By Eric Schweibenz and Alex Englehart
On February 15, 2017, the U.S. Court of Appeals for the Federal Circuit issued its opinion in Organik Kimya, San. Ve Tic. A.S. v. ITC (2015-1774, 2015-1833). This was an appeal from the U.S. International Trade Commission’s (“the Commission”) final determination imposing a default judgment against Respondents Organik Kimya San. ve Tic., A.S., Organik Kimya Netherlands B.V., and Organik Kimya US, Inc. (collectively, “Organik Kimya”) and issuing a 25-year limited exclusion order and cease and desist order in Certain Opaque Polymers (Inv. No. 337-TA-883).

By way of background, the Commission instituted this investigation on June 18, 2013 based on a complaint filed by Rohm and Haas Co., Rohm and Haas Chemicals LLC, and Dow Chemical Co. (collectively, “Dow”). In the complaint, Dow alleged that Organik Kimya violated Section 337 in the importation into the U.S. and sale of certain opaque polymers that infringe one or more claims of U.S. Patent Nos. 6,020,435; 6,252,004; 7,435,783; and 7,803,878. See our May 22, 2013 and June 20, 2013 posts for more details on the complaint and notice of investigation, respectively. Dow subsequently filed an amended complaint alleging that Organik Kimya had misappropriated Dow trade secrets. During the investigation, it was uncovered that Organik Kimya had intentionally destroyed evidence responsive to Dow’s discovery requests and violated explicit discovery orders by the presiding Administrative Law Judge, Thomas B. Pender. See our May 26, 2015 post for more details.

As a result of Organik Kimya’s spoliation of evidence and disobedience of ALJ Pender’s orders, Dow moved for a default judgment and monetary sanctions against Organik Kimya under Commission Rule 210.33. Subsequently, ALJ Pender issued Order No. 27 as an initial determination (“ID”) finding that Organik Kimya had intentionally spoliated evidence and thus was in default. He also ordered Organik Kimya, jointly and severally with its counsel under Rule 201.33(c), to pay attorney fees and costs that Dow had incurred as a result of the spoliation. See our December 2, 2014 post for more details.

The Commission subsequently affirmed the ALJ’s ID finding Organik Kimya in default as a sanction for its spoliation of evidence, and issued a 25-year limited exclusion order regarding the subject opaque polymers, as well as a cease and desist order directed to Organik Kimya U.S. The Commission further affirmed that Organik Kimya and its counsel are jointly and severally liable for monetary sanctions.

Organik Kimya appealed the Commission’s final determination to the Federal Circuit, arguing that the imposition of a default judgment was an abuse of discretion. In particular, Organik Kimya argued that under Micron Technology, Inc. v. Rambus, Inc., 645 F.3d 1311 (Fed. Cir. 2011), the Commission erred because it did not adequately address the efficacy of lesser sanctions for Organik Kimya’s misconduct and because the degree of prejudice to Dow as a result of the misconduct was minimal. Dow and the ITC argued that the Micron standard did not apply because Micron dealt with a district court’s imposition of a default judgment sanction under its inherent authority, whereas the ITC has the express power to impose a default judgment sanction for discovery abuse under 19 C.F.R. § 210.33(b) and Fed. R. Civ. P. 37(b). Further, under these rules, when the facts show wilfulness and bad faith, there is no obligation to investigate the propriety of less severe sanctions before imposing a default judgment.

The Federal Circuit agreed with Dow and the ITC that the Commission had properly imposed a default judgment pursuant to the Commission’s authority under 19 C.F.R. § 210.33(b) and Fed. R. Civ. P. 37(b), and that the Micron standard did not apply. In particular, the Court held that the Commission has the power to issue a default judgment as a discovery sanction in appropriate cases when a party disobeys a discovery order. Here, the ALJ and the Commission had made extensive findings regarding Organik Kimya’s bad faith spoliation of evidence on multiple occasions, despite explicit orders from the ALJ to preserve the evidence. Thus, the Commission’s imposition of the default judgment was proper and within the bounds of its discretion.

Organik Kimya also appealed the Commission’s issuance of a limited exclusion order with a 25-year term. The Commission had selected this term based on a determination that it would have taken Organik Kimya approximately 25 years to independently develop the technology covered by the trade secrets that Organik Kimya had misappropriated from Dow. Organik Kimya had argued that the term was excessive, but the Commission found that Organic Kimya’s arguments as to the scope of the exclusion order were grounded on arguments regarding the merits of the trade secret allegations—on which Organic Kimya had already defaulted due to its discovery violations—and thus could not be re-litigated as part of the remedy issue. On appeal, the Federal Circuit found that the Commission’s analysis and imposition of the 25-year limited exclusion order was not an abuse of discretion and did not constitute legal error.

Accordingly, the Federal Circuit affirmed the Commission’s final determination in its entirety.

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