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A § 1659 Stay Granted by a District Court Must Remain in Effect Until a Related ITC Judgment Can No Longer Be Appealed

07-M841
March 01, 2007

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Last Month at the Federal Circuit - April 2007

Judges: Bryson, Linn, Dyk (author)

[Appealed from: S.D.N.Y., Judge Brieant, Jr.]

In In re Princo Corp., Misc. No. 841 (Fed. Cir. Mar. 1, 2007), the Federal Circuit held that, with regard to a stay granted under 28 U.S.C. § 1659, a district court must continue to stay proceedings until a judgment in a related ITC proceeding is no longer eligible for appeal.

This case stems from six patents owned by U.S. Philips Corporation (“Philips”) relating to the manufacture of recordable compact disks (“CD-Rs”) and rewritable compact disks (“CD-RWs”). Philips licenses these patents as part of a licensing package that includes other patents that allegedly are not essential for manufacturing CD-Rs and CD-RWs. Licensing royalties under the package are based on the number of discs manufactured, irrespective of how many of the patents are used. Although Princo Corporation (“Princo”) initially licensed the package from Philips in 1997, Princo eventually stopped paying the licensing fees.

Philips terminated the licensing agreement and brought an infringement suit against Princo in January 2002 in the Southern District of New York. Princo raised a patent misuse defense, asserting that Philips’s licensing package unlawfully tied nonessential patents to the six essential patents for manufacturing CD-Rs and CD-RWs. Based on the same six patents, the ITC initiated an investigation in July 2002 into the importation of CD-Rs and CD-RWs pursuant to 19 U.S.C. § 1337. Shortly thereafter, Princo intervened in the ITC proceedings as a respondent and raised the same patent misuse defense that it had raised in the district court.

Princo then requested a § 1659 stay in the district court. 28 U.S.C. § 1659 states, inter alia, that the “district court shall stay, until the determination of the [ITC] becomes final, proceedings in the civil action with respect to any claim that involves the same issues . . . before the [ITC].” Because Princo’s request was timely and met the other requirements of § 1659, the district court issued the stay.

In 2004, the ITC held that Philips engaged in patent misuse because none of the six essential patents could be licensed apart from the nonessential patents. Because the ITC had made its ruling, the district court lifted its § 1659 stay. Subsequently, Philips appealed the ITC’s decision and Princo requested that the district court continue to stay proceedings, pending Philips’s appeal. However, the district court did not continue the stay, and in early 2005 the district court granted two SJ motions against Princo, ruling that Princo infringed Philips’s patents and denying Princo’s patent misuse defense. Princo then appealed to the Federal Circuit on the patent misuse issue, but did not argue at that time that the district court should have continued the stay. This resulted in both the district court and the ITC cases being simultaneously before the Federal Circuit.

In September 2005, the Federal Circuit reversed and remanded the ITC’s finding that Philips committed patent misuse. See U.S. Philips Corp. v. Int’l Trade Comm’n, 424 F.3d 1179, 1193 (Fed. Cir. 2005). While the ITC proceedings were pending on remand, in March 2006, the Federal Circuit also vacated the district court’s findings against Princo and remanded that case for further consideration. See U.S. Philips Corp. v. Princo Corp., 173 Fed. App’x 832 (Fed. Cir. 2006). With both cases on remand, Princo renewed its motion to stay proceedings in the district court. The district court again denied the motion, interpreting the Federal Circuit opinion as compelling the district court to move forward with the case, and again granted Philips’s SJ motion on the patent misuse issue.

In response, Princo filed a petition for a writ of mandamus (from which this decision arises) in November 2006, asking the Federal Circuit to vacate the district court’s order and stay proceedings under § 1659 until the related ITC proceedings were complete.

Prior to this decision, the Federal Circuit had never addressed whether a § 1659 stay of district court proceedings ends after an initial ruling by the ITC or must continue until the ITC ruling is no longer eligible for appeal. 28 U.S.C. § 1659 states that the stay will remain “until the determination of the [ITC] becomes final,” thus turning the issue on the meaning of “becomes final.” Based on interpretations of similar language in other statutes and the purpose behind § 1659, the Federal Circuit held that a district court must continue a § 1659 stay until the related ITC decision can no longer be appealed.

The Court relied on previous interpretations of “becomes final” in other statutes for guidance on its interpretation of 28 U.S.C. § 1659. For example, with regard to a criminal law statute for postconviction relief, the Supreme Court has previously interpreted “becomes final” as meaning that the determination can no longer be appealed. See Clay v. United States, 537 U.S. 522, 527 (2003). Similarly, the Third Circuit has construed the terms “have become final” in a statute for narcotics violations to mean “no longer subject to direct appellate review.” See United States v. Allen, 556 F.2d 1193, 1194 (3d Cir. 1977). The Fourth, Fifth, Sixth, Ninth, and Eleventh Circuits have also construed “becomes final” or similar language in the Internal Revenue Code to mean the appeal period has run. In contrast, statutes intending finality after an immediate decision have used language such as “final decisions of the district courts.” See 28 U.S.C. § 1291; see also 28 U.S.C. § 1295(a).

Further, according to the Court, the legislative intent behind § 1659 is “to address the possibility that infringement proceedings may be brought against imported goods in two forums at the same time.” H.F. REP. NO. 103-826(I), at 141 (1994). Therefore, the Court reasoned that § 1659 would better serve its purpose if “becomes final” is construed to mean that the decision is no longer eligible for appeal.

The Court also rejected several additional arguments made by Philips. First, the fact that damages were the only remaining issue in the district court proceedings was irrelevant. A stay under § 1659 requires “proceedings” on a “claim” involving issues also before the ITC, but does not require that the proceedings themselves be the same. Second, despite Philips’s contentions, the issues in the ITC and the district court were sufficiently related under § 1659 because both proceedings involved patent infringement of the same six patents. Third, Princo did not waive its right to request a stay because Princo initially requested the stay within “30 days after the court action is filed,” as required by 28 U.S.C. § 1659. Finally, filing for SJ in the district court did not waive Princo’s right to file a petition for writ of mandamus because Princo had unsuccessfully requested a stay prior to filing for SJ.

Consequently, the Court concluded that § 1659 requires that the stay of district court proceedings continue until the ITC proceedings are no longer subject to judicial review. Because the related ITC proceedings were still ongoing, the Court ordered the district court to stay its pending infringement proceedings. Additionally, the Court set aside all proceedings occurring in the district court after May 2, 2006 (the date Princo’s stay should have been granted), including the district court’s grant of SJ to Philips.