Bloomberg News

Intel’s Trade Agency Patent Case Cited for U.S. Jobs Risk

August 20, 2012

The Phoenix suburb of Chandler, Arizona, is counting on 300 new high-tech jobs and paychecks for 1,000 construction workers from an expansion of Intel Corp. (INTC:US)’s facilities there.

Republican Senator John McCain and other Arizona members of Congress say those jobs may be threatened by a patent- infringement case at the U.S. International Trade Commission. The patent owner, closely held X2Y Attenuators LLC, claims some Intel microprocessors use its technology and wants the agency to block imports of products that contain them, including some Apple Inc. (AAPL:US) and Hewlett-Packard Co. (HPQ:US) computers.

The potential impact on U.S. jobs has drawn the case into a broader dispute about whether patent owners that don’t make products themselves should be able to use the ITC’s power to ban imports as a cudgel in fights over licensing fees. Intel does initial manufacturing for the chips in the U.S. and sends them abroad for final assembly and use by computer makers.

“Given the strained economic climate specifically in Arizona as well as coast to coast, it is easy to see how an exclusion order that discourages U.S. manufacturing could do more harm than good with respect to public interest,” the Arizona lawmakers wrote in an Aug. 9 letter to the commission. The congressional delegations from Oregon and New Mexico, where the world’s largest semiconductor maker also has facilities, sent similar letters.

ITC Judge David Shaw is set to begin hearing testimony in the case tomorrow in Washington. He is scheduled to release his findings, which can be reviewed by the commission, in December. The agency has set a target date of April 15 for completing all proceedings.

Protecting Markets

The ITC is a quasi-judicial agency charged with protecting U.S. markets from unfair trade practices, including patent infringement. Since 2006, when a U.S. Supreme Court ruling made it harder for patent owners to win federal district court orders blocking sales of infringing products, companies that license the use of their inventions have increasingly turned to the ITC’s power over imports to pressure recalcitrant infringers to pay royalties.

“X2Y approached Intel over a decade ago and explained how X2Y’s technology would improve Intel’s products if Intel wished to take a license,” the Erie, Pennsylvania-based company said in a statement on its website. “Intel did not take a license, but appears to have adopted X2Y’s technology anyway.”

Blocking Imports

X2Y, which develops methods for improving the performance of circuits, owns patents on ways to overcome electromagnetic interference that can damage electronics. It’s licensed technology to companies including Samsung Electronics Co. (005930), the world’s biggest maker of computer-memory chips.

A loss for Intel could prevent the chipmaker from bringing its microprocessors, including the Core i7 chip, back into the U.S. and limit imports of Apple and Hewlett-Packard computers that run on them. Chuck Mulloy, a spokesman for Intel, said the company wouldn’t comment on the case before trial.

Intel is among companies, including Cisco Systems Inc. (CSCO:US) and Ford Motor Co., that have been lobbying Congress to make it harder for companies that don’t make products to file complaints with the ITC.

“In recent years the forum has strayed beyond its purpose and has come to be abused, targeting Americans manufacturers, threatening their U.S. operations, and trying to force them into cash settlements that would not be awarded by a court,” David Kelley, intellectual property counsel for Ford, said in remarks prepared for a July 18 House Judiciary subcommittee hearing.

‘Significant’ Activities

Ford and other automakers were targeted in a case brought by a Swiss patent owner over navigation systems that were made overseas. The company withdrew the ITC complaint and is pursuing its case instead in a federal district court, where it can sue for cash compensation that’s not available in ITC cases.

Colleen Chien, a professor at Santa Clara University in Santa Clara, California, told the subcommittee that one-quarter of the cases filed at the agency are by companies that don’t make products, and the complaints are directed at U.S. companies more often than foreign companies.

The ITC has tightened its standards, requiring patent owners to have “significant licensing activities,” weeding out complaints from some with no real business operations. It has started seeking input earlier in a case about whether agency action would be in the public interest.

“The people who are complaining really think that only operating companies should be able to assert patents,” said Paul Michel, who was chief judge of the U.S. Court of Appeals for the Federal Circuit, the court specializing in patent law, before his 2010 retirement.

Limit Jurisdiction

“There’s a risk Congress will limit ITC jurisdiction or remedies or both,” said Michel, who would oppose such a change. “Congress is highly responsive to major companies and the bigger or wealthier or more connected they are politically, the more attentive” lawmakers are.

Intel, based in Santa Clara, makes semiconductors at plants in Chandler; Hillsboro, Oregon; and Rio Rancho, New Mexico. It ships them overseas to be cut into chips which are encased in plastic and have connections attached so they can be inserted into electronic devices.

X2Y has also filed a civil lawsuit in federal court that’s been put on hold until the ITC case is completed.

While X2Y’s ITC complaint centers on Intel’s activities at test and assembly plants in Costa Rica, Malaysia, the Philippines and China, congressional letters are focusing on jobs for American workers.

High-Wage Jobs

Intel plans a $300 million research and development facility in Chandler. With two plants already operating there, Intel is the city’s largest employer, with 11,000 workers.

“We’re very excited,” said Terri Kimble, president of the Chandler Chamber of Commerce, “It’s going to be great. It’s going to create hundreds of local jobs as well as over a thousand construction jobs.”

In Hillsboro, the company plans a multibillion-dollar facility that would employ 6,000 construction workers while it’s being built and add 1,000 high-wage jobs when it’s completed, according to the letter signed by Oregon’s delegation, including Senator Ron Wyden, a Democrat.

While the letters focus on manufacturing and construction jobs, companies that license patents -- sometimes called non- practicing entities, or NPEs -- also have employees and “are still putting some people’s kids through college,” said Rodney Sweetland, a patent lawyer at Duane Morris in Washington.

Congress, seeking to help universities and biotech companies protect their research, changed the law in 1988 to make clear that patent licensing can be the basis for an ITC complaint.

Public Interest

Still, congressional hearings and pressure from lawmakers may have an impact on the outcome of the Intel case and other disputes involving non-practicing entities, Sweetland said.

“The commission has to consider the public interest, and congressional sentiment can embody the public interest,” he said. “NPE’s do employ a lot of people through licensing -- not on the same scale as some of the larger practicing entities.”

X2Y said Intel can avoid any possible disruption to its business plans by taking a license, removing the X2Y inventions from its chips “or by moving all of its operations into the United States.”

The case is In the Matter of Microprocessors, 337-781, U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net: Kayla Bruun in Washington at kbruun@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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