Is the ITC Taking a Closer Look at Standing?

The ITC recently issued the public version of its decision after reviewing an initial determination terminating a Section 337 investigation due to the complainant's lack of prudential standing. Certain Optical Disc Drives, Components Thereof, and Products Containing the Same, Inv. No. 337-TA-897. This is the second time in recent years that the Commission has visited this issue. While in both instances the Commission terminated the investigation for lack of standing, the approach has differed, and it appears the Commission may be taking a closer look at all issues relating to a complaint's standing to bring a complaint. In particular, it appears that the Commission's analysis of future questions of standing will focus on how ownership issues affect a complainant's constitutional standing to bring a complaint, with less emphasis on questions of prudential standing.

In the first investigation, Certain Devices with Secure Communication Capabilities, Components Thereof, and Products Containing the Same, ALJ Shaw terminated the investigation due to complainant's lack of prudential standing. Inv. No. 337-TA-818, Order No. 15 (July 18, 2012). In that investigation, it was established that the complainant, VirnetX, Inc., did not possess all substantial rights in the patent at issue. VirnetX had obtained the patent from a third party (SAIC) which retained an equity interest in the patent as well the right to object to any proposed license, assignment, or settlement. Judge Shaw concluded that, under its agreement with VirnetX, SAIC had retained substantial rights in the patent, and VirnetX therefore lacked prudential standing to maintain the investigation absent the joinder of SAIC. Because Judge Shaw had denied VirnetX's earlier motions to amend the complaint to add SAIC due to a lack of good cause, he terminated the investigation. The Commission declined to review and affirmed the judge's decision.

A similar situation arose in the Optical Disc Drives investigation. While Judge Lord's initial determination terminating for lack of prudential standing is heavily redacted, it is apparent that she found that a third party had retained sufficient rights such that the complainant did not have all substantial rights to the patents at issue, and terminated the investigation. Optical Disc Drives, Order No. 113 (Nov. 26, 2014).

In reviewing the ID, the Commission took note of the Supreme Court's 2014 opinion in Lexmark Int'l v. Static Control Components, Inc., 134 S.Ct. 1377 (2014), in which the Supreme Court held that "prudential standing cannot limit Congressional intent and essentially discarded the concept of prudential standing in federal statutory cases." Commission Opinion at 6. However, a complainant is still required to establish that it has standing to bring the complaint, an analysis of which "remains centered on patent ownership." Id. at 7. The Commission also said that while Judge Lord's decision analyzed the standing issue under the rubric of prudential standing, the analysis focused on ownership of the asserted patents. Id.

The Commission went on to discuss the Federal Circuit case law regarding patent ownership and constitutional standing, particularly the holdings in Morrow v. Microsoft Corp., 499 F.3d 1332 (Fed. Cir. 2007) (finding three categories of patent plaintiffs—those who can bring an infringement action alone, those who must be joined with others, and those who cannot bring an action at all) and Azure Networks, LLC v. CSR PLC, 2014 WL 5741337 (Fed. Cir. Nov. 6, 2014) (setting forth a non-exclusive list of rights to consider when determining whether one has transferred all substantial rights in the patent).

After analyzing the record before Judge Lord, the Commission concluded that the complainant's status as the nominal assignee of one group of patents (the "Wild Patents") was insufficient to grant it standing to maintain the investigation with respect to those patents. Commission Opinion at 19. The Commission also found that the record was insufficient to show that the complainant lacked standing with respect to the remaining patents in the investigation (the "Kadlec Patents"). "In particular, the ID does not cite to evidence pertaining to whether any other party has any control over how [complainant] litigates or licenses the Kadlec Patents, nor to evidence concerning whether any other party has any security interests in the Kadlec Patents or if there are other limits on the right to assign [complainant's] interests in the Kadlec Patents." Commission Opinion at 24. The Commission vacated the finding that the complainant lacks standing with respect to the Kadlec Patents and remanded the investigation to Judge Lord for further proceedings. Commission Opinion at 27.

Thus, it appears the Commission is taking a closer look at issue of standing and may even begin doing so at the pre-institution phase. Prospective complainants would be well advised to not neglect investigating pre-existing licenses and other agreements that may implicate substantial rights in the patents to be asserted as part of their pre-suit diligence.