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Patent Licensors Can Pursue ITC Exclusions Despite No Licenses to U.S. Manufacturers

Wednesday, January 16, 2013

The act of licensing patents to foreign manufacturers may be sufficient to establish that a “domestic industry” exists for the purposes of obtaining an order from the International Trade Commission to exclude allegedly infringing imports, the U.S. Court of Appeals for the Federal Circuit held Jan. 10 in a 2-1 decision (InterDigital Communications L.L.C. v. International Trade Commission, Fed. Cir., No. 2010-1093, 1/10/13).

Denying a petition for a rehearing of an earlier panel ruling, the court characterized arguments by intervenor Nokia Inc.--the producer of the excluded goods--as “vague” and concluded that the practice of licensing included all the activities that Nokia was arguing were absent in this case.

A dissenting opinion focused on a different argument, that Congress intended that a licensor establish a “domestic manufacturing industry”--that is, that its licensees be U.S.-based manufacturers.

The ruling gives patent assertion entities--which purchase patents for licensing and litigation value without any intent to manufacture--the ability to seek exclusion orders. This is important to them because PAEs have had difficulty getting federal court injunctions since the U.S. Supreme Court's decision in eBay Inc v. MercExchange L.L.C., 547 U.S. 388, 78 U.S.P.Q.2d 1577 (2006). The PAEs have thus turned to the ITC for the equivalent of an injunction when the alleged infringers export goods to the United States.

ITC Denies Ban on Nokia Imports

InterDigital Communications L.L.C. of Philadelphia has been a developer of technology related to wireless communications since 1972. It holds two patents (U.S. Patent Nos. 7,190,966 and 7,286,847) directed to controlling transmission power during the “handshake” portion of a wireless cellular communication.

In 2007, InterDigital had entered into two dozen licensing agreements covering its U.S. patents, including the patents at issue, with major manufacturers of wireless devices, including Samsung Electronics Co., LG Electronics Inc., Matsushita Communication Industrial Co., Apple Inc., and Research in Motion Ltd. None of these licensees, apparently, manufactured mobile phones in the United States.

Nokia Inc. is affiliated with Finland-based Nokia Corp., a manufacturer of telecommunications devices with worldwide distribution. InterDigital filed a complaint with the ITC pursuant to Section 337 of the Tariff Act of 1930, 19 U.S.C. §1337, alleging that certain telephone handsets being imported by Nokia to the United States infringed its patents.

Section 337(a)(2) permits the ITC to bar importation only upon a finding that “an industry in the United States, relating to the articles protected by the patent … exists or is in the process of being established.”

The “industry in the United States” requirement is met, per Section 337(a)(3), if the complainant can establish, with respect to a patent:  

(A) significant investment in plant or equipment;  

(B) significant employment of labor or capital; or  

(C) substantial investment in its exploitation, including engineering, research and development, or licensing.  

 

 

An ITC administrative law judge concluded that the domestic industry requirement was met under Section 337(a)(3)(C), but found no infringement after construing the terms “code” and “increased power level.” The ITC affirmed the ALJ's determination of no violation of Section 337 without specifically addressing the domestic industry issue. InterDigital appealed.

Federal Circuit Splits Once

In a 2-1 decision in August, the Federal Circuit affirmed the ALJ's ruling on the domestic industry requirement. 690 F.3d 1318, 103 U.S.P.Q.2d 1610 (Fed. Cir. 2012). However, the court revised the construction of the contested terms, reversed the administrative law judge's determination of noninfringement, and remanded the matter for further proceedings. The dissenting opinion in that ruling argued only against the majority's opinion on the claim construction issues.

Nokia--who had since engaged as counsel former U.S. Solicitor General Paul D. Clement, now with the Bancroft law firm, Washington, D.C.--then filed a petition for rehearing, focusing only on whether the ITC should have dismissed the complaint for failure to show a domestic industry. The company argued that the ITC's claim to jurisdiction over these cases “allows patentees whose sole activity is licensing to effect an end-run around eBay.”

The brief concentrated on the phrase “relating to the articles protected by the patent,” referred to as the “technical prong” of the domestic industry requirement. “If licensing alone can satisfy the domestic industry requirement, the 'technical prong,' which require[s] independent consideration …, effectively drops out of the statute,” according to Nokia.

In a footnote, the company said it was not arguing that the “articles” referred to here “be made in this country,” but rather that “there must be 'articles protected by the patent' actually in the United States.”

Six companies, led by Hewlett-Packard Co., filed an amicus brief with the same contentions that PAE use of Section 337 is not within Congress's intended scope of Section 337(a)(3)(C) and that the ITC's focus on licensing eliminates any analysis of whether the licensing relates to patented articles.

Federal Circuit Splits Again

Judge William Curtis Bryson, who had written the August opinion, again wrote for the court in denying the petition for rehearing.

“Nokia argues that more is required by the phrase 'with respect to the articles protected by the patent,' but it is notably vague about what exactly that is,” he said.

Section 337(a)(3)(C) was added by Congress in 1988. According to Nokia's position, its intent was “to allow the Commission to take action to protect those who do not themselves produce goods practicing their patents, but who work with others to do so.”

“But that is the very definition of licensing,” the court said, and “it is unclear why that description of the statutory test would not apply to a licensor such as InterDigital.”

The court next provided a detailed review of the legislative history of the 1988 amendment, but its points were directed more to the dissent than to Nokia.

In dissent, Judge Pauline Newman went over the same legislative history and said there was clear evidence Congress did not mean Section 337(a)(3)(C) to deviate from the then-existing requirement that the articles protected by the patent must be “made or in preparation to be made in the United States.”

“The purpose [of the subsection] is to protect the licensor's income and its licensees,” she said. “The purpose is not to facilitate importation of foreign-made products.”

Rule: Domestic Manufacture Not Necessary

The majority saw no support for Newman's interpretation of Congress's intent and noted that the text of the statute does not include any such requirement. For any licensor to meet the domestic industry requirement under Section 337(a)(3)(C), the court held:  

It is not necessary that the party manufacture the product that is protected by the patent, and it is not necessary that any other domestic party manufacture the protected article. As long as the patent covers the article that is the subject of the exclusion proceeding, and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337.  

 

 

Judge Haldane Robert Mayer joined the court's opinion.

Nokia had also petitioned for rehearing en banc. In the Jan. 10 order, the court, sitting en banc, denied the petition without commentary.

InterDigital was represented by Donald R. Dunner of Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C. The ITC was represented by Megan M. Valentine of the ITC's Office of the General Counsel, Washington, D.C. Patrick J. Flinn of Alston & Bird, Atlanta, argued on behalf of Nokia before the panel. Daryl Joseffer of King & Spalding, Washington, D.C., filed the Hewlett-Packard brief.

By Tony Dutra  


Text is available at http://pub.bna.com/ptcj/101093o13Jan10.pdf.

Dunner is a member of this journal's advisory board.

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