Federal Circuit’s Ruling Against Comcast Highlights Significance of ITC for Patent Owners

U.S. International Trade Commission

As IPWatchdog reported last week, on March 2, in what can only be characterized as the most significant crackdown against patent evasion in a generation, TiVo Corporation won a groundbreaking U.S. Court of Appeals for the Federal Circuit ruling against Comcast.

Within its opinion, the Federal Circuit came out swinging against the cable company. It affirmed all of the findings and decision-making previously made by the International Trade Commission (ITC) concerning the company’s infringement of TiVo Corporation’s intellectual property.

The Court’s opinion provides a noteworthy precedent that will spell trouble for the future of Comcast’s business practices, particularly for the company’s upcoming cases with the ITC. More significantly, however, it will protect the authority of the ITC to police similarly profiled instances of patent trolling in the future, which will make the opinion go down in history as one of the most substantial victories for the strength and sanctity of patent evasion in the 21^st century

For years, Comcast has offered its customers a set-top box digital recorder, used for both recording material and broadcasting live television.

At issue is the significant amount of technology that TiVo, the country’s DVRing pioneer, created that is integrated within the set-top box. Like most other entities, Comcast used to pay TiVo for the licensing rights; however, it abruptly stopped doing so when its contract came up for renewal.

Because the digital recorders are produced overseas, the ITC – the independent U.S. agency tasked with halting unfair trade practices – imposed a ban on their importation into the United States.

Comcast’s ITC Evasion Strategy

No one denies that the set-top boxes involve patent infringement in some way – not even Comcast. As stated by the Commission, “Comcast does not dispute direct infringement by its customers, and does not dispute that it induces infringement by its customers.” In short, Comcast is merely arguing in its appeal that, despite the clear infringement of TiVo’s IP, it should evade penalty by the ITC for three reasons:

1. Comcast is not the infringer – Because the devices only become patent violations once consumers choose to hook them up to Comcast’s domestic servers, Comcast customers are the ones violating TiVo’s patents, not the company itself.
2. Comcast is not the importer – Comcast argued that it does not physically import the devices, which is done by two other companies, and therefore it cannot be penalized.
3. Upon importation, the devices are not patent violations – Since the set-top boxes can only be used for predatory behavior upon consumers’ integration of the set-top boxes with Comcast’s servers, the ITC has no authority to stop the set-top boxes’ importation.Comcast may induce consumers to commit the breach of patents, but it does so “entirely domestically, well after, and unrelated to, the article’s importation.” And so, the ITC has no jurisdiction to stop the devices from being brought into the United States, said Comcast.

Federal Circuit Tosses Comcast’s Arguments

Thankfully, the Court recognized Comcast’s arguments as a lackluster attempt to create loopholes around U.S. patent law and dilute the ITC’s enforcement authority. In rejecting all three of its appeal arguments, the Court noted that:

1. While Comcast may not produce the set-top boxes by hand, it still directs the manufacturing process of the devices overseas and requires the manufacturers to install all Comcast software onto the devices. The company and its intermediaries also fit the set-top boxes themselves, hence making Comcast the infringer by default.
2. Through the forecasts and orders it sends to the two devices’ producers, Comcast singlehandedly controls the volume of the set-top boxes that enter the United States. It may place the directing of the manufacturing in the hands of other companies, but, its actions and dictations nevertheless still point to it being the importer.
3. Since the ITC’s order only prohibits the devices’ importation on behalf of Comcast, which imports them for no reason other than to evade TiVo’s patents, The Commission’s order was within its jurisdiction.

Significance of the Opinion

The Federal Circuit’s opinion has wide-reaching implications, both for Comcast’s long-term IP strategy and the future of IP enforcement at large.

For the company itself, it will mark an all-but-guaranteed net loss for the entirety of its strategy to “ITC-proof” its business model.

As a result of The Court’s opinion, at the end of this month, the ITC will inevitably uphold Comcast’s loss when issuing its Final Determination for the second case related to Comcast’s patent infringements against TiVo, just as it likely will in June with case three.

Most importantly, however, the Federal Circuit’s opinion solidifies the ITC’s authority as the ultimate policer against deceptive practices in the international trading arena.

Never before has a corporation attempted to rip the teeth out of The Commission’s enforcement mechanisms with this degree of thought and calculation. If history is any indication, other institutions would have quickly seized on the precedent and rode Comcast’s coattails to evading the ITC and patent law at large should it have succeeded in implementing this loophole.

For these reasons and more, U.S. innovators across the nation should thank the Court for protecting the ITC’s statutory power. Because of it, their patent rights will remain safe and secure for the years to come.