Federal Circuit Affirms ITC Refusal to Rescind Exclusion Order Due to Assertion of Patent Invalidity

U.S. International Trade Commission

Last week, the U.S. Court of Appeals for the Federal Circuit affirmed a decision of the U.S. International Trade Commission in Mayborn Group, Ltd. v. ITC, wherein the U.S. International Trade Commission (the Commission) denied Mayborn’s petition for rescission of a general exclusion order that prohibited the importation of products that infringe U.S. Patent 8,028,850 (the ’850 patent).  The CAFC held that, while Mayborn had standing to appeal, the Commission lacked the authority to adjudicate its patent invalidity claim and an assertion of patent invalidity was insufficient grounds to support a petition to rescind or modify an exclusion order.

Alfay Designs, Inc., Mighty Mug, Inc., and Harry Zimmerman (the Complainants) owned the ’850 patent, which was directed to a beverage container that prevents spills by sealing to a surface with a flexible nonporous base member. In 2017, the Complainants filed a complaint with the Commission against several respondents, not including Mayborn, alleging infringement of the ’850 patent. The Commission concluded that the administrative law judge’s finding of infringement was correct and issued a general exclusion order (GEO) barring importation of infringing goods by any party.

In 2018, the Complainants notified Mayborn of the Commission’s investigation, but Mayborn took no action. In early 2019, the Complainants further notified Mayborn that its products infringed the ’850 patent in violation of the GEO and “intimated that they were ‘working with special agents…in the enforcement of the [GEO].’” Mayborn then petitioned the Commission to rescind  the  GEO  in accordance with  19  U.S.C. § 1337(k)(1), “which allows the Commission to rescind or modify  an  order  if  ‘the  conditions  which  led  to  such exclusion from entry or order no longer exist,’” reasoning that the conditions were satisfied because claim 1 of the ’850 patent was invalid. The Commission denied Mayborn’s petition, holding that “a petitioner’s asserted discovery of invalidating prior art after the issuance of a GEO is not a changed condition under § 1337(k)(1).” Mayborn appealed to the CAFC.

Mayborn’s Standing to Appeal

The CAFC initially addressed the Commission’s argument that Mayborn lacked standing to appeal the Commission’s denial of its petition because Mayborn continued to import the accused products and, therefore, lacked the requisite injury. Mayborn responded that it was injured by the Complainants’ efforts to assert the GEO and that the Complainants’ threat to seek enforcement of the GEO created “both imminent and real” harm.

The CAFC explained that a party has Article III standing to appeal from a decision of an administrative agency if it has: “(1) suffered a particularized, concrete injury in fact that is (2) fairly traceable to the challenged conduct of the defendant and is (3) likely to be redressed by a favorable judicial decision.” Noting that Mayborn satisfied each of the requirements, the CAFC agreed with Mayborn that it had standing to appeal. In particular, the CAFC explained that Mayborn suffered an injury in fact as a result of the GEO, Mayborn’s injuries could be fairly traced to the Commission, and Mayborn’s injuries were likely redressable.

Invalidity Challenge as Basis for a Petition

The CAFC then considered Mayborn’s argument that the Commission erred in holding that an invalidity challenge is not a proper basis for a petition for rescission or modification of an exclusion order under § 1337(k)(1). Mayborn also argued that the public interest lies in the Commission’s resolving the patent validity in accordance with 19 CFR § 210.76. The Commission asserted that it lacked “statutory authority to consider an invalidity challenge outside of an investigation or enforcement proceeding, regardless of Mayborn’s insistence that the public interest generally lies in doing so.”

In response to Mayborn’s public interest argument, the CAFC noted that the “public interest” in § 210.76 must be interpreted in light of § 1337(k)(1), which requires a “changed condition” in order for the Commission to accept a petition. The CAFC also explained that the public interest conditions were enumerated in § 1337(d)(1) as “public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States customers.” Noting that none of the conditions were shown by Mayborn, the CAFC rejected the public interest argument.

The CAFC further explained that the Commission was correct in denying Mayborn’s petition because: 1) the Commission “may only adjudicate patent validity when an invalidity defense is raised by a respondent in the course of an investigation or an enforcement proceeding pursuant to § 1337(b)”, and 2) a “petitioner’s invalidity challenge is not, on its face, a changed condition under § 1337(k)(1) and is thus not a proper basis for a petition to rescind or modify an exclusion order.”

Thus, the CAFC concluded that the Commission lacked the authority to adjudicate Mayborn’s invalidity challenge because Mayborn’s petition did not raise an invalidity defense during the course of an investigation or enforcement proceeding. The CAFC further concluded that, while an actual holding of a patent’s invalidity would be a changed condition under subsection (k)(1), a mere challenge to the validity is not a changed condition.