In a Section 337 case before the US International Trade Commission (ITC) with a tortuous history, the ITC has once again spared Apple from an exclusion order. Apple's record of success as a respondent at the ITC remains perfect, having succeeded in all nine cases it defended to conclusion.
This case arose from Motorola's suit against Apple for direct and indirect infringement of method and apparatus claims of wireless communication systems technology. These included US Patent Nos. 6,272,333, 6,246,697, 5,636,223, 6,246,862, 5,359,317 and 7,751,826. Motorola accused the full panoply of Apple's product lines, including mobile phones, tablets, personal computing devices and other computer products.
Among Apple's affirmative defenses was unenforceability through unclean hands. The gravamen of Apple's unclean hands defense was the contention that Motorola failed to timely disclose one of the asserted patents to a European Standard Setting Organization (SSO), thereby inducing it to adopt a standard that practiced the Motorola patents. See, e.g., Hynix Semiconductor, Inc. v. Rambus, Inc. and Qualcomm Inc. v. Broadcom Corp..
Apple also pleaded purely RAND-related affirmative defenses in its answer to the complaint. The typical RAND (reasonable and non-discriminatory) defenses arise under the doctrines of contract, equitable estoppel, implied/actual license and waiver. Apple's answer intermingled the substance of these theories in the same individually designated affirmative defense.
For whatever tactical reason, Apple withdrew its purely RAND-based defenses during the case, memorializing that decision in a letter to counsel. It also withdrew its proposed expert on the issue of whether or not Motorola had made a RAND offer. The Office of Unfair Import Investigations (the Staff) withdrew from participation in the case specifically because the RAND-based defenses had been dropped.
Apple did, however, file RAND counterclaims against Apple late in the case. In the ITC, counterclaims are not tried with the case. Rather, under 19 U.S.C. § 1337(c), the respondent filing them must simultaneously remove the counterclaims to a US District Court for adjudication. Apple removed its RAND counterclaims to the Western District of Wisconsin.
First Initial Determination
Motorola terminated the investigation in part by withdrawing the '317 and '826 patents.
In his Initial Determination (ID), Administrative Law Judge (ALJ) David P. Shaw rejected Apple's unclean-hands defense. He found a violation of Section 337 as to the '697 patent and recommended an exclusion order for Apple's products, including its iconic iPhones and iPads. He found no violation as to the '223, '333 and '862 patents.
The Commission voted [PDF] to review the ALJ's ID. Several of the issues under review were typical: claim construction, validity, infringement and domestic industry. In addition, however, the Commission called for the parties to the investigation to brief certain RAND-related issues. It also invited comments on these issues from interested government agencies, the Staff and any other interested parties.
The Commission requested briefing on the theories in law, equity and public interest (19 U.S.C. § 337(d)(1)) that might preclude issuance of an exclusion order under various factual scenarios. These permutations included [PDF]: where the record lacks evidence to support a RAND-based affirmative defense (e.g., equitable estoppel, implied license, waiver, etc.); whether the mere existence of a RAND obligation precludes issuance of an exclusion order; where a patent owner refused to offer a license to a named respondent in a Section 337 proceeding; where a patent owner has refused to offer a license on a RAND-obligated patent to some other entity, regardless of whether that entity is a named respondent in a Section 337 proceeding; where a patent owner has refused to negotiate a license on RAND terms with a named respondent; where a patent owner has refused to negotiate a license on RAND terms with some other entity, regardless of whether that entity is a named respondent; and where a patent owner who has offered a RAND license that the named respondent in a proceeding has rejected. The Commission also asked the parties to address whether Apple waived its RAND defenses.
Public Interest Submissions and Arguments
Under 19 U.S.C. § 1337, there is an exception for Section 337 remedies where the ITC, after considering the public health and welfare, competitive conditions in the US economy, the production of like or directly competitive articles in the US, and US. consumers, finds that infringing articles should not be excluded. These are often referred to as the "public interest factors." The ITC seeks input on public interest factor considerations before a case is instituted and after the ALJ issues the ID.
The Staff raised three arguments in response to the Commission's invitation for public interest submissions. First, it opined that Apple waived its RAND defenses. Second, it stated that the mere existence of a RAND obligation does not preclude relief at the ITC. To hold otherwise would undermine the ITC's ability to protect domestic industries from unfair acts by foreign importers. Third, the Staff noted that whether a particular RAND commitment, or breach thereof, bars relief in any particular ITC case will depend on the facts and circumstances in the case, including the products and industries.
The response to the Commission's invitation for comments was substantial, generating the greatest interest in an ITC case over the past five years. Certain Baseband Processor Chips and Chipsets, Inv. No. 337-TA-543 generated such a high degree of interest that the ITC held a public Commission hearing, the first in a Section 337 case in recent history. Several major companies weighed in. Some, including Hewlett-Packard, Microsoft and Verizon, were against the availability of an exclusion order in virtually any RAND scenario, arguing that it is against the public interest. Other comments from Ericsson, Nokia, RIM, Samsung and others were more nuanced; they argued that the availability of an exclusion order should depend on the facts and circumstances of the RAND obligations and facts of the case. One company, Qualcomm, opined that exclusion orders generally should be available. Three trade associations the Association for Competitive Technology, Business Software Alliance and Retail Industry Leaders Association voiced their opinions that exclusion orders should generally not be available. Conversely, Innovation Alliance said that they should.
Commentary was not restricted to those with commercial interests. The Federal Trade Commission was against the availability of exclusion orders where there was a RAND obligation except in extreme and unusual cases, positing that otherwise there would be a significant risk of patent hold-up types of anticompetitive behavior by the patentee. 19 Economics and Law Professors signed a letter largely against the availability of an exclusion order. Moreover, six US Senators Conryn, Hoever, Kohl, Lee and Risch also spoke out essentially against the relief afforded by an exclusion order where there were RAND commitments.
The parties adopted predictably parochial positions. Apple asserted that it had not waived its RAND arguments because there is a substantive difference between an affirmative defense during the case before the ALJ, and a public interest statement to the Commission under 19 U.S.C. § 1337(d)(1). It then argued in favor of a per se rule precluding exclusion orders where there was a RAND commitment, irrespective of sufficiency of evidence for affirmative defenses.
Motorola argued that precluding exclusion orders would create disincentives to licensing and would chill standard-setting participation. It also pointed out that Congress amended § 1337 in 1988 to eliminate the injury requirement, reasoning that whether or not one may be adequately compensated by money damages is not relevant in a Section 337 case. eBay Inc. v. MercExchange, L.L.C. does not apply at the ITC for precisely that reason. Accordingly, Apple's attempt to circumscribe the availability of an exclusion order where there are RAND obligations would impermissibly reintroduce the injury requirement.
Commission's Remand, Remand and Final Determination
After having ignited a firestorm of interest, the Commission completely ignored [PDF] the public interest statements it solicited, leaving for another day the viability of RAND defenses at the ITC. The Commission reversed the finding of a violation as to the '697 patent, affirmed findings of no violation as to the '333 and '223 patents. The Commission remanded the finding of no violation of the '862 having reversed the ALJ's finding that it was invalid as indefinite.
Upon remand, the ALJ found the '862 patent infringed, but invalid as anticipated. Having voted to review the Remand Initial Determination, the Commission held that the '862 is invalid as obvious (reversing the ALJ's finding of anticipation).
Some ITC commentators have observed an apparent hesitancy on the part of the Commission to issue an exclusion order covering Apple's products. Whether this is coincidence remains to be seen. The ITC is under considerable political pressure, having been the subject of three Congressional hearings in the past year to which it was not even invited. Excluding a flourishing American brand such as the iPhone could evoke a political backlash against the ITC, resulting in modifications to its enabling statute.
Public interest and RAND defenses as applied to Apple are set for determination by the ITC on May 31, 2013. In Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-TA-794, the Commission has asked for briefing on these issues. Perhaps this will be the case in which the Commission finally clarifies whether public interest and RAND defenses place the products of certain US companies beyond relief at the ITC.
Rodney R. Sweetland, III and Michael G. McManus are co-chairs of the ITC Section 337 practice of Duane Morris LLP and partners in its Washington, D.C. office.
Suggested citation: Rodney R. Sweetland, III and Michael G. McManus, ITC Clears Apple Yet Again, JURIST - Hotline, May 9, 2013, http://jurist.org/hotline/2013/05/sweetland-mcmanus-ITC-clears-Apple.php.
This article was prepared for publication by Michael Muha, an assistant editor with JURIST's professional commentary service. Please direct any questions or comments to him at firstname.lastname@example.org