IN THE UNITED STATES INTERNATIONAL TRADE COMMISSION WASHINGTON, D.C.

In the Matter of CERTAIN ELECTRONIC DEVICES, INCLUDING MOBILE PHONES AND TABLET COMPUTERS, AND COMPONENTS THEREOF Investigation No. 337-TA-847

STATEMENT OF PUBLIC KNOWLEDGE IN RESPONSE TO THE COMMISSIONS NOTICE OF REQUEST FOR STATEMENTS ON THE PUBLIC INTEREST DATED OCTOBER 18, 2013

CONTENTS I.! IN ASSESSING THE PUBLIC INTEREST, THE COMMISSION SHOULD LOOK TO BROAD CONSIDERATIONS OF PROMOTING INNOVATION.........................................1! A.! Whether the Patented Feature Is a Small Part of the Product to Be Excluded ....................2! B.! Whether an Exclusion Order Will Hamper Future Innovation ............................................2! C.! These Considerations Weigh Against an Exclusion Order in the Present Case ..................3! II.! THE COMMISSION SHOULD ESTABLISH A MULTI-FACTOR TEST FOR EVALUATING PUBLIC INTEREST CONCERNS IN 337 INVESTIGATIONS ...............4! A.! A Clear Public Interest Test Would Increase Consistency Among the Commissions Decisions and Facilitate Early Evaluation of Public Interest Considerations......................4! B.! Policy Goals of the Administration Indicate the Importance of a Clearly Defined Public Interest Test ..............................................................................................................5! III.! CONCLUSION ..........................................................................................................................5!

STATEMENT OF PUBLIC KNOWLEDGE Public Knowledge respectfully submits the following statement pursuant to 19 C.F.R. 210.50(a)(4) and the U.S. International Trade Commissions Notice of Request for Statements on the Public Interest, dated October 18, 2013, regarding Investigation No. 337-TA-847. Public Knowledge is a 501(c)(3) public interest organization. Its primary mission is to promote technological innovation, protect the rights of all users of technology, and ensure that emerging issues of technology law, including patent law, serve the public interest. In brief, Public Knowledge presents two separate recommendations. First, Public Knowledge suggests that the Commission consider two particular factors in its public interest evaluations, such as that to be conducted in the present investigation. These factors relate to the public interest in promoting innovation, and advance the fundamental principle that patents should incentivize innovation. The suggested factors are (1) the relative proportionality between the features of the accused product and the patented component of that product, and (2) the extent to which an exclusion order will potentially hamper further innovation. Second, Public Knowledge recommends that the Commission adopt a clear multi-factor test for evaluating the public interest considerations. This would promote consistency among the Commissions decisions, assist parties and the public in early evaluations of the merits of investigations, and comport with stated policy aims of the Administration. I. IN ASSESSING THE PUBLIC INTEREST, THE COMMISSION SHOULD LOOK TO BROAD CONSIDERATIONS OF PROMOTING INNOVATION In assessing the public interest, many of the considerations will be well known or obvious from the statutory text or prior decisions. Such factors include the quantity of products on the market, the effect on health and welfare, and whether the patents at issue are standards-essential. In the interest of technology consumers, the Commission should consider the following two additional factors. Although they have not been historically the focus of the Commission in evaluating the public interest, these factors have a substantial impact on competitive conditions in the United States economy and United States consumers, and more importantly substantial

impact on the fundamental principle that patent law should promote innovation. A. Whether the Patented Feature Is a Small Part of the Product to Be Excluded It is age-old law that the value of a patent is proportional to the amount that patent contributes to a product. Seymour v. McCormick, 57 U.S. 480 (1854) (But one who invents some improvement in the machinery of a mill could not claim that the profits of the whole mill should be the measure of damages for the use of his improvement.). This proportionality informs district courts when they calibrate awards of reasonable royalties. The Commission does not have the flexibility to award a calibrated reasonable royalty. Consequently, it must apply exclusion orders judiciously, based on the relative value of the patented elements. In cases where that value is relatively small, the Commission should avoid the heavy hammer of exclusion and instead defer to the district courts to use the scalpel of damages.1 By failing to consider proportionality and issuing exclusion orders on products based on even the smallest infringing part, the Commission risks denying consumers numerous valuable and useful technologies for the sake of protecting a minimal patent on a single aspect of a complex device. Aside from obviously reducing competition, disincentivizing innovation, and disserving consumers, it is entirely possible, as was the case in Baseband Processor, that some of those non-patented features implicate public health and welfare. See Certain Baseband Processor Chips, Inv. No. 337-TA-543, Commn Op. at 148-49 (June 19, 2007).2 Thus, to properly consider the public interest factors fully, the Commission must balance the specific component implicated by the patents at issue against other technologies provided by the products at issue. B. Whether an Exclusion Order Will Hamper Future Innovation Generally, in evaluating the market effect of an exclusion order on a product, the Commission looks to other products contemporaneously on the market, to evaluate the extent to
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This conclusion is strengthened when the complainant is a non-practicing entity who ultimately benefits only from settlements driven by exclusion, and not the exclusion order itself. Patent owners generally are free to pursue parallel district court litigation, and many of them do. 2 Although, in Baseband Processor, the public safety applications used the patented networking technology, the public safety applications themselves did not infringe the patents at issue. See id. 2

which the market would be diminished. See, e.g., Certain Electronic Digital Media Devices and Components Thereof, Inv. No. 337-TA-796, Commn Op. at 119-21 (Sept. 6, 2013). However, oftentimes the real risk of an exclusion order to the market is not the mere reduction of available goods, but rather the disincentives for future innovation that the exclusion order engenders. If a company makes investments in developing new and useful products only to discover that a competitor can wield a dubious or minor patent to keep those new products off the market, then that company is unlikely to make those investments in the future. The consequent disincentives to innovation, besides cutting against the fundamental principle for patents, will reduce directly competitive articles in the United States, diminish competitive conditions in the United States economy and ultimately impoverish United States consumers.3 The risk of curtailing innovation through an exclusion order is heightened in at least two situations. First, when an exclusion order is imposed against a company that is highly innovative in areas outside the scope of the asserted patent, the value to consumers of that companys noninfringing innovation stands to be lost. Second, when an exclusion order is imposed against numerous competitors in a field, leaving only an oligopoly or monopoly, the threat to innovation is more prominent. Competition breeds innovation, and cutting out a large swath of competitors enables the remaining entities to rest on their laurels rather than to continue to innovate. C. These Considerations Weigh Against an Exclusion Order in the Present Case The two factors suggested above, when applied to the facts of the present case, weigh against an exclusion order. Regarding the proportionality factor, the Initial Determination recognized that HTCs devices have numerous noninfringing features, such as taking pictures and playing music. (See ID on Violation at 175, Sept. 23, 2013.) Those features have been widely praised, demonstrating the innovative aptitude of HTC. See, e.g., Brian Bennett, The Gorgeous HTC One Is a Winner, CNET, Apr. 8, 2013, http://reviews.cnet.com/htc-one/. This shows the
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The risk to future innovation is different from patent holdup (which also should be, and has been, considered by the Commission). Patent holdup focuses on exploitation of a difference in value between the patented invention and the excluded product. The focus here, by contrast, is on the future innovation that will be diminished as a result of an exclusion order. 3

risk to future innovation of an exclusion order on HTC. Furthermore, the theories of infringement revolve around Qualcomm chipsets commonly used in numerous phones (see, e.g., Compl. Ex. 28, at 47-61, May 2, 2012; ID on Exhaustion at 2, May 2, 2013), so an exclusion order could greatly reduce competition and ultimately stifle future innovation. Accordingly, in view of these factors, the public interest in innovation weighs against an exclusion order here. II. THE COMMISSION SHOULD ESTABLISH A MULTI-FACTOR TEST FOR EVALUATING PUBLIC INTEREST CONCERNS IN 337 INVESTIGATIONS The Commission should establish a test for evaluating the public interest factors in 337 patent investigations. This test, which should consist of a number of factors such as those discussed above, could be instantiated through explicit application in the present investigation, so that it may be cited in future decisions. The statutory mandate for consideration of the public interest directs the Commission to consider four factors: the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers. E.g., 19 U.S.C. 1337(d)(1). Although this is the statutory test for the public interest, it is expressed in terms of broad generality that do not lend themselves to straightforward and consistent application. What is needed is a set of specific factors, consistently applicable to the facts of various investigations, combined to form a generally applicable test. A. A Clear Public Interest Test Would Increase Consistency Among the Commissions Decisions and Facilitate Early Evaluation of Public Interest Considerations A clear test serves several useful purposes. First, it increases consistency between decisions in various investigations, since those decisions would begin their analyses from a consistent set of principles. Second, a test provides early notice to parties of how the Commission intends to evaluate the public interest factors, thereby enabling parties to come to settlements or otherwise evaluate their legal risks without having to resort to a full-blown investigation. Third, a test will assist the parties, the ALJ, and members of the public in preparing statements and conducting discovery on the public interest, by allowing the statements and discovery to be tailored

to the specific elements of the test. See 19 C.F.R. 210.8(b)-(c), 210.10(b), 210.50(a)(4). B. Policy Goals of the Administration Indicate the Importance of a Clearly Defined Public Interest Test Furthermore, a clear public interest test would advance policy goals set forth by the Administration. At least two sources indicate these policy goals. The letter from the U.S. Trade Representative disapproving the exclusion order in Investigation No. 337-TA-794 directed the Commission to examine thoroughly and carefully on its own initiative the public interest issues presented and make explicit findings on these issues to the maximum extent possible. Similarly, the White House Task Force on High-Tech Patent Issues recommended that the Commission adopt the eBay v. MercExchange standard when issuing exclusion orders. A clear test, applied to the facts of any investigation, would demonstrate the Commissions thoroughness and care in evaluating public interest issues. If the test sufficiently aligns with that of eBayfor example by considering, among other things, the proportionality factor from aboveit could also potentially satisfy the White House Task Forces recommendation and thus avoid the need for further legislation affecting the Commission. For the aforementioned reasons, Public Knowledge respectfully submits that the Commission should establish a multi-factor test for evaluating the public interest factors. III. CONCLUSION For the foregoing reasons, Public Knowledge respectfully urges the Commission to consider the suggestions provided herein, when evaluating the public interest considerations in the present investigation.

Date: November 13, 2013

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Respectfully submitted, Charles Duan Public Knowledge 1818 N St NW, Suite 410 Washington, DC 20036 (202) 861-0020 cduan@publicknowledge.org Counsel for Public Knowledge 5