By Eric Schweibenz
On March 23, 2010, ALJ Theodore R. Essex issued the public version of Order No. 6 (dated March 3, 2010) granting Complainant Paice LLC’s (“Paice”) motion for summary determination on infringement, validity and enforceability, and denying Respondents Toyota Motor Corp., Toyota Motor North America, and Toyota Motor Sales, USA, Inc.’s (collectively, “Toyota”) cross motion for summary determination terminating the investigation for claim preclusion in Certain Hybrid Electric Vehicles and Components Thereof (Inv. No. 337-TA-688).

At issue is whether claim preclusion and/or issue preclusion apply in this investigation in light of the district court’s ruling in Paice LLC v. Toyota Motor Corp. et al., C.A No. 2:04-cv-211-DF (“Paice I”).

By way of background, Paice sued Toyota in 2004 in the Eastern District of Texas (“EDTX”) alleging that the Prius II, Highlander Hybrid and Lexus RX400h infringed U.S. Patent No. 5,343,970 (“the ‘970 patent”).  After a jury verdict of infringement under the doctrine of equivalents and validity, the district court entered a final judgment awarding damages, establishing an ongoing royalty rate, and denying Paice’s request for a permanent injunction.  On appeal, the Federal Circuit affirmed the finding of infringement but remanded for re-evaluation of the royalty rate.  Paice did not appeal the denial of the injunction.  On remand, the district court amended the final judgment and set a reasonable royalty rate equivalent to 1.5% of the hybrid power train value exclusive of the internal combustion engine (currently on appeal to the Federal Circuit).  Paice sued Toyota again in 2007 in EDTX alleging that the Prius III, Camry Hybrid, Lexus HS250h and Lexus RX450h infringed the ‘970 patent (“Paice II”).  The district court in Paice II ruled that Toyota was barred from asserting any invalidity defenses to the ‘970 patent because the same claim of infringement was asserted in Paice I.  In Paice II, Toyota admitted that the accused vehicles each have a hybrid drive train that is materially the same as the hybrid drive train in the Highlander Hybrid and Lexus RX400h that were at issue in Paice I.

In the instant investigation, Paice likewise alleges that the Prius III, Camry Hybrid, Lexus HS250h and Lexus RX450h (the “Accused Products”) infringe the ‘970 patent.  Toyota asserts the defenses of invalidity, unenforceability and non-infringement, and argues that the district court’s denial of Paice’s request for injunctive relief in Paice I authorizes the importation and sale of the Accused Products, subject to payment of the ongoing royalty.

Paice argued that summary determination is appropriate because claim preclusion bars Toyota from challenging infringement, validity and enforceability of the ‘970 patent.  Toyota argued that claim preclusion either applies to the entirety of the investigation (i.e., to both liability and remedy issues) or not at all, and that if claim preclusion applies, then the investigation should be terminated since Paice would be precluded from seeking essentially the same remedy (a permanent injunction) that it was denied in Paice I.  The Commission Investigative Staff (“OUII”) agreed with Paice that claim preclusion should apply against Toyota on infringement, validity and enforceability, but should not apply to Paice on remedy issues.

In the Order, ALJ Essex agreed with Paice and OUII, finding that Toyota is precluded from challenging infringement, validity and enforceability because (1) it is undisputed that the parties are identical, (2) it is undisputed that the district court in Paice I reached a final judgment on the merits, and (3) Paice’s claim in the instant investigation is based on the same transactional facts as Paice I because, while the vehicles are not the same, Toyota admitted that the Accused Products are materially the same as two of the products at issue in Paice I.

With respect to Toyota’s argument that claim preclusion also precludes Paice from seeking the same relief it was denied in Paice I, ALJ Essex determined that the remedial orders available at the ITC are not the same remedy as the injunctive relief sought and denied in Paice I.  In particular, the ALJ stated that Toyota’s reliance on Young Engineers, Inc. v. ITC, 721 F.2d 1305 (Fed. Cir. 1983) was misplaced, since the Federal Circuit in that case held that “it is indisputable that the relief available in a §1337 proceeding by way of total exclusion of foreign infringing merchandise was not available in the district court.”  ALJ Essex also noted that Section 337 investigations were specifically intended to provide relief to patent holders in addition to the relief provided in district court, citing 19 U.S.C. §1337(a)(1).  Moreover, ALJ Essex observed that the ITC has previously determined that it is not required to follow the Supreme Court’s decision in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), which the district court was required to follow in Paice I.

Based on Toyota’s admissions, the ALJ found that the Accused Products infringe the ‘970 patent literally and under the doctrine of equivalents.  However, Toyota argued that it was “authorized” to import and sell the Accused Products based on the district court’s denial of injunctive relief for all Toyota hybrids coupled with its decision to impose ongoing royalties on certain Toyota hybrids.  Paice and OUII argued that the district court’s decision regarding royalties is limited to those hybrids enumerated therein (Prius II, Highlander and Lexus RX400h), and that such royalties are not applicable to the Accused Products.  ALJ Essex agreed with Paice and OUII, and found that while ongoing royalties certainly factored into the district court’s denial of injunctive relief, the decisions are separate and distinct and cannot be read in conjunction with one another to imply authorization as asserted by Toyota.