On Tuesday, November 27th, the Court of Appeals for the Federal Circuit issued a nonprecedential decision in DBN Holding, Inc. v. International Trade Commission, which reversed a decision issued by the ITC to deny a petition to rescind or modify a civil penalty order issued as a result of Section 337 patent infringement proceedings conducted by the agency. The Federal Circuit panel of Chief Judge Sharon Prost and Circuit Judges Jimmie Reyna and Kimberly Moore determined that the ITC erred in applying res judicata to deny the petition without considering the effect of district court litigation which invalidated the claims asserted in the Section 337 proceeding.
In September 2012, the ITC instituted a Section 337 proceeding against DeLorme Publishing Company, the predecessor to DBN Holding, in which DeLorme was accused of selling satellite communication devices which allegedly infringed upon claims of U.S. Patent No. 7991380, titled Global Bidirectional Locator Beacon and Emergency Communications System. The patent covers an emergency reporting and monitoring system including a user unit and a monitoring system adapted such that an output device can present information to an observer corresponding to information entered at an input device and communicated via satellite.
In April 2013, the ITC terminated the Section 337 investigation after DeLorme executed a consent order stipulation. However, the ITC instituted an enforcement proceeding against DeLorme the following month on allegations that DeLorme had violated the consent order. DeLorme was eventually ordered to pay a civil penalty of $6.2 million. After the consent order violation proceeding was instituted, DeLorme filed a declaratory judgment action in the Eastern District of Virginia seeking judgments of noninfringement and invalidity of the claims of the ‘380 patent which had been asserted against it in the Section 337 investigation. The district court granted DeLorme’s motion for invalidity of the asserted claims in summary judgment.
Both the ITC’s enforcement proceeding and Eastern Virginia’s grant of invalidity on summary judgment were appealed to the Federal Circuit, which received them as companion cases. In November 2015, the Federal Circuit decided both appeals, affirming both the district court’s summary judgment of invalidity and the ITC’s determination that DeLorme violated the consent order. DeLorme then filed a petition to modify or rescind the civil penalty in light of the invalidity judgment. This petition was denied in April 2017 after the ITC found that the Federal Circuit’s previous affirmance of the ITC’s enforcement determination, as well as the Federal Circuit’s denial of an en banc rehearing and the U.S. Supreme Court’s denial of DeLorme’s petition for writ, rendered the matter final under the doctrine of res judicata.
On appeal, DBN Holding argued that the ITC misread the Federal Circuit’s November 2015 decision affirming the ITC’s determination of a violation. The Federal Circuit agreed with DBN Holding, finding that it was unclear whether the ITC was citing res judicata to denote either issue preclusion or claim preclusion. For either of those to apply, a second, separate case must exist and the Federal Circuit found that this case presented a continuation of the same proceeding. “The Commission might have more appropriately referred to the basis of its denial of the petition as barred by the ‘law of the case’ doctrine, rather than generally invoking ‘res judicata,’” the Federal Circuit’s opinion reads.
While the Federal Circuit’s previous decision in the case between these parties affirmed that the ITC had authority to impose penalties for violations of its orders, nothing from that case barred the agency from modifying or rescinding a civil penalty based on changed conditions, such as the invalidity of the patent claims asserted in the Section 337 proceeding. The Federal Circuit panel determined that the ITC apparently misunderstood a citation read in from its 2015 decision in ePlus, Inc. v. Lawson Software, Inc. In that case, the Federal Circuit ordered that a compensatory civil award for violating a non-final injunction had to be set aside in light of cancellation of the claim in which the injunction was based. The court didn’t decide whether the civil contempt sanctions would survive had the injunction been final at the time that the sanctions were imposed. Further, the Federal Circuit had observed previously that the civil penalty imposed on DeLorme was more akin to a criminal sanction than the civil contempt sanctions of ePlus. While there was no requirement that the civil penalty had to be rescinded simply because of the invalidation of the claims, the ITC wasn’t barred from determining whether to rescind or modify the award based on invalidity and thus the application of res judicata was erroneous.
Ultimately, the Federal Circuit ruled that the ITC is not barred from reassessing the EPROM factors and determining whether to modify or rescind the civil penalty based on the final judgment of invalidity. The ITC’s decision was, therefore, reversed and the case remanded for the Commission to consider whether to rescind or modify the civil penalty in light of the final judgment of invalidity of the relevant claims.