WASHINGTON (Legal Newsline) - Comcast cable television customers should pay higher monthly fees for the right to schedule DVR recordings from their smart phones, according to a complaint filed with the International Trade Commission.
Rovi Corp., dubbed a "patent troll" by some observers, claims it holds rights to the invention, standard with Comcast's new "X1" system, and deserves a fee for every user. Rovi held the patents at issue when it bought TiVo last year for $1.1 billion.
With both patents scheduled to expire next September, Rovi has pushed Comcast in both federal court and the ITC, which has a reputation of favoring patent holders and settles disputes quicker than federal judges.
The company's CEO admitted last year that he hoped to use the ITC's fast-moving process to force a settlement out of Comcast.
“Clearly, the benefit of the ITC case is that it moves much more quickly, so we would hope that that prompts the other side to potentially want to come back to the table," CEO Thomas Carson said in July.
Rovi’s argument before the ITC says Comcast shouldn’t be allowed to import the cable boxes used with the X1 system.
“Any remedial order would have a significant impact upon consumers due to the manner in which consumers view (set-top boxes) and the behavior of consumers regarding STBs,” Comcast wrote to the ITC.
“First, given the number of times a day a typical consumer interacts with an STB, it is impossible to expect that an exclusion order could be entered without serious disruption to consumers.”
And members of Congress from Pennsylvania, where Comcast is headquartered, have also worried that a ruling for Rovi could negatively impact the 91,000 employees of Comcast and raise prices for cable subscribers everwhere.
“Limiting Comcast’s ability to provide cable service will harm a major competitor in the cable market and hinder competition,” Sen. Pat Toomey told the ITC.
“The (ITC judge’s) ordered remedy will likely result in harm to consumers. Comcast’s 22.5 million cable subscribers may be harmed by losing their choice of cable providers.
“Also, many more consumers may suffer due to a less competitive market, where remaining companies can limit choice and raise prices.”
A fellow lawmaker, the chair of the House Judiciary Committee, says the ITC is a forum used by patent-holders to assert weak claims.
“In recent years, however, patent assertion entities have used the Commission as a forum to assert weak or poorly issued patents against American businesses,” Virginia’s Bob Goodlatte said at a 2016 hearing on patent litigation at the ITC.
“It is evident that there are cases that have come before the ITC that probably should have been litigated exclusively in our U.S. district courts.”
It’s been a “patent troll” strategy that has helped Rovi get this far, according to a Tech Crunch article following the company’s acquisition of TiVo.
The company now holds more than 6,000 patents and pending applications, allowing it to generate billions of dollars from licensing and patent lawsuits, the New York Times reported.
The company has said it is using the ITC process because it moves quicker than federal courts.
“I think, what we've said really for both the ITC in the District Court cases is that generally speaking, a ITC case is 15 months to 18 months from the time it starts so we're three months into it at this point, so that gives you a some indication of where you think you can get a decision,” Carson said in July 2016.
"District Court cases, as you know, take longer, we've said, generally it's a three-year process in terms of trying to get to a final outcome there, and obviously that's a little bit based on what court dockets look like.”
The ITC decision will come after a flurry of legal action in the last 18 months by Rovi and Comcast.
Rovi originally sued Comcast -- along with set-top box suppliers Arris, Pace, Technicolor and Humax -- in the U.S. District Court for the Eastern District of Texas, Marshall Division, on April 1, 2016. The court is the most popular in the country for patent claims, though Rovi has used Delaware, California, Virginia and New York courts when suing in the past.
In the complaint, Rovi accused Comcast of refusing to renew its licensing fee to continue to use Rovi’s Interactive Program Guide, or IPG, technology. The company needs a license for its X1 IPG product, Rovi says.
“After numerous attempts at negotiations, Rovi was left with no choice but to defend its intellectual property from unlicensed use,” Rovi President and CEO Tom Carson said.
“Rovi has taken this action to protect not only its patent portfolio, but also its stakeholders and licensees."
The case was transferred to a New York federal court in October 2016 after the Texas judge ruled the agreement between Rovi and Comcast required the case to be litigated there.
Meanwhile, Rovi sought to prosecute Comcast before the ITC.
On April 6, 2016, Rovi filed a complaint with the ITC. Section 337 of the Tariff Act prohibits imports of infringing goods.
The ITC is left in control
Rovi asked the ITC to investigate the importation of certain digital video receivers and hardware and software components that use the inventions claimed in its patents.
Both complaints were filed by Rovi right before it agreed to acquire TiVo -- considered the pioneer in digital video recorders, or DVRs -- for $1.1 billion on April 29, 2016.
Almost a month later, in response to Rovi’s filings, Comcast filed its own lawsuit in the U.S. District Court for the Southern District of New York.
In that suit, filed May 23, 2016, Comcast alleged breach of contract and sought a declaratory judgment of patent noninfringement from Rovi’s filings in the Eastern District of Texas and the ITC.
Comcast argued both actions breach two different forum selection clauses in licensing agreements between the parties, both of which mandate Rovi’s actions be litigated in New York.
The company also argued that Rovi’s actions all assert patents that it has not infringed.
The New York federal court denied Comcast’s attempt to stay proceedings while waiting for a ruling from the ITC.
Judge J. Paul Oetken, in an opinion issued in May, said Comcast’s claims fell outside of the timeframe of a forum-selection clause in an expired patent agreement.
In the weeks following that decision, an administrative law judge with the ITC, David P. Shaw ruled that a Section 337 violation occurred with respect to two of Rovi’s six asserted patents.
However, in August, the ITC issued a notice agreeing to review Shaw’s final initial determination, or final ID.
Comcast, in a response, argued that government officials, industry leaders and labor representatives have voiced concerns over the public interest in providing uninterrupted cable services and avoiding unnecessary disruption of employment.
“The Accused Products in this Investigation are of great importance to American consumers. Comcast has more than 22 million subscribers in the United States. On average, Americans spend more than 5 hours a day watching television,” Comcast wrote.
“The STBs at issue are critical infrastructure for the viewing, recording, and enjoyment of television program, including critical public health and safety information as discussed above. Consumers demonstrate the value they associate with these devices and television viewing activities by the expenditures they make on television equipment and related services, approximately $162 billion in 2016.
“Consumers value these products for the wide variety of programming -- news, sports, entertainment, and health and safety information -- they are able to access through the functionality provided by STBs.”
Under Section 337, the ITC also must consider public health and welfare, and the impact of an exclusion order on competition in the marketplace before issuing an exclusion order.
But Goodlatte contends the commission “rarely” exercises its responsibility to apply that public-interest test.
“This failure to follow the law has particularly damaging results in today’s technology markets in which products are often reliant on hundreds or thousands of patents,” Goodlatte said during the hearing.
Goodlatte even argues the ITC is being used by some patent assertion entities as a “forum to assert weak or poorly-issued patents against American businesses.”
A duplicative system?
Kristen Osenga, a University of Richmond School of Law professor who advocates for the protection of intellectual property, doesn’t agree with Goodlatte and says the ITC “simply is another avenue” to enforce patent rights.
“In the court system, where we typically think patent enforcement happens, the patentee sues an alleged infringer and, if successful, can ask the court to award damages and/or issue an injunction, prohibiting the infringer from continuing to make/use/sell/etc. the patented technology,” she said.
“The court system works well if the patentee is seeking damages and if there is jurisdiction over the infringer in the U.S., which is most of the time – even foreign companies have enough engagement and contact with the U.S. to be subject to the jurisdiction of the U.S. court system.”
But the ITC, Osenga said, is different. It is a patent jurisdiction that aims to exclude infringing products from coming into the United States from a foreign country, and its jurisdiction requires that there be a “domestic injury” component.
Essentially a U.S. industry is being hurt by the importation of infringing goods, she said.
“The action can proceed even if there’s no personal jurisdiction over the foreign party; the ITC has in rem jurisdiction or jurisdiction over the ‘stuff,’” Osenga said. “The remedy is based on that ‘stuff’ and takes the form of an exclusion order -- meaning that Customs can stop infringing goods from entering the U.S.”
Another scholar, economics professor Fiona Scott Morton of the Yale School of Management testified that the threat of an inappropriately granted exclusion order helps the ITC create an “extortion-like environment.”
“Consequently, the ITC is a very popular venue for patent holders who want to avoid their (fair, reasonable and non-discriminatory) commitments and garner a higher royalty than they could receive under current laws in federal courts,” she told the House subcommittee last year.
Standard-essential patent holders win half the time they file with the ITC, as opposed to a 28% win rate in federal court.
“For implementers that can be sued in federal court for damages and reasonable royalties, the ITC is a duplicative venue that operates under a different standard for injunctive relief and allows SEP owners to engage in an anticompetitive holdup,” she said.