE. Okay. 

Mr. DUDAS. Yes, as long as it is applied on both sides. 

Mr. BINNS. Yes. 

Ms. OKUN. Yes, as it is applied. 

Mr. FOSTER. I am afraid that is beyond my brief and I will have 

to decline. 

Mr. POE. Okay. So we have five yeas and an abstention. 

Mr. Dudas, you mentioned in your testimony, you gave four solutions that may be helpful. If Congress gets involved, we don’t want 

to make things worse. Sometimes that actually does happen when 

we pass laws. We make it worse. You mentioned your respect for 

the Federal judiciary and judicial discretion. Of course, judges love 

the word ‘‘discretion.’’ I am a former judge. I love that word. Do you 

think really, though, judicial discretion would help in the area of 

figuring out bogus cases, legitimate cases, the troll problem? Do 

you think that that would help, and if so, how? Explain to me what 

judicial discretion you are talking about. 

Mr. DUDAS. Personally, I am a fan of it, the reason being that 

if a judge has had the case, the judge has the opportunity to see 

the case and a judge can see certain behavior that is problematic, 

I would like the judge to have the discretion to fashion a remedy 

that works. 

I will use a context that is well outside of patent law that I mentioned earlier to Chairman Goodlatte. I had the pleasure to work 

with Congressman Hyde on an amendment that said if the Department of Justice pursues you frivolously, vexatiously and in bad 

faith, you are exonerated on all claims, you at least have the opportunity to seek attorney’s fees from the Department of Justice, and 

that relied entirely on the judge. It was more efficient because the 

same judge could look at it. The judge knows what the conduct was 

in the case. 

So I don’t mean carte blanche judicial discretion but the opportunity to say I have seen what this is, and I think attorney’s fees 

as a possible remedy, or the possibility to sanction plaintiff or defendant. 
126 

Mr. POE. Attorney fees, sanctions, either side a sanction? 

Mr. DUDAS. Yes. 

Mr. POE. Okay. Does anybody else want to weigh in on that? Professor, I can see you want to. 

Ms. CHIEN. I think we want to give judges as much help as we 

can. These are very complicated cases, and they have a lot more 

on their docket as well. So where it is possible to help them understand what the dynamics might be, I think that is helpful, either 

through transparency or other fee shifting where we have certain 

behaviors that are identified. We just want to make it as easy for 

the judiciary to do its job as we can. 

Mr. POE. Mr. Rhodes? 

Mr. RHODES. Yes, just to echo a couple of points. I think the fee 

shifting proposal has merit if it is applied equally and is really targeted toward abusive behavior. I think beyond attorney’s fee shifting, the cost of discovery shifting beyond a core set of discovery is 

a concept that has some merit. I know it is somewhat of a challenge for Congress to get in the middle of how discovery is managed in courts, but in my testimony I recommend maybe some suggestions to the Judicial Conference or through the patent pilot program on ways that discovery cost shifting could level out some of 

the asymmetries that a number of us have talked about this afternoon. 

Mr. POE. All right. Talk about briefly standard essential patents. 

Is the ITC moving to more standard essential patents, about the 

same, less? Where is the ITC moving on that issue of standard essential patents? 

Ms. CHIEN. Actually, I had my research assistant look at that 

number in terms of the number of standard essential patent cases 

that have been filed, and it is growing, and I think that issue highlights one of the design flaws or issues that we need to be concerned about. We have been talking about patent assertion entities 

a lot today and how there is a different standard for injunctions at 

the district court and within the ITC, but standard essential patents is another area potentially where the district courts seem to 

be moving toward not entering injunctions. But if you can go to the 

ITC and get an injunction on your standard essential patent, that 

invites mischief. 

Mr. POE. Last question. Do you think a PAE should have equal 

footing with a traditional patent holder in Federal court or before 

the ITC? I would just like your opinion on that. 

Ms. CHIEN. In Federal court, I think they do have the same footing. They don’t have under eBay the same ability to get an injunction. I think that is appropriate. 

Mr. POE. So you think it is appropriate in the current system 

that it is the way it is now, or in Federal court they should or 

should not have equal footing? 

Ms. CHIEN. I think that the Federal courts right now are treating 

PAEs appropriately. 

Mr. POE. All right. Does anybody else want to comment on that? 

Mr. Binns? 

Mr. BINNS. I think patent assertion entities should have the 

same footing in Federal court as other patent holders. I think there 
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are other reforms that could be done to limit the abuses by patent 

assertion entities in Federal court, though. 

Mr. POE. All right. I am out of time. 

Thank you, Mr. Chairman. I yield back. 

And God bless you again for what you do. Tough, tough assignment. 

Mr. COBLE. Thank you, Mr. Poe. 

The gentleman from New York, Mr. Jeffries. 

Mr. JEFFRIES. Thank you, Mr. Chairman. 

I have the great privilege of representing a congressional district 

entirely within the City of New York, and traditionally New York 

City’s economy has relied on financial services and real estate and 

insurance, and it served the City of New York well over time. One 

of the things, however, that became clear in the aftermath of the 

collapse in 2008, where the collapse of those industries resulted in 

a decrease in significant revenue that New York City and New 

York State had been relying upon, is that we needed to diversify 

our economy, and that has happened, thankfully, to some degree as 

a result of the growing technology and innovation sector and presence in New York City and Silicon Valley growing even into Brooklyn with the Tech Triangle. 

So we are concerned, given the importance and the increased reliance and the significance of technology and innovation, that abuse 

of patent litigation may be having an impact on growth and entrepreneurship and creativity within this sector. 

So I guess my first question, Professor Chien, has there been any 

study that has been done that really quantifies the impact on economic activity that abusive patent litigation in totality has had on 

the industry? 

Ms. CHIEN. Well, with respect to startups, I have done a survey 

of about 300 companies in the fall, and I am now enlarging that 

study to be much larger. But I think the impact on startups was 

very troubling because when you think about what they have to 

face in terms of trying to make their milestones, make their products, they don’t have a lot of resources to deal with it when it 

comes in. So when it comes in, they are tending to be more significant in their impact. It may cause them not to be able to hire, not 

to have to change their product, potentially to actually close the 

business down, and one of your constituents, Brad Burnham, testified at the DOJ FTC hearings in December about how one of his 

companies was basically put out by a troll completely. 

So I think it is a concern of ours to think about not only the 

issues of patent assertion entities in general but the distributional 

equities and how this might be hurting smaller entities more. 

Mr. JEFFRIES. Okay, thank you. 

Now, Mr. Dudas, is there a distinction, as you understand it, between the cost of discovery and litigation in district court and the 

cost of discovery and litigation in the patent space before the ITC? 

Mr. DUDAS. There is, as I understand it. I don’t have a deep expertise or really a lot of expertise on ITC. But, yes, my understanding is it’s dramatically—— 

Mr. JEFFRIES. Can anyone on the panel comment as to that distinction? 
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Mr. BINNS. I can respond firsthand. I have been a defendant in 

many district court cases, as well as in ITC, and the burden from 

the ITC’s perspective is exponentially worse than it is in the district court. 

Mr. JEFFRIES. And is that because the remedy of exclusion is 

viewed as a more drastic or more severe remedy? 

Mr. BINNS. Not for that reason. The reason is because the discovery rules in ITC are so much more draconian. For example, as 

you guys know, in the district court you get served discovery. Typically, you have 30 days to respond. You can often get extensions. 

You are able to formulate and not take up too much of your internal bandwidth to respond to discovery. In ITC, you are served with 

a thousand interrogatories from the day the investigation is initiated, and you have 10 days to respond, and there are really no extensions. It is tremendous. 

Mr. JEFFRIES. Thank you. 

Ms. Okun, in your view, is the domestic industry analysis as it 

has recently been set forth in the case that you articulated in your 

testimony, is that more rigid analysis, can that serve as a significant constraint to preventing or minimizing frivolous litigation in 

a patent space for moving forward before the ITC? 

Ms. OKUN. Yes. It is my view that the application of the statute 

to the different cases that have come before the Commission involving non-practicing entities trying to establish a domestic industry 

through licensing has sent a clear message to a questionable PAE 

that they are not going to meet the domestic industry test of the 

Commission. Mere ownership is not enough. Litigation expenses 

are not enough to prove domestic industry. So I think the case law 

as developed is a very tough test for that. 

Mr. JEFFRIES. Thank you. Now, Mr. Binns made the point that 

if you have burdensome discovery that proceeds simultaneously, 

that reduces the value of this constraint or this analysis being applied, that may ultimately result in the patent assertion entity 

being thrown out of court. Can the ITC stay discovery if circumstances dictate while the domestic industry analysis is proceeding? And if they currently don’t have that ability, is that something that Congress should consider to minimize the cost of litigation while this analysis is proceeding to see if this is a legitimate 

entity with standing? 

Ms. OKUN. A couple of responses. First, just to be clear, the Commission just adopted, I believe it was last week or the week before, 

new rules limiting interrogatories, limiting depositions, so a number of the things that Mr. Binns talked about the Commission has 

recognized and has asked for comments from the parties and had 

final rulemaking. So there will be limits and a clear message from 

the Commission to its ALJs and to the parties that these new rules 

mean that it should reduce the cost and expense. That is one thing. 

With regard to the 100-day hearing—and again, I am not at the 

Commission—and so there may be additional steps they are taking 

or additional comments they want to hear on whether this is a 

workable solution about whether you would stay discovery. So I believe there is the authority to do it. It is just for the domestic industry itself, you would have discovery. I mean, that is how you 

figure out if someone has a domestic industry. That is what the 
129 

judge has to hear. So there is discovery going on. Whether the discovery on the rest of the issues in the case are stayed during that 

100 days is something that I think parties and others should comment to the Commission on at an appropriate time of what makes 

more sense. 

Mr. JEFFRIES. Thank you. 

Mr. COBLE. Thank you, Mr. Jeffries. 

The Chair recognizes the gentlelady from Texas, Ms. Jackson 

Lee. 

Ms. JACKSON LEE. Let me thank the Chairman and Ranking 

Member for the courtesies extended for those of us who had meetings outside this room, and thank the presenters here. 

I want to welcome you back, Mr. Dudas, and for your service as 

well. You have lived both lives with the district court process and 

the ITC. I guess my line of questioning is just going to be on the 

parallel route of the district court, the ITC, and the impact it has 

on either growth and opportunity for businesses or how it provides 

a dilatory process that does not create that pathway. 

In your mind, is the ITC—why don’t I ask a very blunt question. 

Does it perform any role, positive role? And particularly in light of 

the new legislation that has been passed I think since you have 

been in the executive. 

Mr. DUDAS. Yes. So, I would be clear. I am not a deep ITC expert, but I will tell you that I do think it performs role, and I think 

it performs an important role for intellectual property. It has been 

said by some that it is not part of their mission. Because I am not 

a deep expert on ITC, I went to their website. The Commission also 

adjudicates cases involving imports that allegedly infringe intellectual property rights. Second page, the primary remedy is an exclusion order that directs Customs to stop infringing imports. 

I serve on the board of directors of a company that has a licensing portfolio. They have expertise in that. They also have 1,450 

patents pending or issued, including 700 on this. The bottom line 

on that is it does matter. It is a licensing company, but it does matter to them that they don’t want other people infringing their product and selling it throughout the United States. If they have the 

domestic industry and they have met that burden, it is unfair. This 

is their property. They don’t want other people to do it. If it gives 

them an advantage that someone else can’t take their property and 

import it into the United States, then so be it. That is okay, and 

this is me testifying in my personal opinion. It is property. 

So I think it serves an important purpose. Federal courts are 

looking at damages. This is about the property itself. Should you 

allow infringing property to come into the United States? I think 

there is a lot of talk about if it is the right valuing. It makes a lot 

of sense to talk about is it really a domestic industry if people are 

going to cause those kinds of fees and it is not a domestic industry 

for a licensing company. But the idea that you are automatically 

not a domestic industry to me doesn’t make a lot of sense. So I 

think it adds value, yes. 

Ms. JACKSON LEE. I am going to expound on the question and 

ask the rest of you the same question. I will go to Mr. Binns. Is 

there any problem to grow the domestic industry with a definitive 
130 

product that now appears to be under predatory attack and not use 

the ITC? 

Mr. BINNS. If you are making a product and selling a product in 

the U.S. that is clearly a domestic industry, that should entitle you 

to the ITC. 

Ms. JACKSON LEE. And you would define that as what? CocaCola? 

Mr. BINNS. It would be any type of operating company that is 

selling product in the U.S. It would be like my company, Avaya. 

We sell telecommunications products in the United States. 3M sells 

many products here in the United States. 

Ms. JACKSON LEE. So you are not making the argument that the 

technology is unique to the United States? 

Mr. BINNS. No, not unique, but you have to be selling that product in the United States in order to take advantage of the domestic 

industry standard for access to the ITC. 

Ms. JACKSON LEE. No, and I understand that. Do you think that 

is valuable? That is what I am asking. Do you think that is a valuable tool that is necessary? 

Mr. BINNS. I think the ITC does serve a function. I would not say 

that you should get rid of the ITC by any means. The ITC definitely does serve a legitimate function. 

Ms. JACKSON LEE. I am going to go down to Ms. Okun, and I am 

going to keep going down as long as I can. Did I pronounce it right? 

Is it Okun? 

Ms. OKUN. Thank you for the question. 

Ms. JACKSON LEE. Did I get the pronunciation? I never want to 

be on the record incorrectly. 

Ms. OKUN. Okun. 

Ms. JACKSON LEE. Okun. All right. Thank you. 

Ms. OKUN. Thank you. Well, certainly, having served on the 

Commission for 12 years, I think you would expect me to say the 

Commission serves a valuable role. But the Commission is a creature of Congress. Congress created the ITC, gave it specific rules, 

and I think the thing to keep in mind with the statute, it is a trade 

statute. We are talking about the pervasive problem of infringing 

imports. The ITC is just one tool. There are other tools out there. 

But I think that is what I hope the Committee can keep in mind. 

The Commission plays a valuable role. Because of the problem of 

pervasive infringement of U.S. IPR, we need every tool at our disposal, and the ITC is one tool. 

Ms. JACKSON LEE. Professor Chien, you look like you wanted to 

say something, and I am trying to get in before this red light to 

get Mr. Foster and Mr. Rhodes. Go ahead, Professor. Thank you. 

Ms. CHIEN. I was going to say just about the point of the problem 

of foreign imports, I think that is an important problem, but I 

think we need to remember that the ITC now, the patent holders 

can be foreign. We have, for example, as I mentioned before, a 

Swiss-backed PAE suing American car companies for their importation, because a lot of things are made abroad. So the distinctions 

between us and them I think are getting blurry. 

I do think the ITC plays an important role. It has a very special 

remedy, and it is appropriate to be applied in certain cases. But 
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where the entity is only seeking licensing revenues, I don’t think 

the ITC, it is a good use of their time to be litigating that dispute. 

Ms. JACKSON LEE. Mr. Chairman, can Mr. Foster and Mr. 

Rhodes answer? 

Mr. COBLE. Yes, go ahead. 

Ms. JACKSON LEE. Mr. Foster? Professor Chien added a little 

twist to it. 

Mr. FOSTER. I thought it was another question. 

Ms. JACKSON LEE. Oh, no, no. I am not, I am not. I am just repeating Professor Chien, it is getting blurry. Mr. Foster? 

Mr. FOSTER. I am sorry. Yes, I think the ITC does serve a valuable role in helping enforce patents, and I think the evidence is 

companies, whether they are NPEs or not, are voting with their 

feet. They are coming to the ITC because they perceive that the 

speed in which they can get relief, the quality of the judges at the 

ITC and their ability to comprehend very complex technology, and 

the remedy that is available is a very valuable tool for them. They 

have a choice to go to the district court, but they choose the ITC 

even though potentially it is a more expensive forum. So that, to 

my mind, is very stark evidence that it serves a very valuable role. 

Ms. JACKSON LEE. Mr. Rhodes? Thank you. 

Mr. RHODES. I would echo what Mr. Foster said. I think it is not 

right for every case, but in the case where we are facing infringement by unfair trade practices by virtue of the importation of infringing devices, it is a very important forum to be able to have 

that option to enforce our IP. But it goes beyond just when we have 

a product we have already developed and marketed. I mean, this 

is about protecting innovation. It may be that we are still in the 

R&D stage. We had a case with our lithium-ion battery where we 

didn’t have much of a product yet, but we were worried that the 

whole market would be destroyed by these infringing imports before we could actually develop it. We only had a pilot line. We had 

done the research, but we hadn’t really started marketing. 

So what we are trying to protect here is innovation, not just 

products. That innovation may just be at that point in the form of 

R&D, or we may have exploited it via licensing rather than direct 

sales, and protecting that licensing revenue that can then go into 

further R&D to make further innovations is one of the points that 

I wanted to make. That is important for the ITC to protect as well. 

Ms. JACKSON LEE. I thank the Ranking Member and the Chairman. I yield back. Thank you. Thank the witnesses. 

Mr. COBLE. I thank the gentlelady. 

The gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. I just wanted to ask a few 

clarifying questions. I think most everybody has covered most of 

the points. 

Let me be clear, Mr. Binns, on what standard would you apply 

in the ITC to get jurisdiction. 

Mr. BINNS. Yes, I would think that you have to apply the domestic industry, and you have to do it early, as ITC is attempting to 

do in one particular case. We would like to see that become more 

standard and have those assessments upfront. 

Mr. WATT. I guess my question is would you say that a PAE cannot come to the ITC? 
132 

Mr. BINNS. No, we would not characterize—— 

Mr. WATT. Okay. Well, how would you apply the standard to 

them? 

Mr. BINNS. The way I would apply it is that you have to look at 

whoever the entity is that is taking advantage of the ITC, what is 

it that they are seeking, and you have to look at the behavior. Are 

they seeking just money damages to fund their licensing model of 

being a purely litigation company, or are they seeking to legitimately protect a market by having products excluded? That determination should be done upfront, and that should be done as a 

standing assessment before the ITC gets into a full-blown investigation. 

Mr. WATT. What do you say to that, Mr. Rhodes? 

Mr. RHODES. I do not think that legislation should change the 

1988 amendments that expanded ITC jurisdiction under domestic 

industry to include licensing. I think licensing is a way to exploit 

American innovation that we need to preserve and encourage, and 

I think the ITC has looked in that 2011 case that has been referenced a couple of times, really does put rigor around is the licensing tied to the patent we are talking about. Does it really represent 

substantial licensing, and is it taking place in the United States in 

terms of the revenue generation? 

I think with those important safeguards, that is the standard 

that ought to continue. 

Mr. WATT. What do you say to that, Mr. Binns? 

Mr. BINNS. Well, there are several problems there. What we have 

seen recently is that—— 

Mr. WATT. There seem to be problems on all sides here. 

Mr. BINNS. Yes, there are problems on all sides. 

Mr. WATT. But you are not saying that you would exclude all licensees if they are not the actual owners? 

Mr. BINNS. Not all licensors, but—— 

Mr. WATT. Okay. How would you draw that distinction, then? 

Mr. BINNS. Because there is production-driven licensing, and 

there is revenue-based licensing. Production-driven licensing is the 

licensing where you have technology, you have invented something, 

you want other people to adopt it, incorporate it into their products 

and bring it to market. That is production-driven licensing. 

Revenue-driven licensing is where what you have actually invented isn’t actually being used by anybody, but you interpret your 

claims broadly to try to cover an industry that has already matured 

and grown up and is making and selling many products in the 

U.S., and then trying to seek revenue from that. You are not promoting innovation. The U.S. Supreme Court in eBay found that excluding products automatically is not necessarily promoting the 

useful arts. 

Mr. WATT. Ms. Okun, I thought the ITC had already addressed 

this. I thought you testified that the ITC has already addressed 

this. Have they not? 

Ms. OKUN. Could you repeat which part? 

Mr. WATT. The revenue part. 

Ms. OKUN. Okay, thank you. The case law, what the case law in 

interpreting the statute has said—and again, it is very fact specific. 

So there are cases saying the Commission has given more weight 
133 

to production-driven licensing then revenue-driven licensing. The 

litigation expenses alone are not enough, the mere ownership of the 

patent is not enough. So the Commission is looking for a very 

strong nexus between the licensing activity and the patents. 

Mr. WATT. So you don’t think that they have gone far enough, 

Mr. Binns? 

Mr. BINNS. They have not gone far enough. 

Mr. WATT. Mr. Rhodes? 

Mr. RHODES. Well, I echo what former Commissioner Okun said. 

I think they are looking very carefully at very fact-specific questions, putting the appropriate weight. It is in the eye of the beholder, too. One person’s production-driven is another person’s revenue-generating. So I think it is probably not the stuff of which legislative fixes are as appropriate as case-by-case development. I 

think the ITC is sensitive. They are engaged. They are looking into 

this issue, and I think they are moving in the right direction. 

Mr. WATT. What do you say to that, Professor? 

Ms. CHIEN. I think they are engaged and they are evolving their 

practices in many of the ways people have talked about. I think the 

question becomes does Congress need to help them if they feel that 

they don’t have the authority within the statute to change the 

practices. Just again, by design, the ITC is a completely different 

remedy and procedure than district court. Do we want to have two 

forums, 90 percent overlap? Is that something that we want to encourage in our system? 

Mr. WATT. Thank you, Mr. Chairman. I yield back. 

Mr. COBLE. Thank you, Mr. Watt. 

Prior to adjournment, does anyone have any closing statements 

to make? 

Very well. I want to thank not only the panelists but those in the 

audience who survived the ordeal as well. I appreciate you being 

with us. 

I don’t mean that literally. It was not an ordeal. 

But today’s hearing is concluded. Thanks to all for attending. 

Without objection, all Members will have 5 legislative days to 

submit additional written questions for the witnesses or additional 

materials for the record. 

This hearing stands adjourned. 

[Whereupon, at 4:21 p.m., the Subcommittee was adjourned.] 

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