By Eric Schweibenz
Further to our August 18 post, on September 24, 2009, the International Trade Commission issued the public version of its opinion on civil penalties in Certain Ink Cartridges and Components Thereof (Inv. No. 337-TA-565).

By way of background, and as explained in our June 22 post, on June 19, 2009, the Commission issued a notice determining not to review the April 17, 2009 Enforcement Initial Determination (“EID”) issued by Chief ALJ Paul J. Luckern finding violations of the Commission’s cease and desist orders and a consent order issued in the underlying investigation.  While the Commission determined not to review the ALJ’s finding of violations of its remedial orders, the Commission requested separate briefing concerning the imposition of civil penalties.

In the opinion, the Commission “determined to adopt the ALJ’s analysis and recommendations on penalties with respect to the Mipo Respondents and Apex Respondents but has determined to impose a lesser penalty on the Ninestar Respondents.”  In this respect, the opinion noted that the Mipo Respondents and Apex Respondents defaulted in the enforcement phase of the investigation, and the Ninestar Respondents did not dispute importation of the covered products.

Regarding the Ninestar Respondents’ non-infringement argument concerning permissible repair, the Commission determined that this defense was waived because the Ninestar Respondents “failed to raise it in their prehearing statement, response to the complainants’ interrogatories, posthearing brief or reply brief or at the hearing.”  With respect to the Ninestar Respondents’ argument that they should not be held liable under the Fifth Amendment because the remedial orders did not give them notice that remanufactured cartridges would be covered by such orders, the Commission determined that “the Ninestar Respondents had adequate notice of what is prohibited by the orders, and in fact, that they actually knew that their refilled cartridges that were first sold abroad are covered products.”

As to its analysis in the opinion regarding civil penalties, the Commission determined that it reviews the ALJ’s remedy recommendations de novo and applies the following six-factor EPROMS test: (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 respondent has benefitted from its violations; (5) the need to vindicate the authority of the Commission; and (6) the public interest.

The Commission found that “the Ninestar Respondents acted in bad faith.”  With respect to the injury to the public, the Commission determined that the “ALJ’s conclusion that the domestic industry and, consequently, the public, were injured to a degree warranting the imposition of a significant penalty against respondents, is supported by the record.”  Regarding the Ninestar Respondents’ ability to pay, the Commission determined that the “Ninestar Respondents did not introduce accounting records or demonstrate any reason why the maximum penalties should not be imposed” and thus the ability to pay would not be viewed as “any limitation on the amount of penalties to be imposed.”  The Commission further determined that “the Ninestar Respondents received significant intangible benefits, as well as the more obvious financial gains from their violations.”  The Commission also determined that “there is an interest in vindicating the authority of the Commission in this case, particularly in light of the Ninestar Respondents’ bad faith.”  Finally, the Commission determined that the “public interest at issue in this case, as in most section 337 investigations, is the protection of intellectual property rights” and “the Ninestar Respondents should not complain if their business suffers if a severe penalty is imposed in response to their misconduct.”  Regarding the appropriate penalty, the Commission determined to impose joint and several civil penalties against the Ninestar Respondents in the amount of $11,110,000.  According to the opinion, this penalty “should be sufficient to deter future violations by the Ninestar Respondents and others considering violating the Commission’s orders.”

The Commission determined to adopt the ALJ’s analysis and recommendations on penalties with respect to the Mipo Respondents and the Apex Respondents.  Thus, the Commission affirmed imposition of joint and several civil penalties against the Mipo Respondents in the amount of $9,700,000, and against the Apex Respondents in the amount of $700,000.