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From Intellectual Property Law Daily, November 27, 2018

ITC has authority to modify civil penalty over patent claims later found invalid

By Thomas Long, J.D.

The International Trade Commission (ITC) was not barred from reassessing a civil penalty assessed against a satellite technology company for violating a consent order barring it from using imported components that infringed a U.S. patent, in light of a federal district court’s subsequent finding that the patent claims at issue were invalid, the U.S. Court of Appeals for the Federal Circuit has determined. In denying the company’s petition to rescind or modify the civil penalty, the ITC erred by relying on the doctrine of res judicata. Although the Federal Circuit had affirmed the ITC’s imposition of the civil penalty, neither the ITC nor the Federal Circuit had considered whether to rescind or modify the civil penalty in light of the invalidity of the relevant patent claims (DBN Holding, Inc. v. International Trade Commission, November 27, 2018, Reyna, J.).

The ITC instituted an investigation under Section 337 of the Tariff Act of 1930 to determine whether certain satellite communication devices imported by DeLorme Publishing Company, Inc., and DeLorme InReach LLC (collectively, "DeLorme")—now known as DBN Holding, Inc., and BDN LLC—infringed U.S. Patent No. 7,991,380 ("the ’380 patent"), which was held by held by BriarTek IP, Inc. The ’380 patent was directed to emergency monitoring and reporting systems comprising a user unit and a monitoring system that communicate through a satellite network. DeLorme executed a consent order stipulation and proposed to terminate the investigation. DeLorme agreed not to import or sell two-way global satellite communication devices, systems, and components that infringed the asserted patent claims, as long as the ’380 patent was valid and enforceable. The ITC terminated the investigation but shortly thereafter instituted an enforcement proceeding based on allegations by BriarTek that DeLorme had violated the consent order by selling devices that contained imported components. The ITC ultimately issued a civil penalty of $6.2 million.

While the enforcement proceeding was pending, DeLorme filed a declaratory judgment action in the Eastern District of Virginia, seeking judgment of noninfringement and invalidity of certain claims of the ’380 patent—the same claims that were asserted in the Section 337 investigation. After the ITC found DeLorme in violation of the consent order and imposed the civil penalty, the district court granted summary judgment that the asserted claims of the ’380 patent were invalid for anticipation and obviousness. The Federal Circuit summarily affirmed the district court’s summary judgment of invalidity. However, ruling on a separate appeal, the court also affirmed the ITC’s determination that DeLorme had violated the consent order and its assessment of the civil penalty. The court held that the ITC acted within the scope of its authority when it imposed the civil penalty upon finding that DeLorme had violated the consent order.

DeLorme then filed a petition asking the ITC to rescind or modify the civil penalty order in light of the judgment of invalidity of the asserted patent claims. DeLorme argued that the civil penalty should be set aside or modified based on "changed conditions in fact or law or in the public interest," under 19 C.F.R. §210.76 The ITC denied the petition on grounds of res judicata, and DeLorme appealed again to the Federal Circuit.

DeLorme argued that the ITC misread the Federal Circuit’s opinion affirming the civil penalty and erred when it refused, on the basis of res judicata, to consider whether the civil penalty should be rescinded or modifiedThe court agreed. Noting that the term "res judicata" was used to refer to both claim preclusion and issue preclusion, the court stated that neither applied here because both required the existence of a second, separate case, rather than a continuation of the same proceeding. According to the court, the ITC might have more appropriately referred to the basis for its denial of the petition as the "law of the case" doctrine, which referred to courts’ general practice of refusing to reconsider issues they had already decided. However, the issues raised in this appeal had not been decided, either explicitly or by necessary implication. Neither the ITC nor the Federal Circuit had decided whether the ITC should rescind or modify the civil penalty in light of the district court’s invalidity decision.

The court noted that the ITC had previously relied on 19 C.F.R. §210.76 to vacate a civil penalty order after the parties entered into a license agreement, even when the Federal Circuit had affirmed the imposition of the civil penalty. In the court’s view, nothing in its previous decision in this dispute barred the ITC from modifying or rescinding the civil penalty under Section 210.76. The civil penalty was properly based on the six "EPROM factors" used to determine the amount of a civil penalty, and the Federal Circuit had previously decided that the penalty was not "grossly excessive." However, the court did not take away the ITC’s authority to later change the penalty in light of the invalidity judgment. Nor did it decide that the invalidity judgment had no impact on any future assessment of the penalty by the ITC. Although the civil penalty—which was punitive in nature because it was to be paid to the government—did not have to be set aside simply because the underlying patent claims have been deemed invalid, the ITC was not barred from deciding whether to alter the penalty under Section 210.76.

Accordingly, the court reversed the ITC’s res judicata determination and remanded for the ITC to consider whether to rescind or modify the civil penalty in light of the final judgment of invalidity of the relevant claims of the ’380 patent.

This case is No. 2017-2128.

Attorneys: Peter J. Brann (Brann & Isaacson) for DBN Holding, Inc. and BDN LLC. Clint A. Gerdine for International Trade Commission.

Companies: DBN Holding, Inc.; BDN LLC; International Trade Commission

MainStory: TopStory Patent FedCirNews

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