ITC Cannot Terminate for Arbitration When Respondent Argument Is ‘Wholly Groundless'

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By Tony Dutra

The International Trade Commission improperly terminated an investigation when the respondent's argument for why an arbitration clause should be honored was “wholly groundless,” the U.S. Court of Appeals for the Federal Circuit ruled June 7 (InterDigital Communications L.L.C. v. International Trade Commission, Fed. Cir., No. 2012-1628, 6/7/13).

The court was split on whether it had jurisdiction to hear the appeal. The majority relied on the court's precedents while the dissent focused on the language of the relevant provisions of Section 337 of the Tariff Act, 19 U.S.C. §1337.

The dissent did not dispute the conclusion, however, that LG Electronics Inc. had no grounds for arguing that its dispute with InterDigital Communications Inc. arose under a license that had ended in 2010.

License Expired in 2010

InterDigital owns patents (U.S. Patent Nos. 7,349,540; 7,502,406; 7,536,013; 7,616,970; 7,706,332; 7,706,830; and 7,970,127) related to 2G and 3G wireless standards.

The company agreed to a license with LG in 2006, which by its terms was terminated as of Dec. 31, 2010. One provision in the agreement gave LG a fully-paid up license to 2G network patents upon termination. The provision on “Arbitration of Disputes” called for arbitration of “a dispute arising under this Agreement.” A “Survival” clause said that the arbitration provision survived termination.

InterDigital petitioned for an investigation of 3G network devices under Section 337 in August 2011, listing Huawei Technologies Co., Nokia Corp., and ZTE Corp. as respondents. In the Matter of Certain Wireless Devices with 3G Capabilities and Components Thereof, No. 337-TA-800. It added LG as a respondent about two months later.

LG moved to terminate its part in the investigation, arguing that its 3G products were still covered by the license and thus that its dispute with InterDigital was subject to arbitration.

Administrative Law Judge David P. Shaw granted the motion, and the commission declined to review that decision. InterDigital appealed.

Precedent, Congress's Actions Catalogued

Judge Sharon Prost addressed first the threshold question of whether the Federal Circuit had jurisdiction to take the appeal under 28 U.S.C. §1295(a)(6).

That provision allows review of “final determinations” of the ITC, and relevant text of the Tariff Act is in Section 337(c):  

The Commission shall determine, with respect to each investigation conducted by it under this section, whether or not there is a violation of this section, except that the Commission may, by issuing a consent order or on the basis of an agreement between the private parties to the investigation, including an agreement to present the matter for arbitration, terminate any such investigation, in whole or in part, without making such a determination.  




Thus the threshold question for this case was whether the termination here could be considered a final determination. The history of the issue, taking from both the majority and dissenting opinions, is as follows:

• The court's predecessor, the U.S. Court of Customs and Patent Appeals, ruled in Import Motors Ltd. v. International Trade Commission, 530 F.2d 940, 188 U.S.P.Q. 491 (C.C.P.A. 1976), that an appeal of a termination should be taken if “its effect upon appellants is the equivalent of a final determination.”

• The Federal Circuit did not review an appeal of a termination when the patent at issue had--while it was before the ITC--been “substantially amended” in reexamination at the Patent and Trademark Office. Block v. International Trade Commission, 777 F.2d 1568, 228 U.S.P.Q. 37 (Fed. Cir. 1985).

• Congress amended Section 337 in 1988 to specifically allow the ITC to terminate investigations based on settlement agreements.

• The court distinguished Block in Farrel Corp. v. International Trade Commission, 949 F.2d 1147, 1151 n. 4, 20 U.S.P.Q.2d 1912 (Fed. Cir. 1991), which involved an arbitration agreement. In Farrel, the ITC's dismissal was such that the petitioner had no way of reopening the investigation, while the Block petitioner could do so based on the amended patent.

• In 1994, Congress amended Section 337(c) “by striking 'a settlement agreement' and inserting 'an agreement between the private parties to the investigation, including an agreement to present the matter for arbitration.' ”


Majority: Case More Like Farrel

The majority likened the circumstances here to Farrel and not Block.

The court characterized the ITC's argument as saying that InterDigital could re-file a petition if the arbitrator rules that the dispute is not covered by the InterDigital-LG agreement. However, the court said, the arbitrator could rule otherwise and, even if it agreed with InterDigital, the patentee would have to wait for the arbitrator's ruling while “LG may continue to import devices that allegedly infringe InterDigital's asserted patents.”

The court further put weight on the 1994 amendment in Congress, reading from the legislative history the intention “to bring ITC practice under section 337 into closer conformity with district court practice” under the Federal Arbitration Act, which permits appeal from a “final decision with respect to an arbitration.” 9 U.S.C. §16(a)(3).

Finally, the court found support in a Supreme Court decision in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), which “held that a district court order dismissing an action in favor of arbitration under the FAA is an appealable 'final decision.' ”

“Accordingly, we hold that the order terminating the investigation as to LG was an appealable final determination under 19 U.S.C. §1337(c) and that we therefore have jurisdiction under 28 U.S.C. §1295(a)(6),” the court said.

This Argument Was Wholly Groundless

The court then addressed the merits of LG's argument in its motion to terminate the investigation and readily concluded that it was wholly groundless.

The standard comes from Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 80 U.S.P.Q.2d 1669 (Fed. Cir. 2006)(206 PTD, 10/25/06), which held that if “the parties to the agreement did clearly and unmistakably intend to delegate the power to decide arbitrability to an arbitrator, then the court should perform a second, more limited inquiry to determine whether the assertion of arbitrability is 'wholly groundless.' ”

“If the ALJ had performed the proper analysis, he would have found that LG's license defense is not plausible,” according to the court here. “Rather, a cursory review of the relevant provisions in the Agreement confirms that LG no longer holds a license to InterDigital's patents for 3G products.”

The court therefore reversed the ITC's order terminating the investigation.

Judge William C. Bryson joined the opinion.

Dissent: Text of Section 337(c) Says Otherwise

Judge Alan D. Lourie agreed that LG's argument was not plausible, but dissented as to the court's analysis of the threshold question.

He pointed to the text of Section 337(c) in the “except” clause. “In my opinion, that language is clear: a termination due to an arbitrability agreement is a termination 'without … a determination,” he said. “As it is not a determination, it is also not a 'final determination.' ”

Further, Lourie said, the circumstances of the instant case more closely resemble Block and not Farrel. He said that InterDigital can, of course, re-file its request for an investigation if the arbitrator concludes that the dispute is not subject to arbitration. And if the arbitrator determines otherwise, “then InterDigital and LG should not have been before the Commission at all,” he argued.

Finally, Lourie read the legislative history differently, seeing a link between the 1988 and 1994 amendments. He said the intent of Congress in general was “increased deference to arbitration agreements, not expanded appealability.”

He thus argued that Congress was actually “overruling our prior holding in Farrel” in the 1994 amendment.

Richard P. Bress of Latham & Watkins, Washington, D.C., represented InterDigital. Michael J. McKeon of Fish & Richardson, Washington, D.C., represented LG. Panyin A. Hughes, an attorney in the ITC's Office of the General Counsel, represented the commission.

InterDigital Involved in Another ITC Case

InterDigital is involved in another ITC case with more widespread implications.

Nokia Inc. filed a petition for writ of certiorari on May 10 in Nokia Inc. v. International Trade Commission, No. 12-1352, appealing the Federal Circuit's ruling that InterDigital's 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 ITC to exclude allegedly infringing imports. InterDigital Communications L.L.C. v. International Trade Commission, 690 F.3d 1318, 103 U.S.P.Q. 2d 1610 (Fed. Cir. 2012), rehearing denied, 707 F.3d 1295, 105 U.S.P.Q.2d 1581 (Fed. Cir. 2013) (11 PTD, 1/16/13).


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