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Congress Steps Up Pressure in Intel Chip Case at ITC
The National Law Journal
When Intel Corp. and X2Y Attenuators LLC squared off at the International Trade Commission last week, it was no ordinary patent fight over microprocessors.
Tiny X2Y, which is based in Pennsylvania, says Intel's microprocessors infringe its patents. It wants the ITC to block their importation and by extension, all the computers that use them, including every Apple Inc. personal computer and the overwhelming majority of those made by Hewlett-Packard Co.
But the outcome of the case may turn on more than just the merits of the patents. Congressional delegations from Arizona, Oregon and New Mexico have all urged the ITC commissioners to consider the broader public interest in deciding whether an import ban is warranted.
"We are concerned about the detrimental effect that an exclusion order would have on the U.S. workforce in general and specifically on the over 16,000 workers in Oregon that work for Intel," wrote Oregon senators Ron Wyden (D) and Jeff Merkley (D) plus all five members of the House from Oregon in a letter to the ITC earlier this month.
The delegation from Arizona, where Intel has 11,000 employees and is currently building a $5 billion wafer fabrication plant, weighed in as well. "Given the strained economic climate specifically in Arizona as well as coast to coast, it is easy to see how an exclusion order that discourages U.S. manufacturing could do more harm than good with respect to the public interest," wrote Arizona senators John McCain (R) and Jon Kyl (R) and all eight Arizona House members.
The ITC has the power to let patent infringers off the hook if it finds that it's in the public interest to do so. The last time the agency cited public interest as the reason not to issue an exclusion order was in 1984, in a case involving beds for burn victims, where there was no alternative product available, according to patent law expert Sapna Kumar, an assistant professor at the University of Houston Law Center.
But that may soon change. As the ITC becomes an increasingly prominent forum for IP disputes, it's also facing heightened pressure from legislators and other parties to take the public interest into account when crafting remedies. "The scrutiny on the ITC is only going to increase as [the agency] sees bigger and bigger cases," Kumar said. "I don't think the ITC is just going to turn a deaf ear when members of Congress lobby Congress ultimately controls their statute and funding."
In June, the ITC received a flurry of letters from members of Congress addressing the pros and cons of an import ban on Microsoft Corp.'s Xbox 360 game console after an agency administrative law judge recommended an exclusion order. "An exclusion order against the Xbox 360 console could threaten high-paying American jobs and continued economic growth in Washington and throughout the nation," wrote eight members of Congress from Microsoft's home state of Washington. Representative Darrell Issa (R-Calif.) also backed Microsoft, writing that an "exclusion order would eliminate the only U.S. based video game console from a market."
The case was brought by Illinois-based Motorola Mobility Inc., which has its own champions on Capitol Hill. "Denying legitimate patent protection adversely affects domestic commerce and business in a very meaningful way," members of the Illinois delegation wrote to the ITC.
In late June, the six ITC commissioners remanded the case to the administrative law judge, David Shaw, citing technical legal issues. The case remains before Shaw.
Shaw, who became an administrative law judge at the ITC in October 2011 and previously spent 23 years as an attorney-adviser at the agency, is also hearing the Intel/X2Y case.
The public interest card may be especially effective against X2Y, which does not manufacture the technology in question and has fewer than 10 employees and no apparent defenders in Congress.
"There's more than a patent case to be decided," said Wilmer Cutler Pickering Hale and Dorr partner James Quarles III, who represents Intel and HP, in opening arguments on August 21 (Apple is represented by Kenyon & Kenyon). "There has to be some balance here. Intel invented the microprocessor. What's on the other side of the scale?.…X2Y has never made or sold a single product."
On May 31, 2011, X2Y filed suit at the ITC under Section 337 of the Tariff Act of 1930, claiming that Intel infringed 154 claims of six of its patents later reduced to 12 claims and three patents.
Under the statute, if the ITC finds that an imported product infringes the intellectual property rights of a U.S. patent holder, the commission may issue an exclusion order directing U.S. Customs and Border Protection to deny the product entry into the country. That is, "unless after considering the effect of such exclusion upon the public health and welfare, competition conditions in the United States economy, the production of like or directly competitive articles in the United States, it finds that such articles should not be excluded from entry," the statute states.
X2Y, which was founded in 1996 and is based in Erie, Pa., describes itself on its website as "an Intellectual Property Company that develops advanced passive component solutions for the electronics industry."
The technology at issue involves a microprocessor design that X2Y in its complaint says provides for improved power delivery and helps maintain signal integrity.
The company said it "has attempted to persuade Intel to license X2Y's technology," according to the complaint penned by Paul Brinkman, then a partner at Alston & Bird. (Brinkman moved to Quinn Emanuel Urquhart & Sullivan last fall to head the firm's ITC practice, but X2Y remained with Alston & Bird.)
The complaint alleges that Intel's Core i3, Core i5, Core i7 and Xeon families of microprocessors infringe X2Y's patents. "Apple and HP incorporate Intel's infringing microprocessors into their computers. These microprocessors perform the core functionality of Apple and HP's Accused Products," the complaint states.
Parallel litigation is also pending in U.S. District Court for the Western District of Pennsylvania.
Intel argues that X2Y is a patent troll that deliberately set out to ensnare it. X2Y "align[ed] its intellectual property to get to Intel. The patents are the result of an effort to target Intel…funded by investors who have a stake in the outcome," Intel counsel Quarles said in his opening argument. X2Y "piled inference upon conjecture upon inference and convinced itself Intel was infringing."
X2Y counsel John Haynes, a partner at Alston & Bird, dismissed this as "a series of conspiracy theories," and said in his opening that Intel was trying to "paint [X2Y founders] the Anthony family in a bad light."
To be sure, both sides are also arguing the nitty-gritty of patent infringement. Intel argues it did not infringe X2Y's patents "the technology didn't work for us," Quarles said and that the patents are invalid. "There is a mountain of prior art" to discredit the patents, Quarles said.
Haynes disagreed, and said Intel was "cherry picking details" to find prior art, public information that precedes an invention. "There are numerous [patent] claims you can't find in the prior art."
Haynes also disputed Intel's contention that the patents were invalid because the inventions were obvious, arguing it was "only because [Intel is] looking at the claims using hindsight."
Whether the outcome of the case will hinge on the patents or the public interest is unclear, but Wilmer lawyers have warned of catastrophic consequences if their client loses. "Without computer systems powered by Intel microprocessors, neither society nor business as we know it could be conducted," Wilmer partner William Lee wrote to the ITC.
Judge Shaw's determination is due by December 14, and may be adopted, modified or remanded by the commissioners. The target date for the ITC's completion of the investigation is April 15, 2013.
The final ITC decision can be overturned by the president (though the authority to do so has been delegated to the U.S. trade representative). Intel might find a sympathetic ear. When President Barack Obama visited an Intel plant earlier this year, he praised the company for creating jobs and investing in the United States. "How do we make sure that more companies like Intel invest here, manufacture here, hire here?" he said.
In the meantime, ITC Chairman Irving Williamson took a measured tone when he replied to the members of Congress who sent letters, writing that "the Commission will carefully consider all the information and arguments in the record relating to the public interest considerations."
This article originally appeared in The National Law Journal.