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Circumstantial Evidence Sufficiently Establishes First Sale Defense

February 28, 2006
Totten, Jeffrey C.

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Last Month at the Federal Circuit - March 2006

Judges: Newman, Lourie (author), Schall

In Jazz Photo Corp. v. Fuji Photo Film Co., Nos. 05-1096, -1109, -1175 (Fed. Cir. Feb. 28, 2006), the Federal Circuit affirmed the decision of the Court of International Trade (“CIT”) ordering the United States Bureau of Customs and Border Protection (“Customs”) to allow certain lens-fitted film packages (“LFFPs”) into the United States. The Federal Circuit found that the CIT did not err by finding that the affirmative defense of first sale and permissible repair applied to the subject LFFPs, by denying Fuji Photo Film Company, Ltd. (“Fuji”) leave to intervene and not joining Fuji as a necessary party, and by denying Fuji’s request for attendance at trial and access to the trial record.

Customs excluded two shipments of LFFPs— commonly known as “single-use” or “disposable” cameras—that Jazz Photo Corporation (“Jazz”) attempted to import into the United States. The shipments consisted entirely of “reloaded” cameras that were initially manufactured by Fuji or one of itslicensees and used by consumers. Following film processing, the LFFPs were collected, processed by Polytech Enterprise Limited (“Polytech”) in China, and imported by Jazz for resale. Customs concluded that Jazz failed to prove that the LFFPs in the two shipments were beyond the scope of an existing exclusion order and denied entry, causing Jazz to file suit in the CIT under 28 U.S.C. § 1581(a).

Following a bench trial, the CIT ruled that Jazz had carried its burden of proving that a certain subset of the LFFPs were first sold in the United States and later repaired. In reaching this conclusion, the CIT relied on oral testimony regarding the collection and refurbishment of the spent LFFPs. Applying the “presumption of regularity,” the CIT concluded that, as Customs would have excluded any unlawfully imported LFFPs before their first sale, the LFFPs collected in the United States must have been sold by Fuji or one of its licensees and thus licensed under Fuji’s patents. The government and Fuji appealed.

The Federal Circuit did not find clear error in the decision. While Jazz did not provide direct evidence that each LFFP was first sold in the United States under license to Fuji, it offered circumstantial evidence to that end. The trial court heard testimony regarding the market for new LFFPs in the United States and the collection of the LFFPs at issue. The Federal Circuit noted that nothing required Jazz to prove its case by direct evidence and refused to find clear error in the CIT’s decision on the circumstantial evidence of record.

Turning to the “presumption of regularity,” the Federal Circuit found no error in the trial court’s limited application of the presumption. At trial, Jazz proffered evidence that at least 85% of the reloaded LFFPs were purchased in the United States at the same location as where film processing occurred. Thus, the presumption applied only to the remaining minority of the LFFPs. As the government offered no evidence to counter the presumption, the trial court did not err in applying the presumption to this small group of LFFPs.

The Federal Circuit also did not find clear error in the trial court’s finding permissible repair, rather than impermissible reconstruction, without discussing “various minor operations” performed on the LFFPs. The Court discerned no error in the trial court’s conclusion that these minor operations were “incidental” to the repair of the LFFPs and thus did not result in reconstruction.

The Court also rejected Fuji’s argument that the trial court had erred in denying Fuji leave to intervene. The Court noted that the plain language of 28 U.S.C. § 2631 prohibits thirdparty intervention, and the Federal Circuit concluded that Fuji’s status as a patent owner did not give rise to an exception. Moreover, Fuji’s interest in protecting its patent rights did not make it a necessary party, as Congress chose to charge the government with the protection of a patentee’s rights under the Tariff Act of 1930.

Finally, the Federal Circuit noted that the trial court did not err by issuing a protective order sealing the proceeding and documents, thereby denying Fuji the ability to attend the entire trial and access the trial record. The documents included Jazz’s confidential information, which the court properly protected.