United States: The Interplay Between The ITC And The PTAB—More Progress Needed

Introduction

Inter partes review (“IPR”) proceedings have become a mainstay of district court patent litigation. Parties recognize IPRs as a quick and cost effective alternative to patent litigation. District court judges exercise their discretion to stay their cases around sixty percent of the time in favor of parallel IPR proceedings before the PTO’s Patent Trial and Appeal Board (“PTAB”). These stays often remain in place through the pendency of review by the Federal Circuit, eliminating the risk of relief issuing based on invalid patent rights.

In stark contrast, administrative law judges (“ALJ”) at the U.S. International Trade Commission (“ITC” or “Commission”) almost never stay their investigations due to IPR proceedings. And after ALJs have issued Initial Determinations regarding liability matters, the Commission itself has granted injunctive relief, in the form of exclusion orders, over patents considered invalid by the PTAB. These exclusion orders can remain in force for many months while the Federal Circuit considers, and then usually affirms, the PTAB rulings. Compared with the district courts, some of this different treatment results from the expedited nature of ITC investigations. Some of it is also due to an overly cautious approach by the ITC in acknowledging PTAB invalidity rulings.

This article discusses how the ITC has treated parallel patent invalidity proceedings at the Patent Office and appeals therefrom, and it suggests changes in current practice that more fully recognize the importance of PTAB invalidity rulings.

Background

The ITC Offers Only Injunctive Relief

Section 337 of the Tariff Act of 1930, 19 U.S.C. §1337, provides that unfair methods of competition and unfair acts in the importation of articles into the United States, or their sale for importation, or sale within the United States after importation, are unlawful. By far the most common unfair method of competition under section 337 involves alleged patent infringement. Section 337 provides patent holders with injunctive relief when a violation is found.

The most common type of injunctive relief granted by the Commission is an “exclusion order” prohibiting entry of the infringing articles into the United States: “If the Commission determines, as a result of an investigation under this section, that there is a violation of this section, it shall direct that the articles concerned, imported by any person violating the provision of this section, be excluded from entry into the United States, unless, after considering the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such articles should not be excluded from entry.” 19 U.S.C. §1337(d)(1) (emphasis added). The ITC usually issues a “limited” exclusion order that only applies to persons determined by the ITC to have violated section 337. 19 U.S.C. § 1337(d)(2). The ITC may also issue injunctive relief in the form of a cease and desist order that prevents a party before the ITC from engaging in continued infringement. 19 U.S.C. § 1337(f). Unlike the district courts, the ITC has no authority to award monetary relief.

As noted above, the ITC can decline to issue injunctive relief based upon its assessment of the proposed exclusion on (1) the public health and welfare, (2) competitive conditions in the United States economy, (3) the production of like or directly competitive articles in the United States, and (4) United States consumers. But in over 1,000 thousand investigations under section 337, these public interest factors have been employed only four times to deny a remedy against an infringer. In contrast, a district court judge must consider the equitable factors enumerated in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) before granting injunctive relief. Compared with ITC exclusion orders, district court injunctions occur less frequently, are narrower in scope, and may be stayed during an appeal.

ITC and IPR Timelines

While both types of proceedings are expedited, an ITC case will typically finish more quickly than a PTAB proceeding. Over the last five years, the average pendency of an ITC investigation—from institution until disposition on the merits—has been 15 to 17 months. See https://www.usitc.gov/intellectual_property/337_statistics_average_length_investigations.htm (last visited Dec. 16, 2018). In contrast, an IPR proceeding starts with the filing of a petition and short review period (of around three weeks) for receiving a notice of a filing date, followed by an 18 month period of time involving, among other things, a Patent Owner Preliminary Response (if filed), a Notice of Institution (for successful petitions), and a final written decision concluding the proceeding.

While a patent-based ITC investigation can involve a wide range of issues—including infringement, invalidity (under all applicable theories), importation, technical and economic domestic industries, remedies and the public interest—an IPR proceeding only encompasses patent validity challenges under anticipation or obviousness theories arising from prior art patents or printed publications. Thus, the three administrative patent judges handling an IPR will have much more time to focus on their subset of patent invalidity issues than an ALJ at the ITC, who must consider more issues over a shorter period of time. The Federal Circuit hears direct appeals from both the ITC and the PTAB.

Patent Office Proceedings during an ITC Investigation

The Commission and its ALJs have long had the authority to stay an investigation under “appropriate circumstances,” including those involving Patent Office proceedings. For example, in Certain Personal Computers/Consumer Electronic Convergent Devices, Components Thereof, and Products Containing Same, the ALJ granted a stay of an investigation pending ex parte reexamination of the asserted patent. Inv. No. 337- TA-558, Order No. 6 at 8 (Feb. 7, 2006), unreviewed, Comm’n Notice (Mar. 10, 2006). The factors relevant in determining whether to grant a stay include: (1) the state of discovery and the hearing date; (2) the stage of the PTO proceeding; (3) the efficient use of Commission resources; (4) whether a stay will simplify the issues in question and hearing of the case; and (5) undue prejudice or clear tactical advantage to any party. Personal Computers, Order No. 6 at 9-14.

Under this framework, the issue about whether to stay an investigation because of an early PTAB invalidity ruling would seem to be an easy question. Indeed, in Certain Integrated Circuits with Voltage Regulators and Products Containing Same, Chief ALJ Bullock granted the respondent’s unopposed motion to stay the investigation when the PTAB determined that all the asserted claims were unpatentable. Inv No. 337-TA-1024, Order No. 55 at 6 (Aug. 31, 2018). In this investigation, the PTAB’s Final Written Decision issued after institution of the investigation, but before an initial determination on the merits. While acknowledging that stays of ITC investigations are generally disfavored, Judge Bullock found that all of factors (1)-(5) referenced above favored ordering a stay.

In contrast, in Certain Hybrid Electric Vehicles and Components Thereof, the Commission instituted an investigation based on claims that had mostly been found unpatentable by the PTAB and were on appeal at the Federal Circuit. Inv. No. 337-TA-1042, Notice of Institution of Investigation (Mar. 7, 2017). Over the objection of the proposed respondent, the Commission apparently determined that PTAB final written decisions regarding patent invalidity are not entitled to deference absent affirmance on appeal by the Federal Circuit. Ironically, when faced with managing this investigation, ALJ Shaw partially granted the complainants’ motion to estop the respondent (who had been successful at the PTAB) from raising the same invalidity grounds during the ITC investigation. Inv. 337-TA-1042, Order. No. 30 (Initial Determination) at 9 (Nov. 1, 2017). Although the Commission determined to review Judge Shaw’s ID, the case settled before issuance of a final ruling. Inv. 337-TA-1042, Order No. 36 at 1 (Apr. 9, 2018) (granting joint motion to terminate).

Consideration of PTAB Rulings in Connection with ITC Exclusion Orders

The ITC showed deference to a PTAB ruling in an early case involving an IPR invalidity decision. Specifically, in Certain Three-Dimensional Cinema Systems & Components Thereof, the ITC exercised its discretion to suspend enforcement of its remedial orders with respect to a patent where the PTAB had determined the asserted claims to be unpatentable. Inv. No. 337-TA-939, Comm’n Notice (July 21, 2016). The PTAB’s final written decision was released after the ALJ’s Initial Determination, but before the Commission’s Final Determination. In the detailed opinion following its notice, the Commission considered whether issue preclusion could be established based on a PTAB decision, but it found that the respondent had failed to satisfy the necessary burden. Inv. No. 337-TA-939, Comm’n Op. at 53–56 (Aug. 23, 2016). Even so, the Commission exercised its discretion to suspend enforcement of its exclusion and cease and desist orders as to the patent at issue, one of three forming the basis of a violation of section 337. Id. at 60-61.

In a later case involving a complete overlap between PTAB invalidity rulings and the patent validity determinations subsumed in the ITC remedial orders, the Commission did not exercise its discretion in this manner. Instead, in Certain Network Devices, Related Software and Components Thereof (II), the ITC refused to suspend or rescind its limited exclusion orders and cease and desist orders when, during the 60- day Presidential Review period following the Commission’s Final Determination, the PTAB issued two final written decisions finding all claims on which the orders were based to be unpatentable. Inv. No. 337- TA-945, Comm’n Notice (June 20, 2017); Comm’n Op. (Aug. 16, 2017). With reference to Commission Rule 210.76 (concerning the modification or rescission of exclusion orders, cease and desist orders, and consent orders), the ITC found that the PTAB’s decisions “do not constitute changed conditions of fact or law” warranting rescission of the remedial orders. Comm’n Op. at 10. According to the Commission, “the law is clear that patent claims are valid until the PTO issues certificates cancelling for [sic] those claims, which it cannot do until the exhaustion of any appeals Cisco may take from the PTAB’s final written decisions.” Id. at 12.

The Commission sought to distinguish its ruling from Three-Dimensional Cinema Systems in two ways. First, in that investigation the Commission had not yet issued its remedial orders when it suspended enforcement. Id. at 13. Second, the Commission had not totally denied relief in Three-Dimensional Cinema Systems because other patents on which the remedial orders were based had not been implicated by the PTAB decision. Id. at 13-14.

Once the Federal Circuit summarily affirmed a PTAB invalidity ruling, the ITC in Network Devices softened its stance and suspended its remedial orders with respect to that patent, even though a certificate of cancelation had not issued. Inv. No. 337-TA-945, Comm’n Order at 3 (Apr. 5, 2018). The other, remaining patent expired during the pendency of its Federal Circuit appeal.

Discussion

The ITC favors speed and demands certainty before crediting PTAB invalidity rulings. After all, the ITC faces a Congressional mandate to conclude its investigations and make determinations about unfair methods of competition “at the earliest practicable time.” 19 U.S.C. § 1337(b)(1). And in most instances, a PTAB final written decision will issue after both the ALJ and the Commission have assessed infringement, invalidity and the public interest factors enumerated in the remedy provisions of the statute. Unlike a district court—that can award damages for the time period involved with an improvident stay in favor of an IPR proceeding or its appeal—the ITC cannot issue retrospective relief. The ITC thus follows the legal maxim of “justice delayed is justice denied.”

This need for speed can have its drawbacks, particularly when addressing complicated issues of patent validity. To the extent a PTAB final written decision becomes available before the Commission issues its Final Determination, the PTAB invalidity ruling could meaningfully assist the ITC in accurately carrying out its mandate. As noted earlier, the PTAB has a longer period of time to assess the narrow patent invalidity issues raised during an IPR proceeding. Moreover, for investigations where a PTAB final written decision becomes available after the Commission has completed an investigation and issued its remedial orders, the PTAB ruling could still be very informative.

The ITC’s current practice of waiting for Federal Circuit affirmance of a PTAB final written decision has led to conflicting results, particularly given the high affirmance rate (of around 75 percent) for PTAB invalidity rulings. For instance, in Nobel Biocare Services AG v. Instradent USA, Inc., No. 2017-2256 (Fed. Cir. Sept. 13, 2018), the appellate court affirmed a PTAB invalidity ruling from May 10, 2017 for claims 1-5 of U.S. Patent No. 8,714,977. The ITC’s exclusion orders, involving these claims and those of another patent in the investigation of Certain Dental Implants, Inv. 337-TA-934, had already issued, meaning the ITC’s delay extended injunctive relief for over 16 months for an invalid patent. Similarly, in Cisco Sys., Inc. v. Arista Networks, Inc., No. 17-2384 (Feb. 14, 2018), the Federal Circuit summarily affirmed the PTAB invalidity ruling regarding one of the two patents forming the basis for the ITC exclusion orders in the Network Devices investigation. The ITC’s delay in rescinding that exclusion order resulted in 10 months of injunctive relief for an invalid patent. The other patent in the Network Devices investigation, also found invalid by the PTAB, expired during the pendency of its appeal to the Federal Circuit.

The ITC disserves the public interest by requiring Federal Circuit affirmance of PTAB invalidity decisions before rescinding, or otherwise modifying, its remedial orders. The ITC should acknowledge that PTAB invalidity rulings constitute “changed conditions of fact or law” affecting the public interest (see 19 CFR §210.76(a)(1)), that should be carefully considered without waiting 10 to 16 months for a Federal Circuit ruling.

Several proposals would improve current practice. First, the ITC should not institute an investigation based on claims found invalid in a PTAB final written decision. This wastes both Commission and party resources, as vividly illustrated in the Hybrid Electric Vehicles investigation. Second, for PTAB final written decisions issued during an ITC investigation, the ALJ or the Commission should consider whether to temporarily suspend remedial orders regarding the patent(s) at issue, as was done in Three-Dimensional Cinema Systems. Last, for the more common situation of ITC remedial orders issuing before PTAB invalidity rulings, the ITC should strongly consider suspension or rescission of its orders due to changed circumstances and the likelihood of affirmance on appeal regarding the invalidity of the subject patents. Of course, remedial orders would remain in place for any patent claims not found unpatentable by the PTAB.

Conclusion

In Three-Dimensional Cinema Systems, the ITC took a small step toward respecting PTAB invalidity rulings. Since that time, the Commission has hardened its position, only to see PTAB invalidity rulings affirmed on appeal. The public interest is not served when remedial orders remain in force despite the cloud of invalidity hanging over the subject patents. The district courts have managed to coordinate their cases with IPR proceedings, even before the issuance of final written decisions by the PTAB. Given its expedited nature, the ITC cannot adopt a wait-and-see approach like the district courts. But the ITC should carefully consider final PTAB invalidity rulings both before and after the ITC has granted injunctive relief to patent owners. The ITC can do so in a fast and efficient process, while also serving the public interest in enforcing valid patent rights.

Originally published in Bloomberg Law

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