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Douglas Panzer
August 12, 2013

The Trouble With Executive Overrides of ITC Exclusion Orders (Samsung v. Apple)

Posted By Douglas Panzer @ 1:52 pm
Filed under: ITC 337 Actions,Litigation,Patents,Technology Law

Ambassador Michael Froman – the U.S. trade representative – and the Obama administration created much buzz last week by overturning a June decision from the U.S. International Trade Commission (ITC) that would have prevented Apple from importing the iPhone 4 and certain iPads into the United States. The executive decision brings to a swirling head numerous troubling issues in the cross-governmental-branch battle instigated by Samsung and Apple in their ongoing strategic legal battle for mobile device market supremacy in the U.S.

Have Apple, Samsung, the ITC and the executive branch finally pried the lid off Pandora’s Box or have they tactfully attempted to close it?

What is the ITC and why is Samsung v. Apple There?

The ITC is a “quasi-judicial” agency of the federal government tasked by Congress with numerous responsibilities and granted various powers to enforce and advise upon international trade issues affecting U.S. markets. Among its responsibilities, the ITC is tasked under its “Section 337″ (19 USC §1337) for protecting U.S. markets from harm brought about by imports of goods that, among other fouls, infringe U.S. intellectual property rights, including patents.

In recent years, numerous patent holders have chosen to bring cases of alleged patent infringement to the ITC seeking issuance of an “exclusion order” relating to the accused imports.  If granted, an exclusion order instructs U.S. Customs to seize the identified goods at the U.S. border and preclude them from entering the country.  In effect this achieves the same outcome as a complete victory in more typical patent litigation. However, such an outcome through patent litigation typically involves several years of litigation, millions of dollars in legal fees, extended, costly discovery and – since the 2006 case of eBay v. Mercexchange – hard-to-come-by injunctive relief granted by the court.

Litigants view the ITC as a faster, less expensive means of achieving this powerful position, with the added bonus that exclusion orders are enforced by the federal government as opposed to enforcement of a judicially issued injunction, which if granted in the first place and then violated, requires the party to return to court to seek enforcement.

Clearly Samsung felt an ITC action was the better strategic choice in its attempt to assert its U.S. patents to block Apple’s sales in the U.S. But Samsung had to know, even in victory, that an executive override was a possible result. Did Samsung calculate and assume the risk?

Executive Override Power of ITC Orders

Under 19 USC   §1337, ITC exclusion orders are subject to review and “disapproval” by the executive branch.  After issuance of the order, the President or his delegate (currently the U.S. Trade Representative) has sixty days to override the order, generally based on public policy concerns of harm to a domestic industry. However, such disapproval is exceedingly rare.  In the history of the ITC, the executive branch had disapproved of only five exclusion orders prior to this weekend’s disapproval and had not done so since 1987.

  • Presidential Determination of April 22, 1978, 43 Fed. Reg. 177898 (April 22, 1978) (disapproval of Inv. No. 337-TA-20);
  • Presidential Disapproval of Determination of the U.S. International Trade Commission in Investigation No. 337-TA-82, 46 Fed. Reg. 32361-01 (June 22, 1981);
  • Determination of the U.S. International Trade Commission in Investigation No. 337-TA-99, Certain Molded-In Sandwich Panel Inserts and Methods for Their Installation, 47 Fed. Reg. 29919-02 (July 9, 1982);
  • Determination of the President Regarding Certain Alkaline Batteries, 50 Fed. Reg. 1655-01 (Jan. 11, 1985) (disapproval of Inv. No. 337-TA-165);
  • Presidential Disapproval of a Section 337 Determination, 52 Fed. Reg. 46011-02 (Dec. 3, 1987) (disapproval of Inv. No. 337-TA-242).

Did Samsung simply see the benefits of quick resolution, government enforcement and exceedingly rare Presidential override as a risk worth taking? It certainly seems that way.  But one further fact, identified or not, has to sting Samsung greatly – executive disapproval of a Section 337 exclusion order is  not appealable. After a complete victory at the ITC, Samsung has lost its case.

Why Did the Obama Administration Step In?

Did the Obama administration simply bow to corporate lobby pressures from Cupertino or is something more calculated at the heart of this rare exercise of executive oversight? As a basis for his disapproval, Ambassador Froman cited exertion of “undue influence” from patent rights. At first blush this is counter to the exercise of patent rights and free markets. After all, a patent is not just a legal, government-approved limited monopoly for the patented invention; it’s one that originates in the text of the Constitution itself. The purpose of patents is to exert the influence that comes as a reward for inventiveness in order to benefit the inventor and encourage further invention. Critics will urge us to quickly accept that this is a protectionist action of an executive branch under the undue influence of big business financial power. But a larger scheme may be in motion here.

In recent months the Obama administration has been very vocal about patent reform. From patent trolls to forum shopping, the administration has expressed several standpoints on the patent litigation landscape that are largely, agreeably beneficial regardless of political bent, financial position, etc. The latter of these – forum shopping – may be at play.

Statistics overwhelmingly show, regardless of corporate domicile or factual nexus, the filing of patent actions in federal district courts in the District of Delaware based on its speed and patent expertise, and the Eastern District of Texas based on its staggering willingness to rule for patent plaintiffs. Patent plaintiffs have also shown a major trend toward patent enforcement through the ITC for the reasons discussed above. But along with increased speed and reduced expense, this act of forum shopping into the ITC also stems from avoidance of the heightened burden required for acquisition of injuctive relief in judicial patent actions after the Supreme Court’s 2006 holding in  eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

As quoted in Ambassador Froman’s disapproval letter, the legislative history of Section 337 guides the President to consider the effect of an exclusion order on “competitive conditions in the U.S. economy.” The Obama administration has simply seized upon the Samsung v. Apple case, not so much for its particular merits, but more as a good vehicle for tamping down heightened litigation risk for companies contributing to the U.S. economy. By disapproving the Apple exclusion order, the Obama administration waters down incentive for litigants to forum shop into the ITC where they may seek the equivalent of injunctive relief without meeting the 4-point burden for injunctions extended to patent cases under  eBay. As a corollary, the rejection of the exclusion order reduces the costs of managing litigation risk for potential defendants as they will be less likely to face conflicting bodies of rules depending upon the forum in which they are accused.

Evidence of this goal is apparent in the disapproval letter itself, in which Ambassador Froman summarizes:

My decision to disapprove this determination does not mean that the patent owner in this case is not entitled to a remedy. On the contrary, the patent owner may continue to pursue its rights through the courts.

The message, though obscured by the commotion of feverish discussion around it, could not be more clear. The Obama administration has fired the first shot – and a loud one – in its battle for patent litigation reform and it is aimed squarely at quelling litigation forum shopping.

January 19, 2012

Is the International Trade Commission the Next Big Arrow in the Quiver for Patent Enforcement? (Part 2)

Posted By Douglas Panzer @ 10:00 am
Filed under: ITC 337 Actions,Litigation,Unfair Competition

In Part 1 of this two-part article we looked at an overview of International Trade Commission Section 337 Investigations as a weapon in preventing the importation of goods that allegedly infringe a US patent. This strategy is currently being played out by tech giants Apple and Motorola Mobility.

Apple v. Motorola Mobility
The strategy of coupling an ITC proceeding with an analogous patent infringement suit is precisely the tack taken by Apple, Inc. in trying to maintain its hefty US market share for the iPhone by precluding the importation of competing goods. Apple’s proceedings before the ITC are part of a much larger battle between the parties, including patent infringement suits that Motorola brought against Apple in Germany and the Southern District of Florida, as well as another infringement filing by Apple against Motorola in the Northern District of Illinois.

On Friday, January 13, the ITC issued an initial determination finding that Motorola’s Droid phones do not infringe three asserted patents and therefore refusing to block importation of the Droid phones.

Will the decision stand?
The decision of the administrative law judge in each ITC case is subject to review by the full six-member panel. The ruling given by the ALJ – called an initial determination – is reviewed and either approved or modified by the panel to become a final determination. The full panel will only overturn the initial determination if there was a clearly erroneous application of law, clearly erroneous finding of fact or if it conflicts with an existing policy of the ITC. That’s not a very good standard if you’re laying bets on a reversal from the ID to the FD. Assuming the ID stands, the only recourse left is to appeal the FD to the Court of Appeals for the Federal Circuit. In this particular case, assuming the decision stands with the full panel, I can’t imagine Apple will appeal it. I suspect they’ll proceed with the district court case and focus their energies there. An appeal to the CAFC would be far more likely by a losing respondent who had their imports shut down by the ITC. That is, if Motorola had lost, they’d be more likely to appeal to the CAFC.

How big a blow is this to Apple?
The ramifications of this loss for Apple with respect to the Northern District of Illinois case are yet to be seen. Suffice it to say, however, it certainly doesn’t help. It won’t give Motorola any incentive to settle the district court case and will only strengthen their belief that they are operating not only within the law, but in a way that won’t lead to a finding of infringement or damages against them in the district court case. Is that a sure thing? No. But it’s definitely some momentum in their direction. On the other hand, I don’t see this as a critical blow to Apple’s case by any stretch. Bottom line is, the goods are going to keep coming into the country. Now Apple will have to argue that Motorola has to pay them for that privilege.

From a market perspective, Apple’s ITC play was an aggressive attempt to keep Motorola’s team from even stepping onto the playing field to compete. The ITC said Motorola can play. Now Apple will have to compete to win, both in terms of market share and in terms of a final determination on the infringement issue.

In the grand scheme of this epic battle between two tech titans, this was a small battle, with the victory going to Motorola. The battle will wage on with both sides still standing strong.

January 18, 2012

Is the International Trade Commission the Next Big Arrow in the Quiver for Patent Enforcement? (Part 1)

Posted By Douglas Panzer @ 12:28 pm
Filed under: ITC 337 Actions,Litigation,Unfair Competition

Looking for a method, backed by the US government, to completely block your competition from entering the US market? A Section 337 Investigation before the US International Trade Commission might just be your silver bullet. At least that’s the thinking of a growing number of US businesses that own potentially blocking patents.

What is this Section 337 of which You Speak?
19 U.S.C. §1337 – aka ITC Section 337 – permits the ITC to investigate alleged unfair competition resulting from the importation of goods into the United States where those goods would, among other possible harms – infringe a valid and enforceable US patent. (See 19 USC 1337(a)(1)(B)) Complaints before the ITC are adjudicated by an administrative law judge who issues an initial determination (“ID”) on the merits. The full six-member committee of the ITC then reviews the ID and accepts or modifies it in order to issue a final determination (“FD”). The outcome of the FD is then enforceable through US Customs and Border Patrol.

Why Choose The ITC Forum?
Companies that are faced with immediate competition from the importation of allegedly infringing products certainly will view proceedings before the ITC as a much faster and cheaper way to stop those products from coming into the country.

First, the typical time to a hearing is about a year and time to a decision is about 18 months, whereas getting to a decision in a federal district court patent infringement suit will take closer to three years. The times to respond to discovery and to motions in the 337 proceeding is shorter as well. If you’re in a multi-billion dollar market where every sale counts and maintaining market share is key, time is of the essence. Provided the complainant (the patent owner) prevails before the ITC, an exclusion order (preventing importation) or a cease and desist order (preventing the further sale or marketing of already imported goods) from the ITC may be had in approximately half the time it takes to get an injunction from a district court.

Next, it’s likely to be far less expensive to proceed before the ITC rather than fully litigating the matter. Claim construction hearings – where a judge interprets what the language of a patent means – are almost always held in district court cases, but often are not held in ITC cases. While the parties will have to pay experts to figure out damages and technical issues in a typical lawsuit, the remedy before the ITC is limited to an exclusion order or a cease and desist order, so there’s a large dollar savings there by not including economic experts and their fees. Showing proper jurisdiction is easier and therefore less expensive because the goods themselves confer in rem jurisdiction. There are numerous other ways (such as a vastly streamlined discovery process) that the costs are reduced versus a typical district court patent case. And we shouldn’t forget that the parties will likely use the ITC ruling as a bargaining chip in settlement negotiations related to the district court patent infringement case that is likely operating in parallel with the 337 proceedings.

The ITC 337 investigation is an aggressive “offensive defense” to a market position. It puts the respondent (the alleged infringer) in an immediate position of having to quickly justify its position and fight for its right to even proceed with importing these goods into the country let alone focusing on marketing and selling them to grab any market share.

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