Thursday, November 12, 2015

Federal Circuit Affirms $6 Million Sanction for Violation of ITC Consent Order

This morning the Federal Circuit issued an opinion in DeLorme Publishing Co. v. ITC, affirming a decision by the U.S. International Trade Commission finding that DeLorme Publishing Company, Inc. and DeLorme InReach LLC (collectively, "DeLorme") violated a consent order prohibiting the sales of two devices that include certain imported components, and imposing a civil penalty of $6,242,500.  The majority opinion is by Judge Moore, with a partial dissent by Judge Taranto.

1.  Following an ITC investigation initiated in 2012, DeLorme agreed to a consent order stating that:
Upon entry of the proposed Consent Order, DeLorme shall not import into the United States, sell for importation into the United States, or sell or offer for sale within the United States after importation any two-way global satellite communication devices, system, and components thereof, that infringe claims 1, 2, 5, 10–12, and 34 of the ’380 Patent after April 1, 2013, until the expiration, invalidation, and/or unenforceability of the ’380 Patent. 
In 2013, the patent owner (BriarTek) alleged that DeLorme was in violation of the order.  In particular, DeLorme had removed the infringing components from some of its existing devices and replaced them with noninfringing (imported) components, but according to BriarTek (and the ITC) DeLorme instructed purchasers how to use the remade devices in a way that infringe two claims of BriarTek's patent.  The court agreed that this violated the consent order:
DeLorme argues that even if the devices infringed the claims, the Consent Order did not preclude DeLorme from selling domestically manufactured devices containing imported, noninfringing components. It argues that the terms of the Consent Order instead prohibited DeLorme from using imported components only if the components themselves infringed. It argues that the Commission “rewrote” the Consent Order to “prohibit not just the use of imported, infringing, components, but also the use of any imported components.” Appellants’ Br. 23. It argues that the Commission’s interpretation of the Consent Order exceeded its authority to block importation of only “articles that . . . infringe.” 19 U.S.C. § 1337(a)(1)(B)(i). 
We agree with the Commission that DeLorme violated the Consent Order by selling InReach 1.5 and SE devices containing imported components with instructions for its customers to use the devices in an infringing manner.The Consent Order provided that DeLorme could not import, sell for importation, or sell or offer for sale after importation “any two-way global satellite communication devices, system, and components thereof, that infringe claims 1, 2, 5, 10–12, and 34 of the ’380 Patent.” Consent Order ¶ 1. Under these terms, DeLorme was precluded from selling infringing devices containing imported  components with instructions to infringe.
2.  As for the penalty, 19 U.S.C. section 1337(f)(2) provides that:
Any person who violates an order issued by the Commission under paragraph (1) after it has become final shall forfeit and pay to the United States a civil penalty for each day on which an importation of articles, or their sale, occurs in violation of the order of not more than the greater of $100,000 or  twice the domestic value of the articles entered or sold on such day in violation of the order. Such penalty shall accrue to the United States and may be recovered for the United States in a civil action brought by the Commission in the Federal District Court for the District of Columbia or for the district in which the violation occurs. . . .
The court notes that the amount of the penalty is determined in light of six factors:
The Commission based its penalty determination in this case on the six “EPROM factors” adopted by this court: (1) the good or bad faith of the respondent, (2) the injury to the public, (3) the respondent’s ability to pay, (4) the extent to which the respondent has benefited from its violations, (5) the need to vindicate the authority of the Commission, and (6) the public interest. Comm’n Op. at 27, 42–50 (citing, e.g., Certain Erasable Programmable Read Only Memories (EPROMs), Inv. No. 337-TA-276 (Enforcement), Comm’n Opinion (July 19, 1991)); see also San Huan, 161 F.3d at 1362. The Commission noted that the penalty was slightly more than a quarter of the statutory maximum of $100,000 per day. See 19 U.S.C. § 1337(f)(2). It found that the penalty was “appropriately proportionate to the value that the violative InReach devices bring to DeLorme” and consistent with the Commission’s policy of deterring future violations while not driving DeLorme out of business. Comm’n Op. at 50 (citing, e.g., San Huan, 161 F.3d at 1364). . . .
The Commission did not abuse its discretion in imposing a civil penalty of $6,242,500. The penalty—which amounted to $27,500 per day for 227 violation days—was substantially less than the statutory ceiling of $100,000 per violation per day. See 19 U.S.C. § 1337(f)(2). The Commission took into account the EPROM factors and we see no clear error in its fact findings or error in its  application of the law. DeLorme has not shown, for example, that there was clear error in the Commission’s findings regarding DeLorme’s bad faith or that the violative sales greatly benefited DeLorme. We conclude that the Commission did not abuse its discretion in its penalty determination.
3.  One final wrinkle:  while the ITC matter was pending, DeLorme filed a declaratory judgment  action against BriarTek in the Eastern District of Virginia, arguing that certain claims of BriarTek's patent were invalid.  The district court agreed, and in a separate opinion today the Federal Circuit summarily affirmed.  Nevertheless, DeLorme is not off the hook for the civil penalty:
We conclude that the Consent Order unambiguously resolves the question of the impact of an invalidity decision on the enforcement of the Consent Order. The Consent Order bars certain sales and importations “until” one of three events occurs: “expiration, invalidation, and/or unenforceability of the ’380 Patent.” Consent Order ¶ 1. Additionally, it explains that the Consent Order ceases to apply when the patent claim at issue has “expired or been found or adjudicated invalid or  unenforceable . . . provided that such finding or judgment has become final and non-reviewable.” Consent Order ¶ 4. Thus, the Consent Order identifies three events which will cause it to no longer apply. When one of these events occurs the Consent Order will no longer apply, and DeLorme will no longer be constrained by its terms. Until one of these events occurs, however, the Consent Order is binding upon DeLorme.
In this case, the Consent Order applied to DeLorme at the time it committed the acts found to violate the order. The Consent Order applied to DeLorme even at the time the enforcement decision with the civil penalty issued. . . . DeLorme argues in its supplemental briefing that the subsequent district court invalidation of the claims retroactively eliminates the Consent Order such that we can no longer affirm the civil penalty properly adjudicated by the Commission. This argument is inconsistent with the plain language of the Consent Order itself. . . .
Finally, DeLorme argues that our recent decision in ePlus, Inc. v. Lawson Software, Inc., 789 F.3d 1349 (Fed. Cir. 2015) requires that the Commission’s civil penalty in this case be reversed. In ePlus, we (1) vacated an injunction after the U.S. Patent and Trademark Office cancelled the only patent claim on which the injunction was based, id. at 1355–56, and (2) set aside the civil contempt sanction imposed for violation of the vacated injunction, id. at 1361.
DeLorme’s argument that ePlus controls this case is incorrect. ePlus held that a civil contempt  sanction can be set aside when the underlying injunction, upon which the sanction is based, is still itself non-final or reviewable. As we explained in ePlus, “The rule for civil contempt for violating a provision of an injunction that is not final, i.e., that is still subject to litigation over the propriety of its issuance, is that ‘[t]he right to remedial relief falls with an injunction which events prove was erroneously issued.’” 789 F.3d at 1356 (quoting United States v. United Mine Workers of Am., 330 U.S. 258, 295 (1947)). In ePlus, we determined that the injunction was not final (it was still subject to appellate review) at the time we were reviewing the civil contempt sanction and thus when the patent claims were cancelled, both the injunction and civil contempt sanction had to be vacated. Id. at 1361. In this case, in contrast, there is no question that the underlying Consent Order was final and not appealable. The Consent Order itself states that “DeLorme shall be precluded from seeking judicial review or otherwise challenging or contesting [its] validity.” Consent Order ¶ 2. Neither party has argued that the Consent Order in this case, like the injunction in ePlus, was not final or appealable.
4.  Judge Taranto dissents on this last point, writing that he "would remand this matter to the Commission for it to consider the effect of the invalidation on enforcement of the civil penalty for pre-invalidation violations of the Consent Order."

5.  Putting the legal doctrine to one side, I can certainly sympathize with DeLorme.  The analogous issue of whether one should be obligated to pay damages (or, alternatively, should be entitled to get back damages already paid) if the patent in suit is later declared to be invalid, is one that divides the world's major patent systems, as I have written about before (see here).  Arguably a case like this also highlights the oddity of having two separate forums in the U.S.--the ITC and a federal district court--in which the same patent and the same parties can fight parallel actions (something that few other countries' patent systems contemplate).

6.  In other news, in Align Technology, Inc. v. ITC, a case related to the ClearCorrect case the court decided the other day, the Federal Circuit summarily "vacated and remanded for further proceedings in light of our decision in ClearCorrect Operating, LLC v. International Trade Commission, No. 2014-1527."

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