Recent developments under Section 337
The US International Trade Commission (ITC) has become an increasingly popular venue for patent infringement litigation. Such actions are brought pursuant to Section 337 of the Tariff Act of 1930 and are available to owners of US patents, provided that the "domestic industry" requirement is met (19 USC § 1337). As shown in the chart below, the number of Section 337 complaints filed at the ITC over the past 10 years has dramatically increased from approximately nine complaints in 1999 to 40 complaints in 2008.
Number of Section 337 complaints filed from 1999 to 2009
These numbers tell only part of the story. The cases are complex and often high profile, with many of the cases involving numerous parties and multiple patents. This article highlights some of the recent developments regarding Section 337.
A possible reason for the dramatic rise in Section 337 complaints is the ITC’s authority to issue broad injunctive relief in the form of exclusion orders. By way of background, the ITC can issue either limited exclusion orders directed to infringing goods of named parties or general exclusion orders directed to infringing goods regardless of source. The scope of injunctive relief under Section 337 has received considerable attention recently, particularly with respect to exclusion orders directed to downstream products. This issue was the subject of the Federal Circuit’s decision in Kyocera Wireless Corp v International Trade Commission (545 F 3d 1340 (Fed Cir 2008)).
In the underlying Section 337 investigation Broadcom sued Qualcomm, alleging that Qualcomm chips infringed several of its patents. Despite the fact that almost all the infringing Qualcomm chips were imported in downstream products (eg, mobile phones), for strategic reasons Broadcom did not name any downstream manufacturers in its Section 337 complaint. Instead, Broadcom sought a limited exclusion order that would cover both Qualcomm chips and downstream products of third parties that contained Qualcomm chips. Mobile phone manufacturers and cellular providers intervened at the ITC on the remedy issue and urged that a limited exclusion order that extended to downstream products manufactured by unnamed third parties would exceed the ITC’s statutory authority under Section 337. After concluding that Qualcomm’s chips infringed a Broadcom patent, the ITC issued a limited exclusion order that excluded both Qualcomm chips and downstream products of third parties that incorporated such chips.
On appeal, the Federal Circuit reversed the ITC’s remedy decision and ruled that the language of Section 337 does not authorise the ITC to issue limited exclusion orders that extend to downstream products of third parties. According to the Federal Circuit, limited exclusion orders are limited by statute “to persons determined by the [c]ommission to be violating this section”, unless the requirements for a general exclusion order are satisfied (19 USC § 1337(d)(2)). In contrast to a limited exclusion order, a general exclusion order can extend to products beyond those of the named respondents, including downstream products, but a complainant seeking a general exclusion order must meet a higher burden and show that a general exclusion order is necessary to prevent circumvention of a limited exclusion order, or that there is a pattern of violation and it is difficult to identify the source of infringing products. In this case, Broadcom had not sought a general exclusion order and had made the strategic decision not to name the importers of downstream products, despite the fact that they were readily identifiable. Thus, according to Kyocera, if a complainant seeks a downstream remedy, it must satisfy the general exclusion order standard or name the downstream manufacturers as parties.
In decisions following Kyocera, the ITC has issued limited exclusion orders only to downstream products of named respondents. In Certain GPS Devices (Inv No 337-TA-602) the ITC refused to issue a limited exclusion order extending to unnamed downstream product manufacturers and declined to issue a general exclusion order since the complainant had not met the required heightened burden. More recently, the ITC addressed the appropriateness of awarding downstream relief in the form of a general exclusion order in Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same (Inv No 337-TA-605 (20th May 2009)). Although the complainant had urged that the ITC should issue a "tailored” general exclusion order that extended only to specified downstream products, the ITC was not persuaded and issued a limited exclusion order only to downstream products of named respondents. It is likely that this decision will be appealed to the Federal Circuit and there will be further elaboration on the ITC’s authority to issue downstream product remedial orders. The Federal Circuit’s decision in Kyocera has also prompted several bar associations to recommend legislative changes to Section 337, such that the ITC will be authorised by statute to issue downstream product limited exclusion orders.
Another significant ITC decision this year involved the ITC’s authority under Section 337(a)(1)(B)(ii) to reach upstream to the unauthorised overseas practice of patented processes for making compounds (or "intermediates") that undergo subsequent processing to produce the imported articles. Defences under 35 USC § 271(g) are not applicable in Section 337 investigations (see Certain Sucralose, Sweeteners Containing Sucralose, and Related Intermediate Compounds Thereof, Inv No 337-TA-604, Comm’n Op, April 2009). Under Section 337(a)(1)(B)(ii) it is unlawful to “import articles that – are made, produced, processed, or mined under, or by means of” a patented process. In Sucralose the imported article was sucralose; two of the subject patents were directed to upstream processes used in the production of sucralose and one patent was directed to a process to recover a catalyst used upstream in the production of sucralose. The issue was whether infringement allegations based on either the process for recovering catalysts or the process for making intermediates were within Section 337(a)(1)(B)(ii). Based on the legislative history and the particular facts, the ITC determined that allegations based on the use of the patented process for making intermediates were within Section 337(a)(1)(B)(ii) since the process for making the intermediates, although upstream in the overall production chain, was in close proximity to the final imported product and there were only a few steps between the production of the intermediates and sucralose. However, the ITC reached a different conclusion for allegations based on the use of the patented catalyst recovery process. The ITC reached this decision because sucralose was not the direct product of the patented catalyst recovery process and the catalyst was neither a precursor to sucralose nor an imported article. Thus, the ITC concluded that the imported article, sucralose, was not produced by means of a patented catalyst recovery process within the meaning of Section 337(a)(1)(B)(ii). Although the ITC limited its decision in Sucralose to the specific facts, the decision provides guidance to those concerned with the reach of Section 337 to the overseas practice of patented process steps that are upstream in an overall process to make an imported article.
ITC jurisprudence on what constitutes a “domestic industry” is also developing, particularly when a complainant is a non-practising entity. For a complainant to succeed in a Section 337 action there must be a domestic “industry in the United States relating to the articles protected by the patent” (19 USC § 1337(a)(2)). The requisite domestic industry exists if there is:
"(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in [the patent’s] exploitation, including engineering, research and development, or licensing." (19 USC § 1337(a)(3).) "
Non-practising entities, which by definition lack plants, equipment or employment of labour or capital, are utilising Section 337 investigations as part of their strategy and relying on research and development activities or licensing activities to satisfy the domestic industry requirement.
ITC law on this issue is unclear, but a recent decision discussed factors influencing the domestic industry requirement for non-practising entities. In In re Certain Stringed Musical Instruments and Components Thereof (Inv No 337-TA-586 (16th May 2008)) the complainant, Geoffrey McCabe, was an individual and inventor of stringed instruments with specialised tuning devices. At the time of filing the complaint, McCabe had not yet licensed the patent but had spent about $8,500 designing and completing two prototypes of his invention. The complaint accused four companies of infringement; during the ITC investigation two companies settled and entered licences.
The ITC found that McCabe had failed to establish a domestic industry. According to the ITC, the expenditures for developing and building the prototypes, as well as non-monetary “sweat equity” did not, even when coupled with attendance at trade shows and discussions with manufacturers, constitute a substantial investment in research and development or licensing, as required by Section 337(a)(3)(c). It is particularly significant that the ITC gave no weight to licences entered into after the complaint was filed. However, the ITC was careful to note that the existence of a consummated licence prior to filing the complaint is not a prerequisite to finding substantial investment in licensing.
Another non-practising entity, Professor Gertrude Rothschild of Columbia University, recently filed two complaints in the ITC. In Certain Short-Wavelength Light Emitting Diodes, Laser Diodes and Products Containing Same (337-TA-640) and Certain Light Emitting Diode Chips, Laser Diode Chips and Products Containing Same (337-TA-674) Rothschild’s domestic industry allegations consisted of a patent infringement suit against several defendants and her ITC litigations. Several respondents have entered into licensing agreements. The two investigations were recently consolidated. In a recent decision that has not yet been made public, Chief Judge Luckern granted Rothschild’s motion for summary determination that a domestic industry exists. The ITC is considering this decision and may provide additional guidance on the domestic industry requirement for non-practising entities. In another investigation, In re Certain Electronic Devices Including Handheld Wireless Communication Devices (337-TA-667), filed in January 2009, the complainant Saxon Innovations LLC, a non-practising entity, had not concluded a licence agreement at the time of filing its complaint. While it is possible that the complainant may be unable to establish a domestic industry, such a ruling is unlikely to come until after significant discovery costs have pressured respondents into settlement.
Even though ITC precedent is evolving on this issue, non-practising entities will most likely continue to include Section 337 actions in their strategy.
The recent developments discussed here demonstrate that the ITC will continue to be an attractive and popular forum for IP disputes.
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