Sealing the Border: Procedures and Practices of a Section 337 Proceeding in the U.S. International Trade Commission

Transcription

1 : Procedures and Practices of a Section 337 Proceeding in the U.S. International Trade Commission July 19, 2016 Mike Newman, Member Jim Wodarski, Member

2 Overview 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 2

3 Background on ITC and Section 337 3

4 Background on ITC and Section 337 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). 4

5 Background on ITC and Section 337 5

6 Background on ITC and Section 337 6

7 Background on ITC and Section 337 7

8 Background on ITC and Section 337 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 8

9 Background on ITC and Section 337 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 9

10 Background on ITC and Section 337 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. 10

11 Background on ITC and Section 337 History of Section 337 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 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

12 Background on ITC and Section 337 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) 12

13 Background on ITC and Section 337 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 13

14 Background on ITC and Section 337 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 Confidentiality Remedy Six ALJs with predominantly patent caseload automatic administrative protective order exclusion orders/cease and desist orders 677 judges with diverse caseload public by default monetary damages only, unless ebay factors also allow injunction 14

15 Background on ITC and Section 337 Terminology ITC vs. District Court ITC Complainant Respondent Summary Determination Hearing Initial Determination District Court Plaintiff Defendant Summary Judgment Trial Magistrate s Decision Petition for Review Commission Opinion District Judge s Opinion 15

16 Background on ITC and Section 337 Usage by Non-U.S. Based Complainants Bermuda France Korea British Virgin Islands German Switzerland Canada Israel Taiwan Finland Japan UK 16

17 Background on ITC and Section

18 Background on ITC and Section

19 Background on ITC and Section

20 Background on ITC and Section 337 Dispositions at the ITC since % Complaint withdrawn No violation 44% 21% Violation Terminated due to arbitration Settled 22% 1% 20

21 Advantages and Disadvantages of Patent Litigation at the ITC 21

22 Advantages/Disadvantages of Patent Litigation at the ITC Speed IP Expertise Broad Injunctive Relief Domestic Industry Other Pros and Cons 22

23 Advantages/Disadvantages of Patent Litigation at the ITC 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 23

24 Advantages/Disadvantages of Patent Litigation at the ITC 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 24

25 Advantages/Disadvantages of Patent Litigation at the ITC 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 25

26 Advantages/Disadvantages of Patent Litigation at the ITC 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) 26

27 Advantages/Disadvantages of Patent Litigation at the ITC 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 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 27

28 Advantages/Disadvantages of Patent Litigation at the ITC Broad Injunctive Relief (cont.) ebay, Inc. v. MercExchange, LLC, 126 S.Ct (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 28

29 Advantages/Disadvantages of Patent Litigation at the ITC 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 29

30 Advantages/Disadvantages of Patent Litigation at the ITC 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 30

31 Advantages/Disadvantages of Patent Litigation at the ITC Other Pros and Cons Automatic protective order Third party discovery Mediation program Mandatory settlement conferences 31

32 Advantages/Disadvantages of Patent Litigation at the ITC 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 32

33 Procedural Overview of a Section 337 Case 33

34 Requirements of Section 337 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. 34

35 Requirements of Section Importation 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 35

36 Requirements of Section Infringement 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 36

37 Requirements of Section Infringement 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) 37

38 Requirements of Section 337 Domestic Industry Test 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 38

39 Requirements of Section 337 Domestic Industry 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 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) 39

40 Requirements of Section 337 Domestic Industry Third element Domestic Industry (Continued) 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 40

41 Requirements of Section 337 Domestic Industry Third element Domestic Industry (Continued) 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 41

42 Requirements of Section 337 Domestic Industry 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 42

43 Requirements of Section 337 Domestic Industry Third element Domestic Industry via Licensing 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. 43

44 Requirements of Section 337 Domestic Industry Third element Domestic Industry via Licensing 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. 44

45 Requirements of Section 337 Domestic Industry Third element Domestic Industry via Licensing 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. 45

46 Background on ITC and Section 337 Complaint filed Public Interest Investigation Instituted Discovery & Prehearing Filings ALJ s Initial Determination/ Recommended Determination Commission Opinion and Remedial Order(s) Issued Executive Branch Review/ Review/ Exclusion Hearing Posthearing Filings Entry Only Under Bond MONTHS

47 Section 337 Initial Procedure File Detailed Complaint (19 C.F.R , ): 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 47

48 Background on ITC and Section 337 ITC pre-filing review of complaint Mandatory settlement conference Complaint filed Confidential treatment request filed Notice of Investigation published Discovery served Judge issues ground rules Response to complaint (domestic parties) File discovery statement ITC votes to institute investigation ITC serves complaint and notice Judge issues protective order Judge issues target date Response to complaint (foreign parties) Discovery conference January February March April May June 48

49 Background on ITC and Section 337 Expert identified Prior art notice Motion(s) for summary determination Expert report served Expert rebuttal served Cut-offs for: - Sum. det. motions; - Fact discovery; and - Expert discovery Objections to rebuttal exhibits Objections to exhibits Rebuttal exhibits Pre-trial briefs Tutorial Pre-trial conference TRIAL (2 weeks) Post-trials briefs Post-trial findings of Fact Reply briefs objections to findings reply findings June July August Sept. Oct. Nov. Dec. Jan. 49

50 Background on ITC and Section 337 Briefs on Remedy, Public Interest, Bonding (per date in ITC notice) Presidential Review Petitions for Review Reply to Petitions Commission Notice on Review Final Commission Determination CAFC Appeal Initial Determination (after 4:00 pm) Jan. Feb. Mar. Apr. May June 50

51 Section 337 Remedies 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 51

52 Section 337 Remedies 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 52

53 Section 337 Remedies: General Exclusion Order Evidence 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 53

54 General vs. Limited Exclusion Orders 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). 54

55 General vs. Limited Exclusion Orders 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) 55

56 Background on ITC and Section 337 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 56

57 Enforcement 57

58 Enforcement 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 58

59 Enforcement Attorneys can consult with CBP to ensure that the exclusion orders are effective. These communications can be ex parte. 59

60 Hot topics at the ITC 60

61 Hot Topics at the ITC 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. 61

62 Hot Topics at the ITC Non-Practicing Entities 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 62

63 Hot Topics at the ITC Non-Practicing Entities 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 63

64 Hot Topics at the ITC Non-Practicing Entities 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" 64

65 Hot Topics at the ITC Non-Practicing Entities 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 65

66 Hot Topics at the ITC Non-Practicing Entities 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 66

67 Hot Topics at the ITC 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. Investment in asserted patents Investment relates to licensing SUBSTANTIAL? 67

68 Hot Topics at the ITC Non-Practicing Entities 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? 68

69 Hot Topics at the ITC SSOs, F/RAND and SEP Standard Setting Organizations ("SSO") Standard Essential Patents ("SEP") SSOs usually require that owners of SEPs license those patents under Fair, Reasonable, and nondiscriminatory ("F/RAND") terms. 69

70 Hot Topics at the ITC SSOs, F/RAND and SEP 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 70

71 Hot Topics at the ITC Indirect Infringement 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). 71

72 Hot Topics at the ITC Indirect Infringement Suprema, Inc. v. ITC: Claim at issue 72

73 Hot Topics at the ITC Indirect Infringement Suprema, Inc. v. ITC: 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 73

74 Hot Topics at the ITC Indirect Infringement Suprema, Inc. v. ITC: 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 74

75 Hot Topics at the ITC Indirect Infringement Suprema, Inc. v. ITC: 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? 75

76 Hot Topics at the ITC Indirect Infringement 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 76

77 When to Consider ITC as a Complainant 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? 77

78 ITC Exclusion Orders: An Alternative to a Federal Lawsuit 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 78

79 Conclusion 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 79

80 Questions? Questions? 80

81 Thank you for joining us! James Wodarski, Member Michael Newman, Member 81