By Eric Schweibenz
On May 23, 2011, the Federal Circuit issued its opinion in Tessera, Inc. v. Int’l Trade Comm’n, (2010-1176).  This was an appeal by Tessera, Inc. (“Tessera”) from the International Trade Commission’s (the “Commission”) final determination in Certain Semiconductor Chips With Minimized Chip Package Size and Products Containing Same (Inv. No. 337-TA-630) that Elpida Memory, Inc. and Elpida Memory (USA), Inc. (collectively, “Elpida”), Acer, Inc., Acer America Corporation, Nanya Technology Corporation, Nanya Technology Corporation U.S.A., Powerchip Semiconductor Corporation, Kingston Technology Co., Inc., Ramaxel Technology Ltd., SMART Modular Technologies, Inc., (collectively, the “Intervenors”) and Centon Electronics, Inc., and ProMOS Technologies, Inc. have not violated Section 337 in connection with the importation into the U.S., sale for importation, or sale within the U.S. after importation of certain semiconductor chips with minimized chip package size and products containing same.  See our February 26, 2010 post for more details.

In the opinion, the Federal Circuit affirmed the ITC’s determinations as to infringement, validity and patent exhaustion in connection with U.S. Patent No. 5,663,106 (the ‘106 patent) but vacated the ITC’s determinations and remanded with respect to U.S. Patent Nos. 5,679,977 (the ‘977 patent) and 6,133,627 (the ‘627 patent).

The asserted patents in the investigation relate to semiconductor chip packages.  In particular, the ‘106 patent is directed to innovations preventing the contamination of exposed terminals on packages during encapsulation.  The ‘977 and ‘627 patents are not substantively discussed in the opinion.

Two groups of accused products are involved in the investigation.  Products in the first group include a polyimide-based package substrate and are referred to as “μBGA.”  Products in the second group include a laminate-based package substrate and are referred to as “wBGA.”  Only Elpida imports the accused  μBGA products, whereas all Intervenors import the accused wBGA products.  The Commission found that the wBGA products do not infringe the asserted claims of the ‘106 patent.  However, with respect to the μBGA products, the Commission found that the products do infringe the ‘106 patent, but that Elpida is not liable for infringement under the doctrine of patent exhaustion because it acquired all of its accused μBGA products from entities to whom Tessera had licensed the ‘106 patent.

On appeal, Tessera argued that the Commission had made errors in applying its claim construction and that therefore the Commission’s finding of non-infringement should be reviewed de novo because it was in reality a legal error in claim construction rather than a factual error in the infringement determination itself.  The Federal Circuit rejected this argument, however, and proceeded to review the Commission’s non-infringement determination under the substantial evidence standard of review.

Tessera argued that the Commission erred in finding that the “top layer” in asserted claim 1 of the ‘106 patent cannot include the solder mask layer of the accused wBGA products.  The Intervenors and the Commission responded by arguing that substantial evidence supported the Commission’s finding.

The Federal Circuit agreed that there was substantial evidence supporting the Commission’s determination and affirmed the finding of non-infringement.  In particular, the Court found no reason to question the Commission’s factual finding that the laminate substrate layer in the wBGA products — and not the solder mask layer — is the “top layer.”

As to invalidity, the Intervenors argued that the Commission had incorrectly found that the asserted claims of the ‘106 patent were not anticipated by certain references.  However, the Federal Circuit found that the Commission’s findings of no anticipation were supported by substantial evidence and accordingly affirmed the final determination on this point.

With respect to the patent exhaustion issue, Elpida and the Commission argued that the Federal Circuit lacked jurisdiction to hear Tessera’s appeal because the appeal had not been timely filed.   By way of background, ALJ Theodore R. Essex issued the Initial Determination (“ID”) in this investigation on August 28, 2009, determining, inter alia, that Tessera’s patent rights were exhausted with respect to all accused products sold by Tessera’s licensees.  Because the ALJ found that Elpida purchased 100% of its accused products from Tessera’s licensees, Elpida could no longer be subject to an exclusion order and was terminated from the investigation.  On October 30, 2009, the Commission issued a notice announcing its decision to review certain issues in the ID but not to review the ALJ’s determination on patent exhaustion.  See our November 2, 2009 post for more details.  The Commission subsequently issued its Final Determination on December 29, 2009.

Critically, Tessera filed its notice of appeal on January 28, 2010 — within sixty days of the Final Determination but more than sixty days from the Commission’s notice determining not to review the ALJ’s determination on patent exhaustion.  The Commission argued that when it decided not to review the ALJ’s determination on patent exhaustion, the ALJ’s decision on that issue then became the final determination of the Commission.  According to the Commission, because Tessera did not file a notice of appeal within sixty days of the Commission’s decision not to review the ALJ’s patent exhaustion determination, Tessera’s appeal was not timely and should be dismissed for lack of jurisdiction.

Tessera responded that the Federal Circuit’s jurisdiction over appeals from the Commission is governed by 19 U.S.C. § 1337(c), which requires that “[a]ny person adversely affected by a final determination of the Commission … may appeal such determination, within 60 days after the determination becomes final.”  Moreover, under 19 C.F.R. § 210.42(h)(2), an initial determination becomes the determination of the Commission “unless the Commission … shall have ordered review of the initial determination or certain issues therein …” (emphasis added).  According to Tessera, since the Commission did decide to review certain issues in ALJ Essex’s ID relating to the ‘106 patent – albeit not the issue of patent exhaustion – the ID did not become final as to the ‘106 patent until the Commission issued its Final Determination on December 29, 2009.

The Federal Circuit agreed with Tessera that the ID did not become final when the Commission issued its October 30, 2009 notice, but only when the Commission issued the Final Determination on December 29, 2009.  In particular, the Court found that “whether Tessera could obtain an exclusion order on the ‘106 patent was still before the Commission” even after the October 30, 2009 notice.  “Had Tessera appealed from the Commission’s Notice to Review, Tessera would still have been unable to obtain an exclusion order until, at the earliest, the Commission finished its review of the ALJ’s findings on claim construction and infringement.”  Accordingly, the Federal Circuit found that Tessera’s appeal was timely and that the Court had jurisdiction over the patent exhaustion issue.

The Court then proceeded to affirm the Commission’s finding that Elpida was not liable for infringement because it had obtained 100% of its accused μBGA products from Tessera’s licensees.  Tessera argued that patent exhaustion did not apply because some of the licensees had not paid their license fees, but the Court rejected this argument.  In particular, the Court found that Elpida could not be liable because the sale from the licensees to Elpida had been authorized by Tessera at the time, and the fact that Tessera might have later entered into a dispute with its licensees over payments required under the license agreements did not change the nature of the original sales to Elpida.

Lastly, with respect to the ‘977 and ‘627 patents, the Court found that the appeal was moot because the patents had expired.  In particular, the Court held that “[b]ecause the ITC has a limited statutory mandate and can only issue an exclusion order barring future conduct, nothing remains before the Commission with respect to the ‘977 and ‘627 patent.”  Accordingly, the Court held that the portion of the appeal directed to the ‘977 and ‘627 patents was moot, vacated the portion of the Commission’s Final Determination relating to the ‘977 and ‘627 patents, and remanded with instructions to dismiss as moot the portion of the complaint relating to those patents.