By way of background, the underlying investigation was requested by Complainants Seiko Epson Corporation, Epson America, Inc., and Epson Portland Inc. (“Epson”).  On October 17, 2007, the Commission ruled that certain ink printer cartridges infringed several U.S. patents owned by or exclusively licensed to Epson and issued a general exclusion order, limited exclusion orders, and cease and desist orders in Investigation No. 337-TA-565 prohibiting the unlicensed entry of ink cartridges covered by the patents at issue.

According to the opinion, “after issuance of the Commission’s exclusion and cease and desist orders, Ninestar U.S. and Town Sky continued to import into the United States and to sell the ink cartridges that were the subject of the orders.”  An enforcement proceeding was brought, and the ALJ found that Ninestar violated the orders and levied a civil penalty in accordance with 19 U.S.C. § 1337(f)(2).  The Commission adopted the findings and conclusions of the ALJ, but reduced the penalty by approximately half.  Ninestar appealed the assessment of the penalty and its amount, and also objected to the inclusion of Ninestar Technology Co., Ltd. (“Ninestar China”) as jointly and severally liable for the penalty along with the U.S. subsidiaries. 

Violation of the Commission’s Orders

The opinion notes that Ninestar executives testified at the enforcement hearing that they “continued to import and sell the ink cartridges…with knowledge that the cartridges had been held by the Commission to infringe United States patents and were subject to the Commission’s exclusion and cease and desist orders” and “acknowledged that they filed false affidavits of compliance.”  Furthermore, on appeal Ninestar “does not deny its actions and its knowledge that it was not in Compliance, but argues that it was justified in non-compliance because the law applied by the Commission is wrong.” 

As set forth in the opinion, Ninestar argued that “national patent rights are exhausted by the manufacture and sale in a foreign country of a product covered by a national patent, and thus the importation of that product cannot violate the national patent.”  In support of this position, Ninestar alleged that the lead case in this area, Jazz Photo Corp. v. ITC, 264 F.3d 1094 (Fed. Cir. 2001), were overruled by Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 632 n.6 (2008).  However, the Federal Circuit was not persuaded, and noted that it had previously specifically interpreted the Quanta Computer case as not eliminating the first sale rule’s territoriality requirement.  Fujifilm Corp. v. Benun, 605 F.3d 1366, 1371 (Fed. Cir. 2010).  The Federal Circuit concluded that “the evidence, including testimony of Ninestar executives…showed that Ninestar understood the law and the Commission’s orders” and thus affirmed the Commission’s ruling.   

The Statutory Penalty

Assessment of a civil penalty is reviewed on the standard of abuse of discretion.  The opinion notes that both the ALJ and full Commission found that the importation and sales were made in deliberate and knowing violation of the Commission’s orders.  Although the Commission agreed with the “egregious” bad faith of the violations, it reduced the ALJ’s determination of the maximum penalty by approximately half.  The Federal Circuit repeated the Commission’s remarks pointing out that the statutory penalty is designed to serve as a deterrent, and thus must be “substantial enough to deter future violations,” and noted that Ninestar has the ability to pay substantial penalties and “did not demonstrate any reason why the maximum penalties should not be imposed.”  Based on the record, the Federal Circuit held that the Commission’s penalty was within its authority and showed no abuse of discretion.

Ninestar argued that Ninestar China should not be held jointly and severally liable with the two Ninestar U.S. subsidiaries, stating “it is elementary and well established law that a parent is not liable for the actions of its subsidiary” and that the Commission failed to meet its burden of proof that Ninestar China controlled the activities of the subsidiaries.  However, the Federal Circuit noted that the record contained substantial evidence to support the finding that “Ninestar China knew of the cease and desist orders and was in a position to ensure compliance…yet it continued to supply covered products to its subsidiaries rather than directing compliance.”  As such, the Federal Circuit affirmed the Commission’s assessment of joint and several liability of the three Ninestar entities.

Ninestar argued “there should be no penalty in view of Ninestar’s good faith belief that …the Commission proceedings violate the Constitution in several respects.”  The opinion notes that Ninestar’s constitutional arguments were tardily raised, but exercised its discretion in considering them. 

Ninestar’s constitutional arguments were based on three related positions:  1)  that a non-judicial body cannot be assigned authority to issue a punitive penalty for violation of an administrative order; 2) the statutory penalty is of such magnitude as to be criminal in nature and requires a jury trial with the associated safeguards before being imposed; and 3) that a procedure whereby an administrative agency levies a criminal penalty is an unconstitutional violation of separation of powers.  In comparison with related Securities and Exchange Commission and Federal Trade Commission civil penalty provisions, Ninestar called the ITC statute “an unconstitutional monstrosity.” 

The Federal Circuit rejected the case law relied on by Ninestar, and dismissed Ninestar’s assertions that a jury trial is necessary, referencing a Supreme Court case that specifically states Congress may assign adjudication of public rights to an administrative agency “with which a jury trial would be incompatible, without violating the Seventh Amendment….even if the Seventh Amendment would have required a jury where the adjudication of those rights is assigned instead to a federal court of law instead of an administrative agency.”  Atlas Roofing Co. v. Occupational Safety & Health Review Commission, 430 U.S. 442. 455 (1977).  The Federal Circuit also noted it is “relevant that decisions of the Commission are subject to judicial review, as a safeguard against administrative excess” and affirmed the Commission’s rulings, discerning “no violation of constitutional structure in the Commission’s authority to levy a civil penalty, and no violation of constitutional protections in the procedures followed and the penalty assessed.”

Amsted Industries Inc.(“Amsted”) is an American-based company that developed two secret processes to make cast steel railway wheels.  Amsted uses one of the processes and licensed the other to companies overseas, including companies in China.  The basis of the ITC’s investigation was Amsted’s complaint, filed August 14, 2008, alleging a violation of Section 337 in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain cast steel railways and certain products containing the same by reason of misappropriation of its trade secrets (the “ABC trade secrets”).  The complaint named Tianrui Group Company Limited; Tianrui Group Foundry Company Limited; Standard Car Truck Company, Inc. and Barber Tianrui Railway Supply, LLC (collectively “Tianrui”) as respondents.  The ITC instituted an investigation and held a ten day evidentiary hearing, finding that Tianrui had misappropriated Amsted’s ABC trade secrets under Illinois trade secret law.  Specifically, after Tianrui was unsuccessful in obtaining a license, they hired away nine employees of another Chinese Amsted licensee to manufacture wheels using the confidential ABC process.  On October 16, 2009, ALJ Charneski issued the ID finding a violation of Section 337 by Tianrui with respect to the ABC trade secrets.   The Commission issued a notice determining not to review the ID, and soon after issued a notice of Issuance Of A Limited Exclusion Order and Cease and Desist Order; Termination of the Investigation.  See our December 18, 2009 and February 19, 2010 posts for more details. 

As summarized in our March 8, 2011 post, Tianrui raised two primary issues on appeal at the Federal Circuit.  First, Tianrui asserted that the ITC exceeded its authority by applying Illinois trade secret law to find a violation of Section 337 based on acts of misappropriation that occurred entirely in China.  Specifically, Tianrui argued that Section 337 is only appropriately applied extraterritorially with respect to patents, as there is no express language authorizing the ITC to do the same with trade secrets.  Second, Tianrui argued that the ITC erred in finding that the domestic industry requirement was met because Amsted produces cast steel wheels by a different process.  In essence, Tianrui asserted that the ITC erroneously reinterpreted the statute to hold that a trade secret complainant seeking to enforce its intellectual property (“IP”) rights need not practice the asserted IP domestically to establish the existence of a domestic industry.

The ITC’s primary counter-argument emphasized that it had not applied trade secret law extraterritorially because a key aspect of a Section 337 violation is the domestic element of importation.  Amsted supported this argument by maintaining that some of the misappropriation actually took place in the United States.  In addition, Amsted argued that it met the domestic industry requirement based on the statutory language.  Specifically, Amsted argued that Subparagraph (A) of §337(a)(1), as opposed to subparagraphs (B)-(D), is based on common law and not statutory IP rights.  Therefore, although §337(a)(2) expressly creates a requirement that the domestic industry practice or exploit the asserted IP, this requirement applies only to statutory-based IP investigations covered by subparagraphs (B)-(D) of Section 337(a)(1).

In the opinion, the Federal Circuit affirmed the ITC’s application of domestic trade law to conduct occurring in a foreign country, although the Court rejected ALJ Charneski’s application of Illinois trade secret law.  The Court held that a single federal standard, rather than the law of a particular state, should determine whether or not misappropriation occurred sufficient to meet the requirements of an unfair method of competition under Section 337.  The Court emphasized that protecting domestic industries from unfair competition is a distinctly federal concern with a federal remedy, and thus the reason for applying a federal standard is particularly strong.  However, the Court noted that trade secret law differs little from state to state and the federal criminal statute governing theft of trade secrets is also based on the Uniform Trade Secrets Act, and since there is no dispute in this case pertaining to the substantive law of trade secrets, the outcome of the case was not affected by applying Illinois law.

The Court determined that the Congressional presumption against extraterritorial application of legislation does not apply to this case for three reasons.  First, Section 337 is specifically directed to importation of articles into the United States, an inherently international transaction, and thus “it is reasonable to assume that Congress was aware, and intended, that the statute would apply to conduct…that may have occurred abroad.”  Second, the Court points out that the ITC “does not purport to regulate purely foreign conduct.”  Rather, the “unfair” activity is only prohibited to the extent that it results in importing goods into the United States and causing domestic injury.  Lastly, the Court determined that the legislative history of Section 337 supports interpreting the statute as permitting the ITC to evaluate conduct that occurs extraterritorially since “Congress intended a …broad and flexible meaning.”

Tianrui’s arguments that applying domestic trade law would cause improper interference with Chinese law were dismissed for the reasons detailed above, with emphasis on the fact that the ITC would not be regulating purely extraterritorial conduct and would not affect Tianrui’s ability to sell its cast steel wheels in China or elsewhere.  The Court also noted that Tianrui was unable to identify a conflict between the principles of trade secret misappropriation applied by the ITC and as governed by Chinese trade secret law. 

The second issue on appeal, whether or not Amsted had established injury of a domestic industry, was also affirmed by the Federal Circuit.  The Court noted that “Section 337 contains different requirements for statutory intellectual property (such as patents, copyrights, and registered trademarks) than for other, nonstatutory unfair practices in importation (such as trade secret misappropriation).”  For statutory IP, it is necessary that an industry relating to the protected IP exists or is being established.  In contrast, the Court held that non-statutory IP requires that the unfair practice threaten to destroy or substantially injure a domestic industry, without expressly requiring that the domestic industry be based on the IP in question.  Since the Court concluded that Tianrui’s wheels could directly compete with Amsted’s wheels, it held that the domestic industry injury requirement was met.

Judge Moore dissented, arguing that the Court impermissibly expanded the reach of Section 337 and asserting that “there is no basis for the extraterritorial application of our laws to punish Tianrui’s bad acts in China,” emphasizing that the trade secret misappropriation occurred entirely in China.  The dissent argues that there is no clear indication of congressional intent in either the statute itself or the legislative history to extend the reach of Section 337 to wholly extraterritorial unfair acts, stating “unless there is the affirmative intention of Congress clearly expressed to give a statute extraterritorial effect, we must presume it is primarily concerned with domestic conditions.”  Judge Moore determined that Section 337 can only cover unfair acts in importation and thus can only cover trade secret misappropriation that occurs in the United States, in contrast to the majority’s assertion that “Congress clearly intended to create a remedy for the importation of goods resulting from unfair methods of competition” (emphasis in original).  As such, the dissent concludes that Section 337 “does not reach the misappropriation and use of trade secrets in China, even if the product of the misappropriated process is ultimately imported into the United States.”

By way of background, the Complainant in this investigation is PPC and the Respondents are Fu Ching Technical Industry Co. Ltd., Gem Electronics, Inc. (collectively, the “Active Respondents”), Hanjiang Fei Yu Electronics Equipment Factory, Zhongguang Electronics, Yangzhou Zhongguang Electronics Co., Ltd., and Yangzhou Zhongguang Foreign Trade Co., Ltd. (collectively, the “Defaulting Respondents”). The investigation was instituted on May 30, 2008.  On October 13, 2009, ALJ Gildea issued his Initial Determination (“ID”) finding, inter alia, that the Defaulting Respondents were in violation of Section 337 by reason of infringement of U.S. Patent Nos. 5,470,257, 6,558,194, D519,076, and the ‘539 patent.  See our November 10, 2009 post for more details.

On December 14, 2009, the International Trade Commission (the “Commission”) issued a notice determining to review the ID in part.  On review, the Commission considered, inter alia, whether PPC had satisfied the domestic industry requirement with respect to the ‘539 patent.   On March 31, 2010, the Commission vacated ALJ Gildea’s finding that PPC had established a domestic industry with respect to the ‘539 patent and issued an order remanding the portion of the investigation relating to the ‘539 patent to ALJ Gildea for further proceedings.   In the Opinion accompanying the remand order, the Commission held that litigation costs taken alone are insufficient to satisfy the domestic industry requirement, but that litigation costs that are actually related to the licensing of the asserted patent(s) may be sufficient.  See our April 16, 2010 post for more details.

In the RID, ALJ Gildea determined that PPC had not sufficiently tied its litigation costs to licensing.  The ALJ further determined that PPC had received only one license for the ‘539 patent, and that only a portion of the license agreement in question actually related to the ‘539 patent.  Moreover, PPC had no established licensing program, let alone a licensing program that encompassed the ‘539 patent.  Finally, PPC had made no efforts to send cease and desist letters or engage in other licensing talks with any persons or entities other than those involved with the single ‘539 patent license.  Thus, while ALJ Gildea found that the issue was a “close one,” he determined that “PPC’s evidence does not demonstrate ‘substantial’ investment in exploitation of the ‘539 patent through its licensing efforts, and therefore does not support a finding of economic domestic industry with respect to the ‘539 patent.”  Accordingly, ALJ Gildea held that PPC had failed to establish a violation of Section 337 by the Defaulting Respondents with respect to the ‘539 patent.  See our June 16, 2010 post for more details. The Commission adopted the RID without modification and the order became final.

On appeal, the Federal Circuit agreed with the Commission that “expenditures on patent litigation do not automatically constitute evidence of the existence of an industry in the United States established by substantial investment in the exploitation of a patent.”  The majority decision disagreed with the dissent that litigation expenses constituted a per se “exploitation of a patent” within the meaning of Section 337(a)(3)(C), and the majority stated that even PPC acknowledged a “requirement to demonstrate a nexus between its litigation expenses and licensing.”  With respect to PPC’s patent litigation in Florida regarding the ‘539 patent, the Federal Circuit noted there was no evidence that PPC had offered to license the patent to the defendant “before commencing litigation, no evidence that PPC had sent a cease and desist letter mentioning the possibility of a settlement, and no evidence that PPC had conducted either settlement or licensing negotiations during the lawsuit itself.”  Additionally, the Federal Circuit took note that PPC sought and received a permanent injunction in the Florida case, and the injunction remained in place for nearly two years before PPC signed an agreement with the defendant that included a license to the ’539 patent, among other patents.  The Federal Circuit observed that such “delay suggests that PPC’s purpose in litigating was not to obtain a license but, rather, was to stop [the defendant] from manufacturing infringing connectors.”  The Federal Circuit also observed that PPC did not sign the agreement that included a license to the ‘539 patent until after PPC obtained a jury verdict against the same defendant in a different litigation that did not involve the ‘539 patent.  The Federal Circuit found no reason to disturb the ALJ’s findings that certain legal expenses specifically related to negotiating and drafting the licensing agreement were “some investment with respect to licensing the ‘539 patent,” but  that such investment was “not substantial.”  Finally, the Federal Circuit stated that while there is “no rule that a single license—such as an exclusive license—cannot satisfy the domestic industry requirement based on a substantial investment in licensing,” ALJ Gildea was “entitled to view the absence of other licenses issued or negotiated for the ’539 design patent as one factor supporting his conclusion that PPC’s expenditures related to licensing were not substantial.”  Based on the above, the Federal Circuit found that substantial evidence supported the Commission’s conclusion on the licensing issue.

Judge Reyna filed a lengthy dissent, which included an analysis of Section 337’s legislative history.  The dissent argued that Congress intended to considerably lower the threshold for domestic industry through amendments in 1988, which provide the present definitions for proving domestic industry, including Section 337(a)(3)(C), which requires a showing that there is: “in the United States, with respect to the articles protected by the patent…substantial investment in its exploitation, including engineering, research and development, or licensing.”  This constitutes a flexible open-ended list, and “standing could exist via any ‘exploitation’ of the patent—i.e., any activity that puts the patent to a productive use or otherwise takes advantage of it.”  The dissent determined that under this broad language of Section 337(a)(3)(C), “patent infringement litigation is an investment in the exploitation of a patent.”  The dissent also raised various policy arguments, stating that “infringement litigation can be a productive and advantageous use of patent rights which better fortify the patentee’s position in the marketplace,” and that “absent PPC’s infringement actions the ’539 patent would never have become sufficiently valuable or marketable for PPC to have obtained the license agreement that it did.”  The dissent concluded that, “litigation undertaken to enforce patent rights and enhance the value of a patent or pave the way for a stronger competitive advantage constitutes an investment in exploitation under section 337(a)(3)(C), regardless of that activity’s relationship to licensing, engineering, research, or production.”   Accordingly, the dissent concluded that the “ITC’s determination to exclude litigation costs untethered to licensing from consideration impermissibly and arbitrarily limited the reach of section 337 for patent owners.”

In the opinion, the Federal Circuit affirmed the Commission’s determinations on claim construction, infringement, validity, domestic industry, and the applicability of the Commission’s exclusion order to MemsTech’s “chamber-chip” products.

The asserted patents in the investigation relate to microelectromechanical system (“MEMS”) packages comprising a substrate, a cover, and a microphone (also termed a transducer).  In particular, U.S. Patent No. 7,242,089 (the ‘089 patent) is directed to MEMS packages that allow acoustic energy to contact a transducer while protecting the transducer from light, electromagnetic radiation, and physical damage.  U.S. Patent No. 6,781,231 (the ‘231 patent) relates to MEMS packages that shield the microphone from an interference signal or an environmental condition.

As to claim construction, MemsTech appealed the Commission’s construction of the claim terms “volume” and “electrically coupled” in the ‘089 patent and “microelectromechanical system package” and “electrically coupled” in the ‘231 patent.  The Federal Circuit affirmed the Commission’s constructions of these terms.

With respect to infringement, the Federal Circuit affirmed the Commission’s findings because MemsTech had not disputed that under the Commission’s claim construction, MemsTech infringed the asserted claims of the ‘089 and ‘231 patents.

As to invalidity, MemsTech appealed the Commision’s determination that certain asserted claims of the ‘089 patent are not invalid under 35 U.S.C. § 102 as anticipated by U.S. Patent No. 6,522,762 to Mullenborn or under 35 U.S.C. § 103 as obvious over (1) U.S. Patent No. 4,533,795 to Baumhauer (“Baumhauer”) alone or in view of an article by Kress, or (2) U.S. Patent No. 5,459,368 to Onishi (“Onishi”).  MemsTech also appealed the Commission’s determination that certain asserted claims of the ‘231 patent are not anticipated by Baumhauer or obvious over Onishi.  However, the Federal Circuit affirmed the Commission’s invalidity determinations.

Regarding domestic industry, MemsTech appealed the Commission’s determination that Complainant Knowles Electronics LLC (“Knowles”) satisfied the technical prong of the domestic industry requirement with respect to the ‘089 patent.  However, the Federal Circuit affirmed the Commission’s findings on this issue because MemsTech’s argument was based on its contention that the Commission had erred in its construction of the claim terms “electrically coupled” and “volume.”  Since the Court had already determined to affirm the Commission’s construction of those terms, the Court also affirmed on the domestic industry issue.

Lastly, with respect to the “chamber chip” issue, MemsTech argued that the Commission had violated its duties under the Administrative Procedure Act by granting Knowles’s petition for reconsideration under 19 C.F.R. § 210.47 with respect to the Commission’s original determination that the chamber-chip products “should not be covered by the Commission exclusion order” in the investigation.  However, the Federal Circuit found that the Commission’s decision to grant the petition under Rule 210.47 was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.

Accordingly, the Federal Circuit affirmed the Commission’s final determination of a violation of Section 337.

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.

By way of background, the investigation was instituted on May 30, 2008.  PPC is the Complainant and there were eight respondents, none of whom were part of the Federal Circuit appeal, and four of whom ultimately defaulted.  PPC only sought a violation on appeal with respect to the four defaulting respondents – Hanjiang Fei Yu Electronics Equipment Factory, Zhongguang Electronics, Yangzhou Zhongguang Electronics Co., Ltd., and Yangzhou Zhongguang Foreign Trade Co., Ltd.  On October 13, 2009, ALJ Gildea issued his ID finding, inter alia, that the defaulting respondents were in violation of Section 337 by reason of infringement of U.S. Patent Nos. 5,470,257 (the ‘257 patent), in addition to 6,558,194, D519,076, and D440,539.  With respect to the ‘257 patent, which was the subject of the appeal, ALJ Gildea concluded that a domestic industry existed in the ‘257 patent, holding that PPC’s “CMP” connector practiced all elements of claim 1.

Upon reviewing the ID, the ITC adopted a different construction of claim 1’s “engagement means” limitation than ALJ Gildea, concluded that PPC’s CMP connector did not practice this limitation, and thus held that PPC had not satisfied the technical prong of the domestic industry requirement for the ‘257 patent.

On appeal, the parties agreed that the “engagement means” limitation is a means-plus-function limitation, and agreed upon the function, but disagreed with respect to the corresponding structure in the specification.  The Federal Circuit agreed with PPC (and with ALJ Gildea) that the “engagement means” limitation “should be construed to include only what is necessary to perform the function, and not import structures that, though present in the preferred embodiment, are not actually necessary.”  Accordingly, the Federal Circuit found that PPC satisfied the technical prong of the domestic industry requirement, removing “the final bar to finding violation of  § 337 as to the defaulting respondents.”  It entered judgment of a violation by the defaulting respondents, and remanded for further proceedings consistent with its opinion.  The Federal Circuit declined PPC’s invitation to direct entry of a general exclusion order, finding that this would be premature, “at least because the ITC has not made findings on the proper remedy and bonding.”

On August 14, 2008, Amsted Industries Inc. (“Amsted”) filed a complaint alleging a violation of Section 337 in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain cast steel railways and certain products containing same by reason of misappropriation of its trade secrets (the “ABC Trade Secrets”).  The complaint named Tianrui Group Company Limited; Tianrui Group Foundry Company Limited; Standard Car Truck Company, Inc. and Barber Tianrui Railway Supply, LLC (collectively “Tianrui”) as respondents.  The ITC instituted an investigation entitled Certain Cast Steel Railway Wheels, Certain Processes For Manufacturing Or Relating To Same And Certain Products Containing Same (Inv. No. 337-TA-655).  An evidentiary hearing was held, and on October 16, 2009, ALJ Carl C. Charneski issued an Initial Determination (“ID”) finding a violation of Section 337 by Tianrui with respect to the ABC Trade Secrets.  See our October 19, 2009 and December 4, 2009 posts for more details.  On December 17, 2009, the Commission issued a notice determining not to review the ID.  See our December 18, 2009 post for more details.  On February 16, 2010, the Commission issued a notice of Issuance Of A Limited Exclusion Order and Cease and Desist Order; Termination of the Investigation.  See our February 19, 2010 post for more details.

According to Tianrui’s opening and reply briefs, Tianrui raises two primary issues on appeal.  First, Tianrui asserts that the “Commission exceeded it statutory authority when it applied Illinois law extraterritorially to find a violation of Section 337 based on acts of misappropriation that occurred entirely in China.”  In particular, Tianrui argues that Section 337 “contains no express language authorizing the ITC to apply U.S. state trade secret law extraterritorially to find an ‘unfair act’ within the meaning of subsection (a)(1)(A).”  Rather, as Tianrui argues, the only appropriate extraterritorial application of Section 337 relates to applying U.S. process patent law to acts overseas because Congress “enacted specific legislation for that purpose.”  Second, Tianrui asserts that the ITC erred in finding that a domestic industry exists because the ITC “improperly departed from its longstanding interpretation that a complainant in a Section 337 investigation seeking to enforce its IP rights must practice the asserted IP in the United States to satisfy the domestic industry requirement.”  Specifically, Tianrui argues that “the Commission, by adopting the ID, erroneously reinterpreted the statute to hold that a trade secret complainant seeking to enforce its IP rights need not practice the asserted IP domestically to establish the existence of a domestic industry.”

In its response brief, the ITC asserts that Tianrui’s appeal should be rejected for the following four reasons: (1) “the Commission’s established, unappealed jurisdiction renders moot any extraterritoriality assertions,” (2) “the Commission has not applied Illinois trade secret law extraterritorially because the illegal product (i.e., Tianrui wheels) have been imported into the United States” (emphasis in original), (3) Tianrui’s “misappropriation of [the] ABC Trade Secrets has included misappropriation in the United States, including unauthorized acquisition, disclosure and use of [the] ABC Trade Secrets in the United States” (emphasis in the original), and (4) “trade secret misappropriation is a proper basis for finding a violation of §337(a)(1)(A).”  Further, the ITC asserts that the “Commission properly applied §337(a)(1)(A)’s plain and unambiguous language and Commission precedent to determine that the domestic industry in this, or any, trade secret investigation is the industry in the United States that is the target of the unfair acts, taking into account marketplace realities.”

Finally, Amsted’s intervenor brief seeks affirmation of the ITC’s finding of a violation of Section 337 by the accused products for two reasons.  First, Amsted asserts that Tianrui “overlooks that some of the misappropriation actually took place in the United States and at the United States border.”  In support of this assertion, Amsted argues that under the governing Illinois statute “‘misappropriation’ of a trade secret comprises not only improper acquisition, but also unauthorized ‘use’ of the trade secret.”  Thus, according to Amsted, the “Commission correctly found that it has authority to bar importation of articles that misappropriate U.S. trade secrets, irrespective of where the articles are manufactured.”  Second, Amsted asserts that the Commission properly rejected Tianrui’s assertions with respect to the domestic industry requirement.  In particular, Amsted argues that Subparagraph (A) of §337(a)(1), as opposed to subparagraphs (B)-(D), is based on common law rather than statutory intellectual property rights.  Therefore, although §337(a)(2) “expressly creates a requirement that the domestic industry practice or exploit the asserted intellectual property right, [it] explicitly applies this requirement only to statutory-based intellectual property rights investigations covered by Subparagraphs (B)-(D) of Section 337(a)(1).”

On December 21, 2007, Tessera, Inc. (“Tessera”) filed a complaint alleging violations of Section 337 in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain semiconductor chips with minimized chip package size and products containing same by reason of infringement of U.S. Patent Nos. 5,663,106 (“the ‘106 patent”), 5,679,977, and 6,133,627 (collectively, “Asserted Patents”), which led to Investigation No. 337-TA-630.  The complaint named eighteen respondents, several of whom either settled out of the investigation or defaulted.  Those filing intervenor briefs include Elpida Memory, Inc., Elpida Memory (USA), Inc., (collectively, “Elpida”), Acer, Inc., Acer America Corporation, Nanya Technology Corporation, Nanya Technology Corporation, U.S.A., PowerChip Semiconductor Corporation, (collectively, “Acer”), and Kingston Technology Company, Inc. (“Kingston”) (collectively, “Respondents”).  An evidentiary hearing was held, and on August 28, 2009, ALJ Theodore R. Essex issued an Initial Determination (“ID”) finding no violation of Section 337 by Respondents with respect to any of the asserted claims of the Asserted Patents.   In particular, ALJ Essex determined that the accused products did not infringe the asserted claims of the ‘106 patent and the doctrine of patent exhaustion applied because all the chips that Respondents purchased from Tessera’s licensees were authorized by Tessera to be sold.

On October 30, 2009, the Commission determined to review the final ID in part.  Specifically relevant to the appeal, the Commission determined to review (i) the finding that the claim term “top layer” recited in claim 1 of the ’106 patent means “an outer layer of the chip assembly upon which the terminals are fixed,” (ii) the requirement that “the ‘top layer’ is a single layer,” and (iii) the finding that the claim term “thereon” recited in claim 1 of the ’106 patent requires “disposing the terminals on the top surface of the top layer.”  Upon review, the Commission modified, inter alia, ALJ Essex’s constructions of certain limitations in the ’106 patent.  However, the Commission’s modifications did not result in reversing ALJ Essex’s findings of no violation of Section 337 by the accused products.

According to Tessera’s opening and reply briefs, two primary issues are raised on appeal.  Further, these issues focused only on the ITC’s adjudication of the ’106 patent because the remaining patents would have expired before any exclusion order could effectively be put in place.  Thus regarding the ’106 patent, Tessera first asserted that the ITC improperly modified the correct claim construction of the ’106 patent when applying it to a second set of accused products.  In particular, Tessera argued that the ITC “added an unsupported supplemental requirement that the claimed ‘top layer’ could not include solder mask material.”  Second, Tessera asserted that “the ITC failed to revisit or correct [ALJ Essex’s] unnecessary and unprecedented departures from basic principles of patent exhaustion.”  Specifically, Tessera argued that the ITC’s application of the doctrine of patent exhaustion “transmutes a licensee’s willful failure to satisfy the preconditions of a license grant into a risk-free ‘authorization’ permitting all comers to use patented inventions for free.”

In its response brief, the ITC asserted that Tessera’s appeal is improper because it challenges several of the Commission’s factual findings that are supported by substantial evidence.  In this regard, the ITC asserted that Tessera “attempts to transform the Commission’s factual infringement finding into a claim construction issue in order to receive de novo review.”  Additionally, the ITC asserted that the Federal Circuit lacks jurisdiction to hear Tessera’s arguments with respect to the ITC’s application of the doctrine of patent exhaustion.  Specifically, the ITC asserted that Tessera’s appeal was untimely because it “filed its notice of appeal on January 28, 2010, more than 60 days after the Commission adopted the ALJ’s patent exhaustion finding on October 30, 2009 that finally disposed of Elpida and products purchased from Tessera’s licensees.”

Each of the intervenor briefs of Acer, Elpida and Kingston seeks affirmation of the ITC’s finding of no violation of Section 337 by the accused products.  In particular, the Acer and Kingston’s briefs both reiterate that the Commission’s determinations must be affirmed because Tessera improperly seeks de novo review of factual determinations that are supported by substantial evidence.  Elpida’s brief asserts that Tessera waived its right to appeal the ITC’s application of the doctrine of patent exhaustion with respect to its accused products because its appeal was untimely.  Elpida also argued that “[e]ven if jurisdiction existed, the Commission’s finding of exhaustion should be affirmed based on evidence of record showing that” its accused products were licensed and that “Tessera received and accepted royalty payments for those products.”