January 22, 2016
Authored by Anthony D. Del Monaco and P. Andrew Riley
Laws change. Law schools do not necessarily teach you what the law is. Instead, they teach you how to find the law and ascertain its current status. Intellectual property law is no different. The law involving § 337 practice at the U.S. International Trade Commission (ITC) changed considerably in 2015.
This year, the U.S. Court of Appeals for the Federal Circuit issued decisions further refining the ITC’s jurisdiction and remedial powers in its en banc decision in Suprema Inc. v. ITC, No. 2012-1170 and in ClearCorrect Operating, LLC v. ITC, No. 2014-1527. In addressing the ITC’s domestic-industry requirement, the court in Lelo Inc. v. ITC, No. 2013-1582, further clarified the ‘"significance" standard under Prongs A and B, holding that the patent owner’s domestic-industry investments fell short. Furthermore, the commission issued a Notice of Proposed Rulemaking involving several ITC-specific procedures.
This article examines these important decisions affecting § 337 practice at the ITC and explains some significant procedural changes stirring there.
Suprema Inc. v. ITC began when the commission instituted Cross Match Technologies Inc.’s complaint against two respondents, Suprema, Inc. and Mentalix, Inc. Suprema manufactures scanners that Mentalix imports into the US. The technology involves softwaredevelopment kits that Mentalix integrates into the scanners after it imports them.
After discovery and a hearing, the Administrative Law Judge (ALJ) issued his initial determination (ID), finding multiple grounds for a violation of § 337, including infringement of U.S. Patent No. 7,203,344.1 The commission reviewed this decision and modified the ID, determining that Mentalix directly infringed the '344 patent and Suprema induced infringement of the patent.2 Both respondents appealed the decision to the Federal Circuit.
Chief Judge Prost, Judge O’Malley, and Judge Reyna first considered the appeal.3 The panel majority, authored by Judge O’Malley and joined by Chief Judge Prost, held that "an exclusion order based on a violation of § 337(a)(1)(B)(i) may not be predicated on a theory of induced infringement where no direct infringement occurs until post-importation."4 Specifically, the panel majority considered both the language of § 337 and 35 U.S.C. § 271, concluding:
Given the nature of the conduct proscribed in § 271(b) and the nature of the authority granted to the commission in § 337, we hold that the statutory grant of authority in § 337 cannot extend to the conduct proscribed in § 271(b) where the acts of underlying direct infringement occur post-importation. Section 337(a)(1)(B)(i) grants the commission authority to deal with the "importation," "sale for importation," or "sale within the United States after importation" of "articles that . . . infringe a valid and enforceable U.S. patent."5
In the words of the majority, "the Commission lacked the authority to enter an exclusion order directed to Suprema’s scanners premised on Suprema’s purported induced infringement of the method claimed in the ’344 patent."6 Judge Reyna dissented-in-part regarding the decision on induced infringement.7 He argued that the decision ignores that Section 337 is a trade statute designed to provide relief from specific acts of unfair trade, including acts that lead to the importation of articles that will result in harm to a domestic industry by virtue of infringement of a valid and enforceable patent.8 Furthermore, he concluded, "the majority overlooked the Congressional purpose of Section 337" and long-established commission practice on induced infringement. 9 The ITC and Cross Match filed petitions for panel rehearing and rehearing en banc. The Federal Circuit granted a rehearing en banc, vacating the 2013 decision. After an en banc hearing before 10 Federal Circuit Judges, Judge Reyna authored an opinion vacating the panel decision.10 The en banc court conducted a Chevron analysis and held "that the Commission’s interpretation of the phrase 'articles that infringe' covers goods that were used by an importer to directly infringe postimportation as a result of the seller’s inducement [and] is reasonable." The court remanded the appeal to the original panel.11 The original panel thereafter issued an opinion affirming the commission’s finding regarding the '344 patent. As a result, the Federal Circuit confirmed that complainants may allege induced infringement against accused products that may not infringe until after importation.
In ClearCorrect Operating LLC v. ITC, Align Technology, Inc. filed an ITC complaint against ClearCorrect Operating, LLC and ClearCorrect Pakistan (Private), Ltd. (collectively "ClearCorrect"). The accused products included digital data sets "which are virtual three-dimensional models of the desired position of patient's teeth at various stages of orthodontic treatment."12 ClearCorrect Pakistan manipulates the data sets in Pakistan and then electronically transmits them to the U.S.13 ClearCorrect Operating—a U.S. company—then used the digital data sets to print 3-D models of the patient’s teeth in the U.S.14 Before the commission, ClearCorrect challenged whether the phrase "importation . . . of articles" as used in § 337 encompassed the electronic data sets. The commission reviewed the plain language of the statute, its legislative history and purpose, pertinent case law, and the arguments of the parties and public commenters. It then concluded that "importation . . . of articles" should be construed to include electronic transmission of digital data because the digital data sets at issue in th[e] investigation are true articles of international commerce that are imported into the United States and their inclusion within the purview of Section 337 would effectuate a central purpose of the statute.15 ClearCorrect appealed this decision to the Federal Circuit. In a majority opinion written by Chief Judge Prost, with Judge O’Malley concurring, the panel majority reversed the commission’s holding.16 The majority conducted a Chevron analysis, concluding that the literal text of the statute, "when viewed in context and with an eye towards the statutory scheme, is clear" that " '[a]rticles' is defined as 'material things,' and thus does not extend to electronic transmission of digital data."17 Therefore, the panel majority concluded, the commission does not have jurisdiction over electronic data. The remaining panelist, Judge Newman, dissented. She argued that the ITC "correctly applied the Tariff Act and precedent to encompass today’s forms of infringing technology."18 At the time of this writing, Align and the ITC have already requested extensions of time to petition for a rehearing.
In Lelo Inc. v. ITC, Standard Innovation Corporation and Standard Innovation (US) Corp. (collectively "Standard Innovation") alleged infringement at the ITC against Lelo Inc. and Lelo Shanghai Trading Ltd. Neither Standard Innovation nor Standard Innovation US manufactures in the U.S.19 Furthermore, Standard Innovation sources parts and components for its devices from third-party suppliers in the U.S. and other countries. It contracts Chinese manufacturers to assemble its devices from those parts and components. Once finished, the devices are exported from China to over 50 countries worldwide, including the United States.20 Standard Innovation relied on its purchase of components from third-party suppliers in the U.S. for its domestic-industry investments.21 The ALJ found no violation of § 337 because Standard Innovation’s alleged investment did not satisfy Prong A of the domestic-industry requirement— significant investment in plant and equipment.22 Specifically, Standard Innovation "failed to explain how these expenditures relate, in any way, to an investment in plant or equipment by Standard Innovation, or its manufacturer, or the manufacturer of the components."23 The ALJ also rejected Standard Innovation’s attempt to satisfy Prong C of the requirement— substantial investment in exploiting intellectual property, engineering, research and development, or licensing. 24 The ALJ held that "Notably, [Prong C] does not specifically mention purchase of components."25 Moreover, "Standard Innovation provide[d] only the total amount it spent on such components and [did] not break out any engineering or research and development costs incurred by the manufacturer of these products."26 Finally, the ALJ held that Standard Innovation's investments were not quantifiably substantial or significant after calculating that the investments equaled about 5 percent of the total cost of production.27 The commission, however, reversed the ALJ’s conclusion regarding domestic industry under Prong A. It reasoned that Standard Innovation "established that the components were critical for" its domestic-industry product and "This is sufficient for us to consider the component expenses in our economic prong analysis."28 The commission agreed with the ALJ that the investments were not significant due to qualitative considerations, but held the U.S. retailers provided significant value added by selling components to Standard Innovation.29 The respondents appealed. The Federal Circuit reviewed the commission's decision and determined that the appeal "turns on the single question of whether qualitative factors alone are sufficient to satisfy the 'significant investment' and 'significant employment' requirements" of § 337.30 The court concluded: The purchase of so called 'crucial' components from third-party U.S. suppliers [is] insufficient to satisfy the ‘significant investment’ or ‘significant employment of labor or capital’ criteria of § 337 where there is an absence of evidence that connects the cost of the components to an increase of investment or employment in the United States.31 Furthermore, the court confirmed that the investments were modest and insignificant qualitatively.32 As a result, a complainant cannot simply rely on its U.S. retail purchases of certain components for a product it asserts satisfies the domestic-industry requirement. Complainants must provide additional details regarding domestic investments in the manufacture, engineering, or research and developments of those components.
On September 16, 2015, the commission issued its proposed rules.33 Some of the rules codify actual practice in § 337 investigations, like the proposed amendment to 19 C.F.R. § 210.28(h)(3)(vi), to allow the ALJ to use agreed-upon designated deposition testimony in lieu of live-witness testimony absent the circumstances identified in § 210.28(h)(3). Other proposed changes conform the commission rules with those of the Federal Rules of Civil Procedure, such as the proposal to amend 19 C.F.R. § 210.27(e)(5). That section adds language consistent with Federal Rule of Civil Procedure 26 relating to privilege between a party’s counsel and expert witnesses. The proposed rules also amend 19 C.F.R. § 210.10(b) to codify a current pilot program authorizing the commission to direct the presiding ALJ to issue an initial determination under new subsection 210.42(a)(3) on potentially dispositive issues as established in the notice of investigation. So far, only investigations 337-TA-874 and 337-TA-949 participated in this pilot program. One set of proposed rules, however, has caused some concern within the ITC bar. Specifically, the commission proposes to amend 19 C.F.R. § 210.10(a) to allow the commission to institute multiple investigations based on a single complaint. The commission reasons that it will do so where necessary to limit the number of technologies and/or unrelated patents asserted in a single investigation. The commission also proposes to amend 19 C.F.R. § 210.14 to allow the ALJ to sever an investigation into multiple investigations before or upon issuance of the procedural schedule based on either a motion or the ALJ’s judgment for similar reasons. The commission states that an investigation concerning a number of technologies and/or unrelated patents can often become unwieldy and lengthy. The proposed severance changes concern many observers because the commission did not propose or define any criteria for the commission or the ALJ to consider when deciding whether to sever an investigation. Furthermore, the current proposed rules do not explain how the investigations may be severed, if multiple ALJs may be assigned to the severed investigation, and whether the investigations may receive different target dates—that is, the dates by which the commission issues its final decisions. This uncertainty leaves the ITC bar with little guidance for advising clients interested in filing a complaint at the ITC. Multiple parties have filed comments on the ITC’s proposed rules, including the American Intellectual Property Law Association and the ITC Trial Lawyers Association. The ITC bar expects the commission will respond to these comments in 2016, and will wait to see if or how it addresses them.
1 Certain Biometric Scanning Devices, Components Thereof, Associated Software, and Products Containing the Same, Inv. No. 337-TA-720, ID at 85-99 (U.S.I.T.C. June 17, 2011).
2 Certain Biometrics Scanning Devices, Components Thereof, Associated Software, and Products Containing the Same, Inv. No. 337-TA-720, Comm’n Op. (U.S.I.T.C. Nov. 10, 2011).
3 Suprema, Inc. v. ITC, 742 F.3d 1350 (Fed. Cir. 2013).
4 Id. at 1353.
5 Id. at 1360.
6 Id. at 1361.
7 Id. at 1371.
8 Id. at 1372.
9 Id.
10 Suprema, Inc. v. ITC, 796 F.3d 1338 (Fed. Cir. Aug. 10, 2015).
11 Id. at 1352-53.
12 Certain Digital Models, Digital Data, and Treatment Plans for Use in Making Incremental Dental Positioning Adjustments Appliances, the Appliances Made Therefrom, and Methods of Making the Same, Inv. No. 337-TA-833, Comm’n Op. at 17 (U.S.I.T.C. Apr. 9, 2014).
13 Id.
14 Id.
15 Id. at 55.
16 ClearCorrect, LLC v. ITC, Case No. 2014-1527 (Fed. Cir. Nov. 10, 2015).
17 Id. at 13.
18 Id., dissent at 2.
19 Lelo Inc. v. ITC, 786 F.3d 879, 881 (Fed. Cir. May 11, 2015).
20 Id.
21 Certain Kinesiotherapy Devices and Components Thereof, Inv. No. 337-TA-823, ID at 71-77 (U.S.I.T.C. Jan. 8, 2013).
22 19 U.S.C. § 1337(a)(3)(A).
23 Certain Kinesiotherapy Devices at 73-74.
24 19 U.S.C. § 1337(a)(3)(C)
25 Certain Kinesiotherapy Devices at 74.
26 Id. at 74-75.
27 Id. at 75-77.
28 Certain Kinesiotherapy Devices, Inv. No. 337-TA-823, Comm’n Op. at 28 (U.S.I.T.C. Jan. 8, 2013).
29 Id. at 34-35.
30 Lelo Inc., 786 F.3d at 883.
31 Id. at 884.
32 Id.
33 International Trade, 80 Fed. Reg. 57,553 (proposed Sept. 16, 2015).
Reproduced with permission from BNA’s Patent, Trademark & Copyright Journal, Vol. 91, No. 813, 1/22/16. Copyright © 2016 The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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