If Tessera Technologies Inc. (TSRA) and ParkerVision Inc. (PRKR) defy expectations and win exclusion orders from patent infringement complaints filed with U.S. International Trade Commission, more non-practicing entities may follow their lead, according to some patent market observers.

To be sure, few NPEs file infringement complaints at the ITC and even fewer succeed in winning exclusion orders, which provide leverage to force licensing settlements. The ITC tracks complaints filed by two types of NPEs. Category 1 NPEs include research institutions, start-ups, and individual inventors, while Category 2 NPEs include entities whose business model focuses on acquiring and asserting patents.

Historically, category 1 NPEs have accounted for only about 8% of complaints filed at the ITC, and category 2 NPEs have accounted for 9%. The largest number of NPE complaints were filed in 2011 and 2012 in the wake of the U.S. Supreme Court’s ruling in eBay Inc. v. MercExchange L.L.C., which made injunctions for NPEs extremely rare.

In 2011, four category 1 NPEs filed such complaints and 9 category 2 NPEs did so. In 2012, six category 1 NPEs filed complaints and 7 category 2 NPEs did so. Since then, the number of ITC complaints filed by NPEs has declined considerably. The number of category 1 NPE and category 2 NPE complaints was 3 and 6, respectively, in 2013. The number of category 1 NPE and category 2 NPE complaints was zero and 3, respectively, in 2014 and zero and 2, respectively, in 2015. Year to date, only one category 2 NPE complaint has been filed by Tessera Technologies.

Interestingly, the spike in ITC complaints by NPEs in 2011 and 2012 following the eBay ruling was cited by the ITC in its budget request in 2011.

“NPEs are looking more and more to the ITC given that they can’t get effective remedies in the district courts,” said Paul Ainsworth, a director of litigation at Sterne Kessler Goldstein & Fox in Washington, D.C. “A number of NPEs are looking at whether they have the right case to bring, and if they don’t, trying to figure out what the right case would be.”

Deprived of injunctions, which served as leverage to force settlements, NPEs have turned to the ITC because of its ability to grant exclusionary orders. The Court of Appeals for the Federal Circuit later ruled that ITC’s exclusionary orders weren’t affected by the eBay decision.

“The ITC is a natural place to turn as an alternative because of the ability to earn exclusion orders, which can apply greater settlement pressure than district court monetary damages,” said Mark Gober, a senior director at 3LP Advisors in Silicon Valley. “Additionally, ITC cases typically aren’t stayed pending IPR resolutions, whereas district court cases are.”

The 2011-12 spike in ITC complaints by NPEs has been cited by technology company interests as a reason to reform the ITC to prevent frivolous complaints filed by so called patent trolls.

House of Representative bill 4829, the Protect Trade not Troll Act is one answer to the problem that so far hasn’t garnered much interest in Congress. The bill aims to amend section 337 of the Tariff Act of 1930 with respect to requirements for domestic industries, and for other purposes.

HR 4829 would among other things amend Section 337 to require complainants who rely on licensing to prove a domestic industry to show that the licensing activities led to the adoption and development of articles that practice the asserted patent.

Under Section 337 of the Tariff Act of 1930, the ITC conducts investigations into allegations of unfair practices in import trade. Section 337 declares the infringement of statutory intellectual property rights and other forms of unfair competition in import trade to be unlawful practices.

Following a hearing on the merits of the case, the presiding Administrative Law Judge issues an initial determination, or ID, that is certified to the ITC along with the evidentiary record. The ITC may review and adopt, modify, or reverse the ID or it may decide not to review it. If the ITC declines to review an ID, it becomes the final determination.

In the event that the ITC determines that Section 337 has been violated, it may issue an exclusion order barring the products at issue from entry into the United States, as well as a “cease and desist” order directing the violating parties to cease certain actions.

The ITC’s exclusion orders are enforced by U.S. Customs and Border Protection. ITC orders become effective within 60 days of issuance unless disapproved by the President for policy reasons.

ITC orders have rarely been disapproved by a president and most recently in a dispute between Apple and Samsung.

Appeals of ITC orders entered in Section 337 investigations are heard by the Federal Circuit.

In 2005, President Bush delegated the authority to veto ITC exclusion orders to the U.S. Trade Representative.

NPEs and other complainants must show that they meet a domestic industry requirement.

Before issuing any remedial orders, the ITC is required by statute to consider the effect of such relief on the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States, and U.S. consumers.

The ITC also has initiated a new 100-day program, which allows an administrative law judge to stay a complaint for a review of dispositive issues such as ability to meet the domestic industry requirement.

“There’s nothing in recent case law or commission practices indicating that NPEs will be more successful then they’ve been in the past,” said Deanna Tanner Okun, a former ITC commissioner and a partner with Adduci, Mastriani & Schaumberg LLP in Washington, D.C. “If I were advising an NPE considering an ITC complaint, I’d ask them to explain how they meet the domestic industry requirement, tell them to look at the case law and to consider the prospect of being put into the 100-day program. It’s tough for an operating company to establish domestic industry. It’s tough for people who have made substantial investments in the U.S. It’s pretty daunting.”

Ainsworth conceded that since 2011 the ITC has clamped down on the domestic industry requirement making it more difficult for an NPE to prove its licensing business clears the hurdle. He said, however, that even after the clampdown, the hurdle is not insurmountable.

“Fly by night NPEs may not be able to get into the ITC, but an NPE with a real licensing business shouldn’t have a problem.”

NPEs that have met the domestic industry hurdle will have an easier time meeting it in the future.

“Once you’ve met the requirement, it makes it easier to meet it in future complaints,” he said. "The ITC can treat the domestic industry requirement as essentially established.”

Tessera, the technology licensing company run by CEO Thomas Lacey, filed its ITC complaint last month against Broadcom Ltd., its affiliates and a number of its customers. The ITC complaint involves three patents and seeks an exclusionary order.

In addition, San Jose, California-based Tessera filed enforcement actions seeking damages in the U.S. District Court in Wilmington, Delaware, and courts in Germany and the Netherlands.

In December, Jacksonville, Florida-based ParkerVision, run by CEO Jeffrey Parker, filed a patent infringement complaint against Apple, LG Electronics, Samsung and Qualcomm seeking an exclusionary order.

Tessera is being represented by Robert Haslam and Sturgis Sobin, partners at the law firm of Covington and Burling, while ParkerVision is being represented by Michael Renaud, a partner with Mintz Levin Cohn Ferris Glovsky and Popeo PC.

Tessera officials declined to comment for this article. ParkerVision officials also declined to comment.

Tessera previously filed four complaints with the ITC and obtained an exclusion order in Investigation No. 337-TA-605 against Spansion, Qualcomm, ATI Technologies, Motorola, STMicroelectronics, and Freescale Semiconductor.

Tessera obtained an initial determination of a violation of Section 337 (i.e. infringement and validity were found) in Investigation No. 337-TA-432 against Texas Instruments and Sharp. The full ITC affirmed the Administrative Law Judge’s finding of a violation. The companies reached a settlement before the full ITC formally issued the exclusion order.

The company also voluntarily dismissed ITC Investigation No. 337-TA-649 against Siliconware Precision Industries Co., Ltd. (SPIL), STATS ChipPAC, ASE, and ChipMOS.

Finally, the ITC declined to grant an exclusion order to Tessera in ITC Investigation No. 337-TA-630, in a complaint filed against A-Data, Acer, Centon, Elpida, International Products Sourcing Group, Kingston, Nanya, Patriot Memory, Powerchip, ProMOS, Ramaxel, Smart Modular, and TwinMOS.

Exclusionary orders can be very meaningful for NPEs. After the Federal Circuit affirmed the exclusionary order against Spansion, Qualcomm and the others, Tessera’s stock price increased by 30% in one day.

“The announcement of that ruling [on May 21, 2009] led the company’s stock price to increase by 30 percent in a single day, and led Motorola to enter into a license agreement with Tessera,” according to a blog post by the law firm Irell & Manella LP, whose partner Benjamin Hattenbach represented Tessera.

Tessera shares jumped as much as 32% that day before increasing to $20.16 from $16 on May 21, 2009.

Hattenbach couldn’t be reached for comment.

Other ITC complaints filed by NPEs in the last year include ones by Silicon Genesis Corp., Creative Laboratories and Paice LLC.

Silicon Genesis Corp. recently withdrew the complaint it filed with the ITC against Soitec (Euronext) of France.

Creative Laboratories brought an ITC complaint against ZTE Corp., ZTE (USA) Inc., Sony Corp.; Sony Mobile Communications Inc., Sony Mobile Communications AB of Lund, Sweden; Sony Mobile Communications (USA) Inc., Samsung Electronics Co. Ltd.; Samsung Electronics America, Inc.; LG Electronics, Inc., LG Electronics U.S.A., Inc., LG Electronics Mobilecomm U.S.A., Inc.; Lenovo Group Ltd.; Lenovo (United States) Inc.; Motorola Mobility LLC; HTC Corp., HTC America, Inc.; Blackberry Ltd. and Blackberry Corp.

Paice recently filed a complaint against Volkswagen, Porsche and Audi, asking the ITC to investigate alleged infringement of U.S. Patent Nos. 7,237,634, 7,104,347, and 8,214,097.

—To reach the reporter responsible for this story, please contact Dan Lonkevich at 707 318-7899, or at dan@thepatentinvestor.com