The ITC Rocket Docket's Achilles Heel

Mark Michels

Corporate Counsel

09-01-2012

The International Trade Commission's intellectual property litigation has increased dramatically in recent years. But parties in these high-stakes litigation are laboring under discovery procedures that are almost two decades old.

Recent headlines are replete with references to ITC enforcement activity, on everything from the ITC's reach, to battles between Motorola Mobile Holdings Inc. and Apple Inc. and Microsoft Corporation, to the ongoing Apple-Samsung litigation over smartphones.

Last month, Corporate Counsel 's recent annual ITC survey revealed that the ITC heard 69 cases in 2011, reflecting a 23 percent annual increase over 2010. In analyzing the survey data, reporter Jan Wolfe wrote that the ITC is a "hot forum for patent disputes because it handles cases quickly and offers powerful injunctive remedies."

The ITC conducts unfair trade practices investigations under the authority of section 337 of the Tariff Act of 1930, codified at 19 U.S.C. section 1337. One such unfair trade practice is importing goods that infringe U.S. patents. If the ITC finds a section 337 violation, it may issue an "exclusion order" preventing the importation of the offending goods into the United States. While the ITC cannot provide monetary damages, the injunctive relief of the exclusion order is a powerful remedy.

The process at the ITC begins with a complaint that alleges an unfair trade practice, such as patent infringement. If the ITC decides to initiate an investigation based on the complaint, it publishes a notice in the Federal Register. The ITC must complete the investigation and make its determination at "the earliest practicable time after the date of publication of notice of such investigation." The ITC generally attempts to complete investigations in less than 15 months. The ITC conducts its investigations under procedures similar to the Federal Rules of Civil Procedure.

The ITC is the true "rocket docket" when it comes to patent infringement litigation. The commission typically schedules evidentiary hearings approximately six months after initiating the investigation. Compare this six-month schedule to similar actions in federal district courts, which, on average, take two to two-and-a-half years to get to trial, according to PriceWaterhouseCoopers's 2011 Patent Litigation Study.

Anecdotally, the cost of these ITC proceedings may exceed the cost of similar court proceedings. However, even if the litigation expenses are equivalent, the monthly costs are significantly higher because of the expedited ITC process. Assuming that the ITC hearing occurs within six months, the litigation expense burn rate for a party could approach $800,000 per month or more.

The lion's share of these litigation expenses are related to discovery. According to a study by the Federal Judicial Center, discovery expenses represent 50 percent of litigation expenses. Chief Judge Randall Rader of the U.S. Court of Appeals for the Federal Circuit says that it is these significant discovery expenses in patent cases that led the Federal Circuit Advisory Council to develop its model electronic data discovery order for patent litigation.

The ITC's discovery rules are found at 19 C.F.R. Part 210, Subpart E, Discovery and Compulsory Process. The commission implemented these rules in August 1994 and amended them in 2008; however, the 2008 amendments did not modify the 1994 discovery rules in any significant manner.

Consequently, parties before the ITC litigate under procedures that lack provisions comparable to the Federal Rules of Civil Procedure 2006 e-discovery amendments.

The ITC is well aware of the need to address e-discovery in ITC proceedings. This past February, the ITC issued a press release, "E-Discovery Limits—USITC Considers Proposal to Streamline Section 337 Investigations," that stated that the "USITC has been examining issues relating to e-discovery for nearly a year, gathering input from litigants, academics, district court judges, and bar associations."

According to Kimberly Parke, chair of the International Trade Commission Committee of the American Bar Association's intellectual property law section, the ITC approached the bar regarding the need to address EDD issues in ITC matters. This request led to a program in July 2011 at George Washington University, entitled "Electronic Discovery at the ITC: Current Challenges and Possible Improvement," where members of the bench, bar, and industry discussed e-discovery issues in ITC proceedings. Parke also stated that the ITC asked the participants at the conference to propose EDD rules for the commission's consideration.

In response to the ITC's request, the ABA's IP section submitted its proposals this May. The submission followed the ITC Trial Lawyers Association's proposals in January.

The ABA and ITCTLA proposals are similar in many respects. They include provisions that incorporate much of the 2006 FRCP e-discovery amendments. The two groups also have proposals regarding clawbacks related to the inadvertent production of privilege documents and provisions for a source code protective order. Neither proposal goes so far as to impose presumptive limits on email production and search terms, such as the Federal Circuit Advisory Committee's model EDD order, although both the ABA and ITCTLA proposals encourage the parties to reach agreement on issues such as number of custodians and search terms. The ITCTLA proposal does provide expressly that metadata need not be produced, except upon agreement or a good cause showing.

The next step in the process will be for the ITC to issue a notice of proposed rule-making for public comment in the Federal Register. According to John Greer of the ITC's Office of External Relations, the commission does intend to issue a "Notice of Proposed Rule Making" related to e-discovery in section 337 matters, and such notice will be issued in due course.

Parke, who is familiar with the commission's processes and procedures, thinks that the notice of proposed rule-making would not likely issue before this month or next. The public comment period typically runs 60 days or more, so a final rule on EDD before the ITC would not likely issue until 2013.

The ITC began examining EDD issues in early 2011, and if the ITC issues final EDD rules in early 2013, then the process will have taken approximately two years. While deliberate, this timeline compares favorably to the last time the commission modified its procedural rules in 2008.

When all is said and done, the ITC is, and will likely continue to be, a popular forum for patent infringement litigation. It is also one of the most costly—some say the most costly—patent litigation forum. Discovery expenses are, by far, the most significant portion of that expense. While the commission's initiatives to address EDD expenses are laudable, it is not likely that litigants can expect much relief for several months.

Attorney Mark Michels is a Silicon Valley–based consultant. A version of this article first appeared in our sibling publication Law Technology News.