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May 2013

The Unintended Consequences of 35 U.S.C. §299 and the ITC

Many would-be plaintiffs with injuries attributed to patent infringement may not be aware that the United States International Trade Commission (“ITC”) may be a viable, more efficient forum in which to obtain relief. The criticism of conventional patent litigation is legion: too slow, discovery that is too restrictive, legal standards that are difficult to prove,1and since the enactment of the America Invents Act (“AIA”),2 the standard for joining multiple defendants has increased.3

i.            Background of the ITC and Jurisdiction

The ITC was founded in 1916 under the Revenue Act.4 It is a quasijudicial Federal Agency equipped with investigative powers relating to trade.5 The objective of the ITC is to protect US trade against improper foreign trade (i.e. unlawful importation of articles protected by U.S. patents).

Patent dispute resolution at the ITC is procedurally similar to conventional patent litigation in the district courts but with its own peculiarities. To begin an investigation before the ITC, a party must file a complaint.6 If the complaint is deemed valid, the complaint moves before an administrative law judge and the accused are given an opportunity to respond.7 As to patent infringement, the ITC has jurisdiction to begin an investigation when a party demonstrates that a defendant has unlawfully imported an article with U.S. patent protection into the U.S. (i.e. infringement) and that a nexus exists between that infringement and “substantial” economic activity in the U.S.8

Substantial economic activity in the U.S. can be shown through conventional use of patented products (i.e. make, use or selling) or solely by licensing.9 This is significant in the context of Non-Practicing Entities (“NPE” aka “Patent Trolls”) since an NPE typically engages in licensing. An NPE is commonly understood as an entity that obtains a patent but never actually makes, uses, or sells the protected technology.10 Rather, the NPE will “use” the patent to sue a party it believes to have infringed its patent and/or it licenses the technology for a reasonable profit.11 Accordingly, where an NPE simply licenses its patent, the patented products are imported and the patent is infringed, the ITC will have jurisdiction to begin an official investigation. Further, the ITC has in rem jurisdiction in its investigations arising out of the allegedly infringing articles. Meaning, unlike proceedings in district court where a plaintiff would have to show in personam jurisdiction in order to proceed, no such procedural hurdle would exist in the ITC.

  1. Available Remedies and the Lower Standard for Injunctive Relief

Another key difference between the ITC and conventional patent litigation involves remedies. The ITC only has the power to grant equitable remedies as opposed to both legal and equitable remedies available in district courts.12 The primary remedy available in ITC investigations is an exclusion order which is tantamount to an injunction.13 An exclusion order authorizes Customs to effectively block articles from being imported into the country. The ITC has discretion to grant an exclusion order once the plaintiff has established patent infringement.14 By contrast, to obtain similar relief in district court, a party would have to satisfy each of the four prongs from the eBay test.15 The ITC, however, is not bound by eBay before issuing an exclusion order. This conclusion was recently confirmed by the Federal Circuit who noted that plaintiffs do not need to show irreparable harm before the ITC can grant an exclusion order.16 Therefore, without eBay the standard is appreciably lower in the ITC for those plaintiffs seeking equitable relief.17

  1. Broader, More Efficient Discovery than Federal Rules Allow

Discovery in ITC investigations is aggressive and seemingly without bounds. Where Federal Rules in district court mandate that a respondent has 30 days to respond to discovery orders,18 discovery in the ITC’s “rocket-docket” begins only 10 days after investigations commence with little to no limits on what can be requested.19 Inevitably, this leads to a deluge of valuable information that must be supplied in a short-period of time.

Because evidentiary hearings typically begin six months from the commencement of the investigation and arrive at a final decision in less than a year, settlement negotiations in the interim tip noticeably in favor of the plaintiffs. Plaintiffs can methodically prepare their investigations before filing while defendants suffer from the element of surprise. While the ITC can be criticized as an improper venue because damages do not avail themselves, because the majority of patent suits terminate in settlement,20 the absence of legal remedies can perhaps be overlooked given the value of an exclusion order as leverage in settlement negotiations. This value increases exponentially when viewed in conjunction with the “rocket-docket” speed of ITC investigations.

  1. Joinder Hurdles Under the AIA and ITC

One major change wrought by the AIA is how it affects permissive joinder of multiple defendants specifically as to NPEs. Prior to the AIA, joinder in patent suits was governed by Rule 20 under “the same transaction or occurrence” standard.21 In an effort to make it more difficult for NPEs to join multiple defendants22 and to engage in forum shopping,23 Congress promulgated 35 USC §299. Under §299, plaintiffs may only join multiple defendants if plaintiffs can demonstrate any asserted right arises out of the same transaction or occurrence and  can show that questions of fact are common to all joined defendants.24 While that language may seem familiar, Congress importantly added a further subsection to emphasize that defendants may not be joined “based solely on allegations that they each have infringed the patent or patents in suit.”25

Whereas before the AIA NPEs were able to join parties with rights arising out of the same transaction or occurrence in some districts based solely on infringement of the same patent,26 the AIA renders joinder arising solely from infringement of the patents in suit impossible absent waiver .27 Yet, because the AIA does not govern ITC investigations, instead of discouraging NPEs from permissively joining multiple defendants in one suit, §299 may have had the unintended consequence of providing an alternative channel to simply head to the joinder-friendly venue at the ITC for its desired relief.

  1. Conclusion

The difficult standard as to injunctions under eBay or joinder under §299 may have the intended consequence of discouraging NPEs from joining multiple defendants and/or generally from pursuing equitable remedies. It may also have engendered unintended consequences. While too early to tell whether §299 is that watershed moment envisioned by Congress as to patent litigation and NPEs, it bears mentioning that only 20% of ITC investigations since eBay have been filed by NPEs.28 Moreover, of the 20%, only four NPEs prevailed and were granted exclusion orders.29 Low numbers notwithstanding, for plaintiffs-- including NPEs-- wishing to join multiple defendants who may struggle to satisfy §299 or who may seek injunctions but may not satisfy eBay, the reduced legal standards and increased efficiency of the ITC renders it an attractive alternative venue for patent litigation.

1 See eBay Inc. v. Mercexchange, 547 US 388, 391 (2006).
2 Pub. L. No. 112-29 (2011).
3 See 35 USC 299 (2012) and FRCP 20
4 39 Stat. 795 (September 8, 1916)
5 United States International Trade Commission, About the USITC, available at (last visited April 10, 2013)
6 United States International Trade Commission, Filing Guidance for New Complaints, available at (last visited April 10, 2013).
7 Sheldon Meyer and Mark Miller, Patent Litigation Before the International Trade Commission and Its Effectiveness(1998-1992), 350 Practicing L. Inst. Pats. Litig. 495 (1992)
8 19 USC 1337(a) (2012)
9 Interdigital Communications v. ITC, 690 F. 3d 1318, 1330 (Fed. Cir. 2012) (“If there were any ambiguity as to whether the statute could be applied to a domestic industry consisting purely of licensing activities, the Commission’s consistent interpretation of the statute to reach such an industry would be entitled to deference under the principles of Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984)”).
10 J.F. McDonough, The Myth of the NPE: An Alternative View of the Function ofPatent Dealers in an Idea Economy, 56 Emory L. J. 189, 189 (2006)
11 Id.
12 19 USC 1337(d) (2012)
13 19 USC 1337(d) (2012)
14 Spansion v. ITC, 629 F. 3d 1331, 1358 (Fed. Cir. 2010) (“The legislative history of the amendments to Section 337 indicates that Congress intended injunctive relief to be the normal remedy for a Section 337 violation and that a showing of irreparable harm is not required to receive such injunctive relief”)
15 eBay, 547 US at 391 (“A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction”).
16 Id.
17 See Benjamin Petersen, Injunctive Relief in the Post-Ebay World, 23 Berkeley Tech. L.J. 193, 194 (2008) or John F. Rabena and Kim E. Choate, Injunctive Relief in the ITC Post eBay, 1 Akron Intell. Prop. J. 27, 27 (2007)
18 Fed. R. Civ. P. 26
19 Merritt Blakeslee and Christopher Meservy, Seeking Adjudication of a Design-Around in Section 337 Patent Infringement Investigations: Procedural Context and Strategic Considerations, 35 AIPLA Q. J. 385 (2007)
20 Jay Kesan and Gwendolyn Ball, How Are Patent Cases Resolved? An Empirical Examination of the Adjudication and Settlement ofPatent Disputes, 84 Wash. L. Rev. 237, 254, 272 ( The settlement rate has been estimated as high as 95% and as low as 66% for patent infringement suits).
21 Fed. R. Civ. P. 20
22 See “NPEs: Fact or Fiction?”(June 15, 2006, Serial No. 109–104).
23 35 U.S.C. §299 (2012)
24 35 U.S.C. §299(a) (2012)
25 35 U.S.C. §299(b) (2012)
26 See MyMail, Ltd. v. Am. Online, Inc., 223 F.R.D. 455, 457 (E.D. Tex. 2004), Sprint Commc’ns Co. v., Inc., 233 F.R.D. 615, 617-18 (D. Kans. 2006).
27 Id. See also H.R. Rep. No. 112-98, at 54-55 (2011) (“The Act also addresses problems occasioned by the joinder of defendants (sometimes numbering in the dozens) who have tenuous connections to the underlying disputes in patent infringement suits.”)
28 United States International Trade Commission, Facts and Trends Regarding USITC Section 1337 Investigations, available at (last visited April 23, 2013).
29 Id.

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