3 days ago
Foreign Patent Trolls Wreak Havoc at the U.S. International Trade Commission
Yet again, another foreign shell company is targeting productive American manufacturers with spurious claims of patent infringement in hopes of striking it rich. And for some reason– the U.S. International Trade Commission (ITC) – continues to make this predatory litigation possible and profitable.
Also known as patent assertion entities (PAEs), patent trolls don't manufacture or make anything, but they weaponize patents to aggressively pursue infringement claims and file suits to shakedown innovative and successful companies in hopes of forcing a quick settlement – often using the ITC to gain negotiating leverage.
The biggest losers here are American consumers who will ultimately foot the bill in the form of higher prices, fewer choices, and less innovation, as well as U.S. taxpayers who are funding the ITC's expensive and duplicative investigations.
Patent trolls like the ITC because unlike district courts, the only remedy the ITC can award is an exclusion order, which is an import ban that completely bars the infringing product from importation into the United States.
So, while courts will measure out proportionate remedies such as monetary damages, when justified, the ITC remedy literally blocks off an entire market over even minor or weak patent claims.
And while the ITC is supposed to protect American companies from foreign infringement, it pays little mind to foreign shell companies sponsoring patent assertion campaigns. The latest troll filing a high-profile case at the ITC is Longitude Licensing, a Dublin-based firm that proudly boasts its track record of 'maximizing the value of patented intellectual property for global patent owners.' In other words, it makes no products and just tries to find lawsuits to file. Last month, Longitude sued Apple, Qualcomm, TSMC, and other tech companies for allegedly infringing patents it holds related to semiconductors.
If the ITC acquiesces to Longitude's demands, then any devices containing these components – including circuit boards, smartphones, smartwatches, and tablets – will be completely barred from the U.S. The Trump Administration should be paying attention. The U.S. will lose the global race for tech leadership if we can't access critical semiconductor technology.
In 2022, Arigna Technology Limited, another Irish shell company, asked the ITC to ban over 93% of the smartphones, as well as tablets and laptops, that American consumers depend on every day. As is often the case, the tech companies had little choice but to settle rather than fight Arigna, given the risk that the ITC would ban their products from the U.S. market.
Arigna was funded with the backing of Magnetar Capital, a hedge fund that not only helped create mortgage-backed securities, but then bet against those risky investments, ultimately sowing the seeds of the 2008 Financial Crisis. Magnetar, Arigna, and other investors made money while U.S. tech companies, and ultimately consumers, paid the bill.
Similarly, Longitude Licensing is owned by Vector Capital, an investment firm that raised red flags in 2014 when it invested in a network of payday-lending websites, using corporations set up in Belize and the Virgin Islands to obscure their involvement and circumvent U.S. usury laws. Through this shady web, payday lenders charged their customers over 600 percent interest on loans.
When Congress granted the ITC its exclusion order ability through the Tariff Act of 1930, it sought to protect domestic industries that could not use U.S. courts to reach unfair importers, so it set up a special remedy against the importers' goods.
But Congress had no idea it would be enabling a system where wealthy hedge funds help Irish shell companies pursue questionable litigation using portfolios of old patents to try to extort massive payouts from innovative companies contributing billions to the U.S. economy.
Congress must step in to protect the ITC process from being exploited by patent trolls.
Bipartisan ITC reform legislation was introduced in the last Congress and should be reintroduced and passed quickly. Simple fixes like forcing the ITC to conduct rigorous public interest analyses before it acts and ensuring the patents in question have a real tie to an actual American industry are reforms that everyone should support.
Foreign patent trolls and their deep-pocketed predatory backers are hoping that Congress doesn't take up this legislation to fix the ITC. As Congress looks to support President Trump's trade agenda to support American manufacturing, stopping patent troll abuse at the ITC should be at the top of the list.
Gerry Scimeca is co-founder, chairman, and general counsel of CASE – Consumer Action for a Strong Economy, the nation's foremost non-profit, non-partisan organization devoted to the singular cause of promoting consumer interests through the advancement of free-market principles.
