backITC Section 337 Update – August 1, 2016
DeLorme Seeks Certiorari Review Of Consent Order Penalty Based On Expired Patent — On July 13, 2016, DBN Holding, Inc. and BDN LLC (“DeLorme”) filed a petition for writ of certiorari to review a judgment of the United States Court of Appeals for the Federal Circuit that affirmed the International Trade Commission’s (“Commission”) imposition of a penalty for violating a Consent Order. The case is DBN Holding, Inc. v. ITC, Case No. 16-63.
As discussed in the February 3, 2016 ITC Section 337 Update, in 2012, BriarTek IP, LLC filed a complaint with the Commission alleging that DeLorme Publishing Company and DeLorme inReach LLC, which have since changed their names, imported “devices, systems, and components” that infringed its patent. DeLorme proposed to terminate the investigation through a consent order because it was moving the manufacturing of its allegedly infringing inReach device to Maine. After the Consent Order was approved, BriarTek filed a complaint alleging DeLorme had violated the Order, and shortly after the Commission began an enforcement proceeding, DeLorme filed a declaratory judgment action in federal court challenging the validity and infringement of the patent. While the district court action was pending, the Commission issued a decision in the enforcement proceeding finding that DeLorme violated the Consent Order and imposing a civil penalty of $6,242,500. The district court later found that the asserted patent claims were invalid. The Federal Circuit affirmed the imposition of the penalty.
In its petition, DeLorme argues that, because the penalty was imposed due to the importation of a non-infringing component that was later incorporated into a device manufactured in the United States, the Federal Circuit’s decision extends the Commission’s jurisdiction to domestic patent disputes. In DeLorme’s view, this extension is contrary to the text of Section 337, which applies to the importation of “articles that … infringe a valid and enforceable United States patent.” DeLorme claims that “[i]f an imported article is a component that is later incorporated in a device that infringes a patent, then the device infringes, but the imported component - the “article” in question - does not.” And it argues that the language of the statute is clear, “[a]n ‘article that infringes’ cannot be interpreted to cover an ‘article that does not infringe.’” DeLorme notes that, given the in rem nature of the Commission’s jurisdiction and the directive of its exclusion orders to Customs officials who inspect imported goods at the border, “the Commission ought to be able to determine whether an article is infringing without regard to what may or may not happen to the article after it enters the United States.” DeLorme also notes the risk that this extended jurisdiction will encourage even more patent holders to use the “Commission’s fast and patent-friendly proceedings to gain the leverage associated with the threat of an exclusion order.”
With respect to the Federal Circuit’s affirmance of the Commission’s penalty, DeLorme asserts that, because an Article III court held the asserted patent claims to be invalid, it “should not have to pay $6 million to have access to ideas that are not, and never should have been, protected by a patent.” It also argues that elevating the Commission’s determination over that of a federal court gives an additional advantage to patent holders who appear before the Commission.
Judge Lord Suspends Section 337 Investigation on Certain Carbon And Alloy Steel Products; U.S. Steel Petitions For Review — On July 6, 2016, Administrative Law Judge Sandra Dee Lord issuing an order suspending the Section 337 investigation on Certain Carbon And Alloy Steel Products, Inv. No. 337-TA-1002. The -1002 investigation was commenced by the Commission based on a complaint filed by U.S. Steel alleging a violation of Section 337 based on price fixing, trade secret theft, and false designation of origin of imported goods that allowed the respondents to avoid the payment of antidumping duties. The price fixing claim also alleged that the threat or effect of such price fixing was to restrain or monopolize trade. The trade secret theft and false country of origin claims further alleged that the threat or effect of these violations was to injure the domestic industry. Judge Lord suspended the investigation because the U.S. Department of Commerce (“Commerce”) had not been notified that the complaint was based on alleged “acts or effects” which are within the purview of the antidumping and countervailing duty laws as required by 19 U.S.C. § 1337(b)(3) and (b). Importantly, Judge Lord’s decision was issued sua sponte, not based on the motion of any of the respondents.
On July 13, 2016, U.S. Steel filed a petition for review of the Judge Lord’s Order. U.S. Steel argued that the suspension was in error because (a) the allegations in the complaint were not within the purview of the antidumping or countervailing duty laws, as Commerce already issued final determinations in the referenced antidumping and countervailing duty investigations; (b) Commerce already has been notified of U.S. Steel’s complaint; and (c) the Commission’s regulations (19 C.F.R. § 210.23) do not authorize the ALJ to suspend an investigation based on notice requirement. OUII filed its own petition for review echoing the arguments made by U.S. Steel. In addition, OUII argued that the injury requirement for U.S. Steel’s trade secret theft and false designation of origin claims, as well as the effect test for the price fixing claims, are not within the purview of the injury requirement set forth in the antidumping and countervailing duty laws. OUII also argued that a suspension would cause indefinite delay of the investigation.
On July 22, 2016, respondents filed a response to the petition for review. Respondents contended that the antidumping and countervailing duty investigations on steel products “are woven inextricably into the fabric” of U.S. Steel’s core case and that U.S. Steel “has simply dressed the same acts and effects it already pursued aggressively through [antidumping and countervailing duty] remedies in the garb of antitrust and false designation claims.” Respondents also offered a rebuttal to U.S. Steel’s and OUII’s other arguments, and further requested oral argument on the petition. The Commission is expected to decide whether the review Judge Lord’s order by August 5, 2016.
“Trade Protection Not Troll Protection Act”: Update — Congress recessed for the summer without moving the “Trade Protection Not Troll Protection Act” out of committee. As King & Spalding has reported in the Update, the Act aims to amend Section 337 so as to, among other things, ensure that the Commission is “focused on protecting genuine domestic industries,” and “will not be a duplicative forum for enforcing intellectual property rights.” The Act was introduced in March 2016 by Representatives Cárdenas (D-CA) and Farenthold (R-TX). A handful of co-sponsors co-sponsored the Act on April 13, 2016 and June 10, 2016, but it remains bottled up in the House Ways and Means Committee.
On April 14, the U.S. House of Representatives Committee on the Judiciary’s Subcommittee on Courts, Intellectual Property and the Internet held a hearing on International Trade Commission Patent Litigation. In the wake of the introduction of the Act, the hearing addressed the role of the Commission in adjudicating Section 337 claims.
Chaired by Subcommittee Chairman Darrell Issa (R-CA), a key purpose of the hearing was to determine the extent to which the Commission’s actions over the last few years have adequately addressed what some have viewed as a flooding of the various patent litigation fora by “patent trolls,” or “non-practicing entities” who exist to engage in patent litigation and, some argue, are not true members of the domestic industry. Subcommittee members expressed the importance of ensuring that the Commission maintains its proper role among the various patent litigation bodies and that so-called patent trolls cannot improperly use the Commission for leverage in their litigation efforts.
The hearing featured testimony from six witnesses who presented a range of opinions regarding the role of the Commission. Former Chairman of the Commission Deanna Okun, for instance, defended the Commission’s role in Section 337 litigation, arguing that the Commission is functioning as Congress intended. She countered that the Commission was not inappropriately serving non-practicing entities, and that proposals to amend the statute are “misguided.” The Commission shared statistics demonstrating a decrease in caseload since 2013, and General Counsel of the Commission Dominic Bianchi testified that “[t]he Commission has made a concerted effort to develop procedures that will increase efficiencies, and reduce cost and still ensure a fulsome record.” Mark L. Whitaker, a partner at Morrison & Foerster, and Thomas L. Stoll, Principal of Stoll IP Consulting LLP, joined in the defense of the Commission’s current efforts and role in patent litigation.
Conversely, John Thorne, a partner at Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC argued for remedial actions, testifying that “the [Commission] has become hospitable to hedge funds and legal entrepreneurs whose only ‘industry’ is the enforcement of patents and investments in patent enforcement.” Dr. Fiona M. Scott Morton, the Theodore Nierenberg Professor of Economics at the Yale School of Management, also argued in favor of reform.
While the debate over the Commission’s role in patent litigation continues, there will not be any further action on the Trade Protection Not Troll Protection Act until at least September, when Congress is back in session.