ALJ Shaw Issues Recommended Determination On Remedy And Bonding In Certain Light-Emitting Diodes (337-TA-784)
On August 8, 2012, ALJ David P. Shaw issued the public version of the Recommended Determination on Remedy and Bonding (“RD”) (dated July 23, 2012) in Certain Light-Emitting Diodes and Products Containing the Same (Inv. No. 337-TA-784). In the RD, ALJ Shaw recommended that should the Commission find a violation, a limited exclusion order (“LEO”) should issue directed to Respondents’ infringing LEDs, and that the LEO should not cover Respondents’ downstream products. ALJ Shaw further recommended that the Commission not issue any cease and desist order, and also recommended that Respondents post a bond during the Presidential review period.
By way of background, the investigation is based on a June 3, 2011 complaint filed by OSRAM GmbH (“OSRAM”) alleging that Respondents LG Electronics, Inc., LG Innotek Co., Ltd., LG Electronics U.S.A., Inc., and LG Innotek U.S.A., Inc. (collectively, “LG”) violated Section 337 by infringing various patents. See our July 7, 2011 post for more details. On July 9, 2012, ALJ Shaw issued a notice holding that a violation of Section 337 had occurred in this investigation by LG by reason of infringement of certain valid claims of U.S. Patent No. 7,151,283. See our July 12, 2012 post for more details.
According to the RD, OSRAM argued that the proper remedy was an LEO against LG, barring from entry into the United States all light-emitting diodes (“LEDs”) and products containing the same (i.e., downstream products such as televisions, monitors, smartphones, and media players) that infringe one or more of the asserted claims of the patents-in-suit. LG argued that relief should be limited to an LEO directed to LG’s LEDs, and not include downstream products. LG further argued that to the extent the Commission found downstream relief appropriate, such relief should be limited to LG’s downstream products containing infringing LG LEDs, wherein such LEDs constitute more that 5% of the economic value of the downstream product.
In determining whether to recommend extending an LEO to downstream products, ALJ Shaw considered the following so-called EPROMs factors:
(1) the value of the infringing articles compared to the value of the downstream products in which they are incorporated — ALJ Shaw stated there was a wide gap between the cost of the downstream products and the accused LEDs that weighed heavily against excluding downstream products. However, when the technical value of the LEDs compared to the downstream product is also considered, this factor weighs in favor of excluding downstream products.
(2) the identity of the manufacturer of the downstream products — Since LG is also the manufacturer of the downstream products, ALJ Shaw held this factor weighs evenly as to the exclusion of downstream products.
(3) the incremental value to the complainant of the exclusion of downstream products — OSRAM and LG are not significantly active in the same industries or markets, and so ALJ Shaw found that this factor did not support the exclusion of downstream products.
(4) the incremental detriment to respondents of exclusion of such products — ALJ Shaw held that LG would experience significant detriment should an exclusion order extend to all downstream products, in part because the vast majority of LG’s LEDs entering the United States have been incorporated into downstream products. He therefore stated that this factor weighs against an exclusion order extending to all downstream products.
(5) the burdens imposed on third parties resulting from exclusion of downstream products — ALJ Shaw held that since the LEO sought by OSRAM seeks to exclude only downstream products manufactured by LG, it would not have any detrimental effect on third parties manufacturing downstream products. However, he also noted that many of LG’s downstream products do contain LEDs manufactured by third parties, and exclusion of LG’s downstream products would impose a burden on these third party LED manufacturers. ALJ Shaw stated this factor weighs slightly in favor of exclusion of downstream products.
(6) the availability of alternative downstream products that do not contain the infringing articles — ALJ Shaw held that many alternative downstream products do not contain the accused LG LEDs, and therefore consumers would not be significantly burdened by a ban on LG’s downstream products. ALJ Shaw stated this factor weighs evenly as to whether downstream products should be included in an LEO.
(7) the likelihood that the downstream products actually contain the infringing articles and are thereby subject to exclusion — ALJ Shaw held that since the record evidence clearly indicated which LG downstream products contained the infringing LEDs, this factor weighed in favor of exclusion of downstream products.
(8) the opportunity for evasion of an exclusion order that does not include downstream products — As to whether LG could evade an exclusion order that does not include downstream products, ALJ Shaw concluded that this factor supported exclusion of downstream products.
(9) the enforceability of an order by Customs — ALJ Shaw concluded that the large number of downstream products, and several different harmonized tariff schedules at issue would render enforcement of the LEO on downstream products burdensome on U.S. Customs and Border Protection, such that this factor weighed against excluding downstream products.
Based on the above EPROMs factors, ALJ Shaw recommended that it was not warranted for an LEO to cover any downstream products. ALJ further recommended that if the Commission determined to issue an LEO that provides downstream relief, that relief should be limited to only downstream products that contain the specific infringing LED model numbers, and in which the technological value of the LEDs to the product is high.
ALJ Shaw further rejected OSRAM’s request for a cease and desist order, and recommended that no cease and desist order issue if the Commission finds a violation of Section 337.
Regarding the bond amount, OSRAM requested a 100% bond in light of the wide range of prices charged for infringing products and the resulting difficulty in making a price differential analysis. LG responded that a bond should be set at less than the cost of an infringing LED rather than the downstream product, relying on OSRAM license agreements that a reasonable royalty rate should be less than the cost of an infringing LED. ALJ Shaw found OSRAM’s argument persuasive and therefore recommended that, in the event that a violation of Section 337 is found, LG post a bond of 100% of the wholesale price of the products subject to any LEO during the Presidential review period.