*Note: This piece is part of a larger article with contributions from several different policy experts.

1. Two Contrasting Federal Circuit Decisions Regarding the Scope of Section 337 of the Tariff Act

The Federal Circuit rendered two important decisions in 2015 regarding the scope of Section 337 of the Tariff Act, as applied by the U.S. International Trade Commission to imports that infringe IP rights. The two decisions go in different directions, with one supporting an expansive view of import commerce, the other an extremely narrow view.

In ClearCorrect v. ITC, a divided three judge panel overturned a 5-1 majority decision of the ITC holding that the Tariff Act granted it the power to prevent the importation of digital articles that infringe a valid U.S. patent. Key to the Federal Circuit’s decision was a parsing of the Section 337 term “article” as only applying to “material things,” and thus not covering electronic transmissions of digital data. Judge Pauline Newman’s powerful dissent argued compellingly that contrary to the majority’s crabbed reading of “articles,” the term “was intended to be all-encompassing”, and “[t]he Supreme Court [itself] defined ‘articles of commerce’ to include pure information”. Given the increasing importance of IP and digital transmissions to the economy, this decision, if not reversed on judicial appeal or by Congress, threatens long-term harm to U.S. IP rights holders and innovation.

In marked contrast, in Suprema Inc. v. ITC, the en banc Federal Circuit, by a six-to-four vote, deferred to a broad U.S. International Trade Commission (“ITC”) statutory interpretation of the Section 337 phrase “articles that infringe.” Specifically, it held that goods that do not directly infringe a U.S. patent at the time they are imported nevertheless may be excluded from entry by the ITC if they are used, after importation, to directly infringe by the importer at the inducement of the goods’ seller. In so ruling, the en banc majority overrules a three-judge Federal Circuit panel that had reasoned there are no “articles that infringe” at the time of importation when direct infringement does not occur until after importation. The en banc decision is good news for believers in strong U.S. patent enforcement against infringing imports.

2. The Federal Government Continues its Campaign Against Standard Essential Patents (SEPs), Thereby Undermining Patent Rights

A standard essential patent (SEP) is one that is adopted as part of a particular standard, and which embodies technology that is necessary for production of goods according to that standard. Applying antitrust law to combat “hold-up” attempts (involving demands for allegedly “excessive” royalties) or injunctive actions brought by SEP owners against firms desiring access to the SEP’s technology is inherently problematic, as explained by multiple scholars (see here and here, for example). Disputes regarding compensation to SEP holders are better handled in patent infringement and breach of contract lawsuits, and adding antitrust to the mix imposes unnecessary costs and may undermine involvement in standard setting and harm innovation. What’s more, as FTC Commissioner Maureen Ohlhausen and former FTC Commissioner Joshua Wright have pointed out (citing research), empirical evidence suggests there is no systematic problem with hold-up. Indeed, to the contrary, an empirical study finds that SEP-reliant industries have the fastest quality-adjusted price declines in the U.S. economy – a result totally at odds with theories of SEP-related competitive harm.

Despite this evidence, during 2015 the federal government continued its campaign to unreasonably restrict returns to SEPs. In February 2015 the U.S. Antitrust Division issued a “business review letter” stating that it found no antitrust problem raised by the Institute of the Institute of Electrical and Electronics Engineers’ (IEEE) New Patent Policy (NPP) that substantially limits potential returns to SEPs. That business review letter emphasized the NPP’s role in combating the risk of “hold-up,” without considering the NPP’s serious anticompetitive features and potential harm to innovation. Subsequent actions by the leaders of the U.S. antitrust agencies continued to undermine SEPs. For example, U.S. FTC Chairwoman Edith Ramirez filed a comment with the U.S. ITC arguing that, before issuing an exclusion order, the ITC should require an SEP holder to show that the infringer is unwilling or unable to enter into a patent license on “fair, reasonable, and non-discriminatory” (FRAND) terms – a new and major burden on the vindication of patent rights. And the head of the Justice Department’s Antitrust Division, Assistant Attorney General William Baer, delivered a major speech suggesting serious competition concerns raised by possible SEP-related “hold-ups,” and by SEP holders threatening to seek U.S. ITC exclusion orders.