ITC Side-Steps on Standard-Essential Patents
The ITC recently published its Final Determination in Memory Modules and Components Thereof (Inv. 1089) finding that respondent SK Hynix did not infringe Netlist’s patents. This determination of no violation of Section 337 conveniently enables the Commission to avoid addressing the highly controversial question presented in the case: whether and when the ITC can issue exclusion orders for infringement of a standard-essential patent the patentee has committed to license on reasonable and non-discriminatory (RAND) terms.
The agency has issued an exclusion order for infringement of a RAND-encumbered patent only one time before. At the height of the smartphone patent wars, the ITC found in Mobile Electronic Devices (Inv. 794) that Apple infringed a patent designated as essential to wireless connectivity standards. To prevent an import ban against iPhones, the Obama administration vetoed the ITC’s exclusion order under Section 337’s very rarely-used presidential disapproval clause.
In the official disapproval letter, U.S. Trade Representative Michael Froman stated that “to mitigate against patent hold-up, exclusionary relief from the Commission based on FRAND-encumbered SEPs should be available based only on the relevant factors described in the [DOJ–PTO] Policy Statement.” That statement found that an exclusion order “may still be an appropriate remedy . . . where the putative licensee is unable or refuses to take a FRAND license . . . [or] if a putative licensee is not subject to the jurisdiction of a court that could award damages.”
In Memory Modules, the ALJ generally followed this guidance by examining the parties’ licensing negotiations. The parties disagreed about whether the complainant had offered to license the patent rights on RAND terms and whether the respondent had engaged in good faith negotiations. After hearing evidence, the ALJ recommended an exclusion order after determining that SK Hynix had failed to prove that Netlist shirked its RAND obligation.
This approach was not addressed by the Commission on review of the Initial Determination. Instead, the Commission side-stepped the entire issue by adopting a different construction of key terms in the patent, which led to a finding of no infringement. Because the accused memory modules conform to the standard but don’t practice the patent, the patent is necessarily not essential to the standard.
As always, it’s worth remembering that this dispute could’ve been handled entirely in federal court. Indeed, all standard-essential patent cases are licensing disputes between rather than trade disputes. Whether a patent owner met its RAND obligations or not doesn’t change that. Allowing the ITC to get involved in these cases needlessly complicates the administration of U.S. patent law.