Welcome to the latest issue of the Section 337 Update.  This newsletter is designed to provide you with practical updates and developments on Section 337 proceedings before the US International Trade Commission.

Patentees have been increasingly using the International Trade Commission (ITC) as a forum to enforce their rights due to the ITC's in rem jurisdiction, nationwide subpoena power, expedited proceedings, and ability to issue powerful exclusion orders.  However, if a patent owner would also like to obtain monetary damages, the patent owner still needs to file a related case in federal district court.  The procedures in the two venues are extremely different, and a patentee will often hire separate counsel who specialize in handling proceedings at each venue.  Filing parallel district court litigation and ITC investigations can provide a patentee with the greatest range of potential relief against an infringing party, but the timing and the strategy of the proceedings need to be carefully considered to ensure that no potential relief is precluded.   A recent decision at the ITC, which terminated the investigation in Certain Video Displays, Inv. No. 337-TA-828, illustrates the importance of coordinating litigation strategies when filing parallel district court and ITC proceedings.

In Certain Video Displays, Complainant Mondis Technology, Ltd. (Mondis), a non-practicing entity (NPE) from the United Kingdom, asserted two patents for plug-and-play video display technology against Respondent Chimei Innolux Corp. (Chimei).  Mondis previously asserted the same patents against Chimei in a district court case, Mondis Technology Ltd. v. LG Electronics, Inc. et al., 07-cv-565 (E.D. Tex.).  In that case, Mondis sought equitable relief in the form of ongoing royalties but did not seek an injunction.  A jury found that the defendants willfully infringed Mondis' patents, and the district court ultimately ordered the defendants to pay running royalties to Mondis for continued sales of the accused products.

Notwithstanding Chimei's royalty payments, Mondis subsequently filed a complaint with the ITC, claiming that Chimei's products covered by the running royalties still infringed the two patents.  Chimei moved for summary determination of no violation and argued that the payment of the court-ordered running royalties constituted a license and that sales subject to those royalties were not acts of infringement.  Mondis made three primary arguments in opposition: (1) the running royalties were a kind of damages, not a court-negotiated licensing arrangement; (2) that an ALJ previously held that a running royalty was not necessarily a license which precluded relief at the ITC; and (3) that there were public policy reasons why NPEs should be able to obtain exclusion orders at the ITC since they could not obtain injunctions in district courts under eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

ALJ Essex rejected all three of Mondis' arguments and held that a running royalty awarded in a prior district court case foreclosed relief at the ITC. 

The ALJ's Order is available online. 

In finding that an award of an ongoing royalty is a license, ALJ Essex stated that:

"[O]ngoing royalties are not continuous damages payments for continuing damages, but instead they are compensation for giving up the right to exclude.  Giving up the right to exclude is the essence of a license. . . . an ongoing royalty should be viewed as license for the adjudged infringer to use the patented inventions such that there is no longer any violation of the patentee's patent rights."

ALJ Essex asserted that running royalties compensate a patentee for future use, not past harm.  While Section 337 provides a remedy for patent infringement, Chimei was not infringing Mondis' patents in this investigation because the accused products were licensed.

In reply to Mondis' public policy argument, ALJ Essex noted that relief at the ITC was precluded solely because of the order in which Mondis proceeded with the parallel proceedings.  Mondis could have pursued its Section 337 investigation at the ITC first and possibly obtained an exclusion order.  ALJ Essex also disagreed with the notion of a gap-filling function of Section 337 for NPEs after eBay "because other courts have granted injunctions even where the company was willing to license its patents."  He emphasized that Mondis never even requested injunctive against Chimei in the district court case, but rather consented to the alternative remedy of running royalties.  In light of the foregoing, ALJ Essex terminated the investigation against Chimei.

PRACTICE TIPS:

  • Patent owners need to carefully coordinate their litigation strategies when filing parallel proceedings in federal district court and the ITC.  If injunctive relief is an ultimate objective of patent enforcement, it may be beneficial to file the ITC investigation before the district court case, particularly since ITC investigations are typically adjudicated much more quickly. 
  • If, for other strategic reasons, the district court case is filed first, the patent owner should give careful consideration to the nature of any post-trial relief requested from the district court.  For example, the patentee may: (1) forego ongoing royalties entirely; (2) request a short "sunset" royalty that permits the defendant to continue sales for a short period of time only and then expires; or (3) seek a provision in the district court order that discontinues ongoing royalty payments in the event an ITC investigation is instituted. 

Below please find another example of a running royalty decision issued in a Section 337 proceeding:

  • Inv. No. 337-TA-688, Certain Hybrid Vehicles and Components Thereof – Complainant Paice previously sued Respondent Toyota in federal district court, and the district court awarded Paice a running royalty.  Paice subsequently filed an ITC investigation and sought an exclusion order only for accused products not covered by the district court's running royalty order.  The ITC held that the payment of running royalties on the products covered by the district court action was not an authorization for Toyota to import products on which it was not paying a running royalty.

The ALJ's Order is available online. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.