sealing the border: procedures and practices of a …€¢background on the international trade...

Sealing the Border: Procedures and Practices of a Section 337

Proceeding in the U.S. International Trade Commission

July 19, 2016

Mike Newman, Member

Jim Wodarski, Member

IP Summer Academy 2016


Boston, Massachusetts

July 11 – 22, 2016

Sealing the Border

© 2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Overview

2

•Background on the International Trade Commission (ITC) and Section 337

Investigations

•Advantages/Disadvantages of Patent Litigation at the ITC

•Procedural Overview of a Section 337 Case

•Enforcement

•Hot Topics at the ITC

– Domestic Industry and Non-Practicing Entities (NPE) at the ITC

– SSO, SEP, and F/RAND

– Indirect infringement of method claims


Background on ITC and Section 337

3



July 11 – 22, 2016

Sealing the Border



4

• The USITC is an independent, quasi–judicial federal administrative agency with broad

investigative responsibilities on matters of trade.

• Established by Congress in1916 as the U.S. Tariff Commission. In 1974, the name was changed

to U.S. International Trade Commission.

• Mission:

– Consistent with its statutory mandate, the Commission makes determinations in proceeding involving

imports claimed to injure a domestic industry or violate U.S. Intellectual property rights;

– Provide the President, USTR, and Congress with independent quality analysis, information, and support on

matters relating to tariffs and international trade and competitiveness;

– Maintain the Harmonized Tariff Schedule of the United States (HTS).



July 11 – 22, 2016

Sealing the Border



5



July 11 – 22, 2016

Sealing the Border



6



July 11 – 22, 2016

Sealing the Border



7



July 11 – 22, 2016

Sealing the Border



8

• Six Commissioners

– Serve overlapping terms of nine years each

– New term every 18 months

– Not political – equal political party representation

• Six Administrative Law Judges (ALJ)

– Chief ALJ Charles E. Bullock

– ALJ Theodore R. Essex

– ALJ E. James Gildea

– ALJ Thomas B. Pender

– ALJ David P. Shaw

– ALJ Dee Lord



July 11 – 22, 2016

Sealing the Border



9

• Office of Unfair Import Investigations (OUII)

– Advises ITC on whether to commence an investigation

• Offers informal pre-filing advice to Complainant on compliance with pleading rules

– Participates as an independent party in an investigation on behalf of the public interest

• Serves discovery

• Takes positions on motions

• Examines witnesses at depositions and trial

• Takes position on merits of case



July 11 – 22, 2016

Sealing the Border



10

Section 337

– Section 337 of the Tariff Act of 1930, as amended (19 U.S.C. § 1337) authorizes the ITC to investigate unfair

methods of competition and unfair acts, including IP infringement, in the importation of articles into the

United States.



July 11 – 22, 2016

Sealing the Border


11

History of Section 337

1916 1922 1974 1930 1988 1994

U.S. Tariff

Commission

created

Section 316 replaced by

Section 337 of Tariff Act of 1930;

CCPA (predecessor of CAFC)

allows use of §337 for patent cases

Distinguishes infringement of

patents, from other unfair acts;

expands DI test; eliminates injury

requirement for statutory IP

Section 316 of Tariff Act of 1922:

“Unfair methods of competition

and unfair acts in the importation

of articles … into the United States”

Amendment applies APA;

changes name to International

Trade Commission; gives ITC

authority to issue remedy;

sets time limit of 12 months

for most investigations

Eliminates statutory time

limits and establishes target

dates




July 11 – 22, 2016

Sealing the Border



12

• Violations of Section 337

– Importation

– Infringement

– Domestic Industry

• Remedies under Section 337

– General Exclusion Order (GEO)

– Limited Exclusion Order (LEO)

– Cease and Desist Order (C&D)

• Presidential Review

• Appeals to the Court of Appeals for the Federal Circuit (CAFC)



July 11 – 22, 2016

Sealing the Border



13

• Patent Litigation at the ITC vs. District Court

• Procedures similar to Federal Civil Procedure and District Court practice

– Procedural rules similar to Fed. Rules (19 C.F.R. Chapter II, Part 210)

– Judges Ground Rules provide key guidance

– Number of discovery requests

• Trials similar to District Court bench trials except:

– ITC Judges follow but not bound to Federal Rules of Evidence

– ITC Judges more likely to admit hearsay

– ITC evidentiary record typically voluminous

• ITC Judges render “Initial Determinations” that are subject to full Commission review and

render an opinion on all issues



July 11 – 22, 2016

Sealing the Border


14

Patent Litigation at the ITC vs. District Court

ITC District Court

Length ≤18 months average of 3 years

Jurisdiction in rem (articles) in personam (people)

Discovery broad Federal Rules apply

Judges

Six ALJs with predominantly

patent caseload 677 judges with diverse caseload

Confidentiality

automatic administrative

protective order public by default

Remedy

exclusion orders/cease and

desist orders

monetary damages only, unless

eBay factors also allow injunction




July 11 – 22, 2016

Sealing the Border


15

Terminology ITC vs. District Court

ITC District Court

Complainant Plaintiff

Respondent Defendant

Summary Determination Summary Judgment

Hearing Trial

Initial Determination Magistrate’s Decision

Petition for Review

Commission Opinion District Judge’s Opinion




July 11 – 22, 2016

Sealing the Border



16

• Bermuda

• British Virgin Islands

• Canada

• Finland

• France

• German

• Israel

• Japan

• Korea

• Switzerland

• Taiwan

• UK

Usage by Non-U.S. Based Complainants



July 11 – 22, 2016

Sealing the Border


17




July 11 – 22, 2016

Sealing the Border


18




July 11 – 22, 2016

Sealing the Border


19




July 11 – 22, 2016

Sealing the Border


20

Dispositions at the ITC since 2004

12%

21%

22%

1%

44%

Complaint

withdrawn

No violation

Violation

Terminated due to

arbitration

Settled



Advantages and Disadvantages of Patent Litigation at the ITC

21



July 11 – 22, 2016

Sealing the Border


Advantages/Disadvantages of Patent Litigation at the ITC

22

• Speed

• IP Expertise

• Broad Injunctive Relief

• Domestic Industry

• Other Pros and Cons



July 11 – 22, 2016

Sealing the Border



23

Speed

– Statutory responsibility to complete cases quickly

– Statutory/rule responsibility to adhere to target dates for completion

– Investigation commenced within 30 days after complaint is filed

– ITC serves the complaint and Notice of Investigation

– Protective Order issues immediately upon institution

– Discovery commences immediately



July 11 – 22, 2016

Sealing the Border



24

Speed (cont.)

– Judge conducts initial discovery conference

– Discovery/motions proceed on short deadlines

– Judges available to resolve discovery disputes

– Average time to trial = 10 months



July 11 – 22, 2016

Sealing the Border



25

IP Expertise

– Statutory responsibility to conduct IP investigations

– Approximately 90% of cases are patent cases

– ITC has internal review process

• Multiple attorneys involved in determining whether to adopt or modify Judge’s opinion before issuance of final ITC

opinion

– ITC defends its own opinions at the Federal Circuit

– Higher Percentage of ITC decisions affirmed by Federal Circuit



July 11 – 22, 2016

Sealing the Border



26

Broad Injunctive Relief

– Exclusion Orders

• Directs U.S. Customs Service to stop entry of infringing articles at all U.S. ports

• Framework for Customs Service seizure and forfeiture

• In Rem Jurisdiction – Functions without regard to personal jurisdiction

• ITC procedures available to Complainant to broaden Customs enforcement (advisory opinion procedures,

enforcement procedures, modification procedures)



July 11 – 22, 2016

Sealing the Border



27

Broad Injunctive Relief (cont.)

–Limited Exclusion Orders (LEO)

•Bars importation of the accused product from Respondents named in the

Investigation

• Issued by ITC in the typical case

–General Exclusion Orders (GEO)

•Bars infringing products from all sources (even sources that were not parties to the

investigation) See, e.g., Certain LED Photographic Lighting Devices , Inv. No. 337-

TA-804 (January 17, 2013)

•Rare and highly coveted. Higher statutory standard requires:

– Proof of widespread infringement; difficulty identifying the source; and/or ease of evading a LEO



July 11 – 22, 2016

Sealing the Border



28

Broad Injunctive Relief (cont.)

– eBay, Inc. v. MercExchange, LLC, 126 S.Ct. 1837 (2006) does not apply

• Commission finds eBay not applicable to Section 337 cases

– Tariff Act of 1930 contains legislative determination that there is an inadequate remedy at law for unfair acts in import commerce

– Amendments to remove injury requirement confirm that irreparable harm need not be proven

– Balance of harms and public interest analysis as part of ITC analytical framework

– Importation activity governed differently under the trade laws



July 11 – 22, 2016

Sealing the Border



29

Other Pros and Cons

– No counterclaims

• Case focused on allegations in Complaint and ITC Notice

• ITC directed by statute to not consider counterclaims

• Counterclaims, if any, must be removed to District Court

– Nationwide subpoena power

– No issues with personal service of Complaint

– No laches defense



July 11 – 22, 2016

Sealing the Border



30

Other Pros and Cons

– Proceeds quicker than Inter Partes Review (IPR)

• Cannot be stayed pending IPR

– Rare to have an early Markman decision

– No monetary damages

– President can disapprove or delay on public policy grounds



July 11 – 22, 2016

Sealing the Border



31

Other Pros and Cons

– Automatic protective order

– Third party discovery

– Mediation program

– Mandatory settlement conferences



July 11 – 22, 2016

Sealing the Border



32

Other Pros and Cons

– Parallel District Court cases usually filed

• Defendant can stay case as a matter of right while ITC investigation will proceed to conclusion

• District Court stay can be lifted and case tried again, for money damages

• Commission determination on infringement and validity is persuasive but not res judicata


Procedural Overview of a Section 337 Case

33



July 11 – 22, 2016

Sealing the Border


Requirements of Section 337

34

• Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337):

– “(a)(1)(B) The importation into the United States, the sale for importation, or the sale within the United States

after importation by the owner, importer, or consignee, of articles that

• (i) infringe a valid and enforceable United States patent or a valid and enforceable United States copyright

registered under title 17; or

• (ii) are made, produced, processed, or mined under, or by means of, a process covered by the claims of a valid

and enforceable United States patent [is declared unlawful]”

– “(a)(2) Subparagraphs (B) … apply only if an industry in the United States, relating to the articles protected

by the patent … exists or is in the process of being established.”

• To show a violation of Section 337, a complainant must therefore establish:

– The accused products have been imported into the United States;

– The accused products infringe at least one valid, enforceable claim of a U.S. patent;

– There exists a domestic industry in the United States related to the patent that is infringed.



July 11 – 22, 2016

Sealing the Border


Requirements of Section 337 - Importation

35

• First element – Importation

– “Bringing of goods within the jurisdictional limits of the U.S. with the intention to unlade them.”

– Section 337 on its face requires

• Importation;

• Sale for importation; or

• Sale within the United States after importation

– Purely domestic activity is not covered

– Products that do not infringe until assembled domestically, or require end-user in order to infringe (e.g.

method claims), can only infringe via inducement or contributory infringement

– Jurisdiction in rem – over the thing imported



July 11 – 22, 2016

Sealing the Border


Requirements of Section 337 - Infringement

36

• Second element – Infringement of a Valid and Enforceable Patent (IP)

– Patent owner must make the same showing of infringement as in a civil case, e.g., accused product or

process must meet every limitation of one or more valid claims

– Infringement can either be direct or indirect (e.g., contributory infringement or inducement), and can be

literal or by equivalents

– Accused infringer can raise same invalidity and enforceability defenses as in a federal case

– Legal standards are identical to federal case: claims are construed per Markman and Philips



July 11 – 22, 2016

Sealing the Border


Requirements of Section 337 - Infringement

37

• Second element – Infringement of a Valid and Enforceable Patent (IP)(Continued)

– Infringement is measured at the time of importation Suprema, Inc. v. USITC (2013)

• Precludes finding of violation based on induced infringement of a method claim where no direct infringement at

time of importation of software

• Preference for apparatus/system claims where a product infringes as it sits

– Methods of manufacture/process claims are viable pursuant to statute

• May require plant inspections on foreign soil

– Some countries will categorically not allow this type of discovery (e.g. China)



July 11 – 22, 2016

Sealing the Border


Requirements of Section 337 – Domestic Industry Test

38

• Third element – “Domestic Industry”

– U.S. and foreign entities may file at ITC if “Domestic Industry Test” is satisfied for standing

• Same rules apply regardless of whether the complainant is American or foreign

• Caution: The ITC is a political body, and political considerations may affect outcome

– Two prongs of the Domestic Industry requirement:

• Economic Prong ─ Under 337(a)(3) a US domestic industry shall be considered to exist if there is, with respect to

patented article (actual product covered by patent):

– significant investment in plant or equipment

– significant employment of labor or capital

– substantial investment in exploitation of patented article, including engineering, R&D or licensing

• Technical Prong – the domestic industry product(s) must practice the asserted patent

– Any claim of the patent can be practiced (whether asserted against Respondents in the investigation or not) to establish

the technical DI



July 11 – 22, 2016

Sealing the Border


Requirements of Section 337 – Domestic Industry

39

• Third element – “Domestic Industry” (Continued)

– Ways of establishing a domestic industry:

• Complainant itself can establish a domestic industry through investment in labor and capital (337(a)(3)(A)), plant

and equipment (337(a)(3)(B)), or engineering, research and development, or licensing (337(a)(3)(C))

– E.g., complainant employs 100 people to develop technology related to products it sells, complainant built a factory and

utilizes a significant amount of equipment to run the factory, complainant has invested $50 million in research related to

developing patented technology

– Complainant can also show that it has attempted to establish a domestic industry

• Complainant can rely on the activities of its licensees

– 19 U.S.C. § 1337 does not limit the domestic industry to only the complainant – limited to protected articles which can be

made by licensee

– Actions of subsidiaries or licensees may be sufficient, but must show existence of articles covered by the patents-at-issue. In

re Computers and Computer Peripheral Devices (337 TA 841 – Jan. 9, 2014)



July 11 – 22, 2016

Sealing the Border



40


– Ways of establishing a domestic industry:

• Under “technical prong” of domestic industry test, domestic product or process “must be covered by the asserted

claims; the test ‘is essentially the same as that for infringement, i.e., a comparison of domestic products to the

asserted claims.’” Osram GmbH v. International Trade Comm’n, 505 F.3d 1351 (Fed. Cir. 2007)

• Recent cases extend domestic industry test out to non-practicing entities (primarily licensing) – efforts to negotiate

(NPE such as Walker Digital) – but trying to limit under new cases



July 11 – 22, 2016

Sealing the Border



41


– Non-Practicing Entities (NPEs) can establish a domestic industry

• Activities of licensees for any prong

• Investments in engineering and/or R&D under 337(a)(3)(C)

• Investments in licensing also under 337(a)(3)(C)

– The ITC has imposed more hurdles for a licensing based DI

– Unlike injunctions under eBay standard, non-practicing entities (NPEs) can establish a domestic industry through licensing

and litigation efforts



July 11 – 22, 2016

Sealing the Border



42

• Third element – “Domestic Industry” via Licensing

– For licensing based DI, litigation costs may be included as investment

• John Mezzalingua Associates (d/b/a PPC, Inc.) v. International Trade Commission (Fed. Cir. 2011)

– Expenditures on patent litigation alone do not qualify as establishing a domestic industry

– However, efforts to negotiate a license before and during litigation may be used to establish domestic industry if they are

“substantial”

– Patent owner must establish “nexus between its litigation expenses and licensing”



July 11 – 22, 2016

Sealing the Border



43


– ITC has sought to limit its applicability to NPEs. Three requirements directed at curtailing a licensing based

domestic industry:

• The licensing activities being relied upon must constitute an actual “investment”;

– Not sufficient for an activity to merely relate to licensing, the activity must be an “investment” in licensing.

• The investment must be attributable to the asserted patent; and

– Not just the portfolio as a whole

• The investment attributed to the patent must be “substantial.”



July 11 – 22, 2016

Sealing the Border



44


– The Licensing Investment Must Be Attributable to the Asserted Patents

• Must show a “nexus” between the investments and the asserted patents – need allocation to specific patents.

– Nexus between investments and patent portfolio is NOT sufficient

• Company that holds many patents organized in different portfolios must be able to track its activities and

expenditures in order to allocate them to the appropriate license.

• Companies who both engage only in revenue-driven licensing and do not allocate licensing expenditures specific

to the asserted patents will have a difficult time meeting the domestic industry requirement via licensing acitivies.



July 11 – 22, 2016

Sealing the Border



45


– The Licensing Investment Must Be "Substantial" as opposed to "Significant"

• 337(a)(3)(A and B) provide for "significant" investments, while 337(a)(3)(C) provides for "substantial" investments

• Whether an investment is considered to be “substantial” depends on the realities of the marketplace. Determine

on a case-by-case basis, both quantitative and qualitative.

• In analyzing whether an investment in a licensing-based industry is substantial, the Commission distinguishes

between investments in “revenue-driven licensing” and investments in “production-driven licensing.”

• Revenue-driven licensing “takes advantage of the patent right solely to derive revenue by targeting existing

production;” whereas production–driven licensing “encourages adoption and use of the patented technology to

create new products and/or industries.”



July 11 – 22, 2016

Sealing the Border


ALJ’s Initial Determination/

Recommended

Determination


46

MONTHS -1 0 7–9 10–12 14–16 16–18

Complaint filed

Public Interest

Investigation Instituted

Discovery &

Prehearing Filings

Hearing

Posthearing Filings

Commission

Opinion and

Remedial Order(s)

Issued

Entry Only

Under Bond

Executive

Branch

Review/

Review/

Exclusion



July 11 – 22, 2016

Sealing the Border


Section 337 – Initial Procedure

47

• File Detailed Complaint (19 C.F.R. §§ 210.4, 210.8-210.9):

– Front loaded and expensive

– Identify allegedly infringing products

– Claim charts showing infringement

– Certified copies of asserted patents

– Certified prosecution histories and copies of all cited references

– Identify foreign counterparts

– Summary of related litigation

– Physical samples (where practical)

– Facts sufficient to demonstrate domestic industry

• Answer due in 20 days



July 11 – 22, 2016

Sealing the Border



48

ITC pre-filing review

of complaint

Mandatory settlement

conference

January February March April May June

ITC votes to institute

investigation

ITC serves complaint

and notice

Judge issues

protective

order

Response to

complaint

(domestic parties)

Complaint filed

Confidential treatment

request filed

Response

to complaint

(foreign

parties)

File discovery

statement

Discovery

conference

Judge issues

ground rules

Judge

issues

target date

Discovery served

Notice of

Investigation

published



July 11 – 22, 2016

Sealing the Border



49

July August Oct. Sept. Nov. Dec. Jan. June

Cut-offs for:

- Sum. det. motions;

- Fact discovery; and

- Expert discovery

Pre-trial

briefs

Pre-trial

conference

TRIAL

(2 weeks)

Tutorial

Expert report

served

Expert rebuttal

served

Expert identified

Prior art notice

Objections to

rebuttal exhibits

Objections to

exhibits

Rebuttal exhibits

Reply briefs

objections to findings

reply findings

Post-trials briefs

Post-trial findings

of Fact

Motion(s) for

summary

determination



July 11 – 22, 2016

Sealing the Border



50

Jan. Feb. Apr. Mar. May June

Briefs on Remedy, Public

Interest, Bonding

(per date in ITC notice) Presidential

Review

CAFC

Appeal

Petitions for

Review

Initial

Determination

(after 4:00 pm)

Reply to

Petitions

Commission

Notice on

Review

Final

Commission

Determination



July 11 – 22, 2016

Sealing the Border


Section 337 – Remedies

51

• Primary remedy: (seal the border) exclusion order directing US Customs to stop infringing goods

from entering US until patent(s) expire

– General Exclusion Order (Section 337(d)(2)): applies to all infringing goods, regardless of origin – must show:

(1) pattern of violation; and (2) difficult to identify source or necessary to prevent circumvention of limited

exclusion order

• Compels U.S. CBP to stop at the border any and all products that meet certain Harmonized Tariff schedules as

defined in the exclusion order

– Limited Exclusion Order (Section 337(d)(1)): applies only to infringing goods from named respondent

(usually manufacturers and importers) – targeted

• Exclusion orders function as an automatic injunction

– But no money damages



July 11 – 22, 2016

Sealing the Border


Section 337 – Remedies

52

• Other Remedies

– Cease and desist orders (Section 337(f)): can bar sales of goods already in US – targeted – similar to an

injunction

• Discovery in Investigation encompasses quantity of accused goods already in the U.S.

– If quantity is "commercially significant," complainant can obtain a cease and desist order

– Bond: if the Commission institutes an exclusion order, during the Presidential Review period the respondents

may continue to import if they post the required bond

• Discovery in Investigation encompasses an appropriate bond amount

– Temporary exclusion orders are available in exceptional cases



July 11 – 22, 2016

Sealing the Border


Section 337 – Remedies: General Exclusion Order Evidence

53

• Evidence for unauthorized pattern:

– Importation by numerous manufacturers

– Foreign infringement suits based on counterpart patents

– History of unauthorized foreign use.

• Evidence for business conditions:

– Established US demand for product

– Availability of marketing & distribution networks in US.

• Evidence for foreign manufacturers

– Low cost to make product outside US – e.g., earplugs

– Large number of possible foreign manufacturers

– Difficulty of identifying source of products



July 11 – 22, 2016

Sealing the Border


General vs. Limited Exclusion Orders

54

• Limited Exclusion Orders “only apply to the specific parties before the Commission in the

investigation.” Fuji Photo Film Co. v. ITC, 474 F.3d 1281, 1286 (Fed.Cir.2007)

• By contrast, General Exclusion Orders “bar the importation of infringing products by anyone,

regardless of whether they were a respondent in the Commission's investigation.” Id.

• “A general exclusion order broadly prohibits entry of articles that infringe the relevant claims of

a listed patent without regard to whether the persons importing such articles were parties to, or

were related to parties to, the investigation that led to issuance of the general exclusion

order.” VastFame Camera, Ltd. v. ITC, 386 F.3d 1108, 1114 (Fed.Cir.2004).



July 11 – 22, 2016

Sealing the Border


General vs. Limited Exclusion Orders

55

• Kyocera Wireless Corporation v. International Trade Commission (Fed. Cir. 2008)

– Commission cannot issue limited exclusion order covering downstream products incorporating infringing

components if downstream offenders are not named as respondents

– Facts: importer’s chip used in handheld communications devices is found to infringe a U.S. patent, but

handheld manufacturers are not named as respondents; Commission cannot prevent importation of

devices by non-respondent manufacturers even if they contain infringing chips

– Patent owner’s remedy is to name every “downstream” importer or obtain general exclusion order (subject

to heightened standards as discussed above)



July 11 – 22, 2016

Sealing the Border



56

• Appeal of an Initial Determination

– Following petitions filed by either party, the Commission will decide whether to review the Initial

Determination

– If the Commission elects to review, it may request additional briefing

– Following review the Commission may:

• reverse the Initial Determination;

• reverse it in part; remand for further hearing and/or briefing

– The Commission issues a Final Determination

– Remedies enforceable after issuance of Final Determination even if appealed


Enforcement

57



July 11 – 22, 2016

Sealing the Border


Enforcement

58

• Orders are enforced by the U.S. Customs and Border Protection (CBP), a component of the

Department of Homeland Security

• ITC sends a copy of the exclusion order to the IP Rights Branch at CBP Headquarters in Washington, D.C.

• After consulting with the ITC about the language of the order and any technical issues, the order is forwarded to CBP Office of Field Operations, where it is entered into an electronic

database and becomes available to CBP officers at all U.S. ports of entry

• U.S. ports are concerned with trade facilitation, so a customs strategy may help a complainant get maximum exclusion of infringing products



July 11 – 22, 2016

Sealing the Border


Enforcement

59

• Attorneys can consult with CBP to ensure that the exclusion orders are effective.

• These communications can be ex parte.


Hot topics at the ITC

60



July 11 – 22, 2016

Sealing the Border


Hot Topics at the ITC

61

Non-Practicing Entities

– How can non-practicing entitles satisfy the domestic industry requirement?

SSOs, F/RAND and SEP

– Should an exclusion order issue if the asserted patent is a F/RAND encumbered SEP?

Indirect Infringement

– What happens if infringement of a method claim is divided between foreign and domestic activities.



July 11 – 22, 2016

Sealing the Border



62


– Domestic Industry Standard

– Assessed at the time complaint is filed

– 19 U.S.C. § 1337(a)(3)

An industry in the United States shall be considered to exist if there is in the United States, with respect to the

articles protected by the patent, copyright, trademark, mask work or design concerned –

(A) Significant investment in plant and equipment;

(B) Significant employment of labor or capital; or

(C) Substantial investment in its exploitation, including engineering, research & development, or licensing



July 11 – 22, 2016

Sealing the Border



63


– Domestic Industry Test

• Economic Prong

– Significant U.S. investment in plan and capital;

– Significant U.S. investment in labor or capital;

– Substantial U.S. investment in its exploitation, including engineering, research and development, or licensing

• Technical Prong

– Infringement analysis

– At least one claim of each asserted patent must be practiced

– Only applies where complainant manufactures and sells a commercial product



July 11 – 22, 2016

Sealing the Border



64


– 1988 amendments to Section 337 refers to non-practicing entities ("NPE"") – those companies that have

patents but do not make products

• Congress gave examples of NPEs that should be allowed in the ITC

• "universities an other intellectual property owners who engage in extensive licensing of their rights to

manufacturers"



July 11 – 22, 2016

Sealing the Border



65


– Types of NPEs

• Category 1 NPE

– Universities, intellectual property owners who engage in extensive research and development and license their patent rights

to manufacturers

• Category 2 NPE

– Companies who purchase patents from others, and then assert those patents

– Many companies function as both as a practicing entity and an NPE



July 11 – 22, 2016

Sealing the Border



66


– Licensing as a domestic Industry

• Must have a nexus to the individual asserted patent

• Claimed activities must relate to licensing

• Investment must be domestic

– Investment must be substantial

• Factors include:

– Number of licensees

– Amount of revenue generated from license agreements

– Number of U.S. Employees involved in the relevant licensing efforts

– Litigation expense, alone, are not sufficient



July 11 – 22, 2016

Sealing the Border


Investment in asserted

patents

Investment relates to licensing


67

• Non-Practicing Entities – Proving DI through licensing under 19 U.S.C. § 1337(a)(3)(C)

“Because the statute

requires that

investment activities

satisfy all three

of these requirements,

the absence of a

connection to any one

of them will defeat

complainant’s attempt

to rely on those

activities to satisfy the

domestic industry

requirement.”

Inv. No. 337-TA-694

Investment in the U.S.

SUBSTANTIAL?



July 11 – 22, 2016

Sealing the Border



68


– Proving DI through research and development under 19 U.S.C. §1337(a)(3)(C)

• Can you include plant and equipment and labor and capital?



July 11 – 22, 2016

Sealing the Border



69


– Standard Setting Organizations ("SSO")

– Standard Essential Patents ("SEP")

– SSOs usually require that owners of SEPs license those patents under Fair, Reasonable, and non-

discriminatory ("F/RAND") terms.



July 11 – 22, 2016

Sealing the Border



70


– If the ITC finds a SEP valid and infringed is an exclusion order appropriate?

– ITC has authority and discretion to consider alternatives

• Can tailor a remedy to fit with circumstances in each investigation involving F/RAND encumbered SEPs.

• Can force arbitration or mediation by threatening enforcement or vacation or an exclusion order to give parties

incentive to agree on F/RAND terms.

• Commission can also issue an exclusion order, and leave it to the U.S. Trade Representative to allow or deny relief

based upon policy concerns.

• Patent hold-up vs. Patent hold-out



July 11 – 22, 2016

Sealing the Border



71


– Suprema, Inc. v. ITC:

• Complainant Cross Match Techs., Inc. filed complaint alleging patent infringement by Suprema, Inc. and Mentalix,

Inc.

• Suprema’s optical fingerprint scanners were imported without accused software.

• Mentalix argued that the scanners did not infringe at the time of importation, only after.

• Cross Match argued that direct infringement was complete once Mentalix loaded its software on Suprema’s

scanners in the U.S.

• Suprema optical scanners were capable of substantial noninfringing uses (i.e., being loaded with other companies’

software).



July 11 – 22, 2016

Sealing the Border



72



• Claim at issue



July 11 – 22, 2016

Sealing the Border



73



• Commission found that Mentalix directly infringed by using its own software with Suprema

optical scanners

• Direct infringement only completed after importation when software was loaded in the U.S.

• The Commission found that Suprema induced infringement of the method claim under 35

U.S.C. § 271(b)

• Issued exclusion orders and cease & desist orders



July 11 – 22, 2016

Sealing the Border



74



•the Federal Circuit’s 2-1 Panel Opinion (now Vacated)

– Statutory construction of § 337(a)(1)(B)(i) shows that “articles that infringe” is

limited to articles that infringe at time of importation.

– “We conclude that § 337(a)(1)(B)(i), by tying the Commission’s authority to

the importation, sale for importation, or sale within the U.S. after importation

of articles that infringe a valid and enforceable U.S. patent, leaves the

Commission powerless to remedy acts of induced infringement in these

circumstances.”

– “[A]n exclusion order based on a violation of 19 U.S.C. § 1337(a)(1)(B)(i) may

not be predicated on a theory of induced infringement under 35 U.S.C. §

271(b) where direct infringement does not occur until after importation of the

articles the exclusion order would bar.

• Vacated exclusion and cease & desist orders



July 11 – 22, 2016

Sealing the Border



75



• Two camps:

– Reinstate the panel decision (find in favor of Suprema): O’Malley*, Prost*, Dyk

– Reverse the panel decision (find in favor of ITC): Reyna*, Taranto, Wallach

• If Congress intended to carve out § 271(b) why not say so expressly?

• Under the Chevron doctrine, is “articles that infringe” ambiguous and, if so, is the ITC’s interpretation reasonable.

• Is it possible to police/enforce “intent”?



July 11 – 22, 2016

Sealing the Border



76


– What Suprema does not cover:

• Contributory infringement claims

• Inducement claims where direct infringement is perfected before the time of importation

• Infringement of method claims where infringement is perfected by the time of importation



July 11 – 22, 2016

Sealing the Border


When to Consider ITC as a Complainant

77

• Are the accused products imported?

• Do you have a domestic industry?

– Do you have significant investments in U.S. related to manufacturing the protected article?

– Do you have significant investments in the U.S. related to research and development or licensing of the

patented technology?

• Is time of the essence?

• Do you expect to face inter partes review?

• Is an injunction important?

• Are there indirect infringement of method claims?



July 11 – 22, 2016

Sealing the Border


ITC Exclusion Orders: An Alternative to a Federal Lawsuit

78

• When foreign goods are imported into the United States that infringe a U.S. Patent, the patent

owner has two choices:

– Sue the importer and manufacturer in Federal Court; or

– Obtain an exclusion order from the International Trade Commission (“ITC”)

• Why not just sue in Federal Court?

– Can be difficult or impossible to obtain jurisdiction over, discovery from foreign defendant

– Obtaining a permanent injunction can take years, and is subject to eBay standard of irreparable harm

– Enforcing an injunction against foreign importer is practically impossible: the manufacturer can always find

a new importer who will have to be sued again and will not be subject to collateral estoppel

• ITC offers faster remedy, with broad discovery

– Time to hearing in ITC is 8-13 months

– If Respondents refuse to participate, default exclusion orders will issue if Complainant can show a domestic

industry



July 11 – 22, 2016

Sealing the Border


Conclusion

79

• Complainant should prepare its case well in advance ─

line up all facts, witnesses and discovery as well as have offensive and defensive teams ─

preparation, preparation, preparation

– ITC will want complainant's domestic industry proof to be available early on

• Complainant should consider viability of bringing and then staying a companion district court

action to preserve damages claim

• Respondent should try to work with other respondents and proceed to develop targeted

discovery and defenses and consider reexamination in the USPTO

– Though ITC will likely not stay an investigation due to an IPR


Questions?

Questions?

80


Thank you for joining us!

James Wodarski, Member

[email protected]

Michael Newman, Member

[email protected]

81

mailto:[email protected]

mailto:[email protected]

sealing the border: procedures and practices of a …€¢background on the international trade...

Documents