Federal Circuit Upholds $6 Million ITC Civil Penalty After Subsequent Invalidation of Claims

“Because consent orders would be useless if their violation had no consequence, the ITC’s enforcement of the consent order via a civil penalty was a reasonable exercise of its enforcement authority.” – Federal Circuit

CAFC- https://depositphotos.com/70164509/stock-photo-court-of-appeals-federal-circuit.htmlOn March 1, the U.S. Court of Appeals for the Federal Circuit (CAFC) affirmed the U.S. International Trade Commission (ITC)’s determination that the civil penalty imposed on DBN Holding, Inc. and BDN LLC did not require modification or rescission following the subsequent invalidation of the asserted claims. The ITC imposed this civil penalty against DBN for violating a consent order that prohibited unfair trade acts of infringement involving the now invalidated claims.

Procedural History

This was the fourth appeal the CAFC heard relating to this case. In 2015, the CAFC issued both DBN I and DBN II. In DBN I, the CAFC affirmed summary judgment invalidating patent owner BriarTrek IP, Inc.’s claims in U.S. Patent No. 7,991,380, which BriarTek had asserted against DBN in a parallel investigation before ITC under Section 337.

In DBN II, the CAFC upheld the ITC’s imposition of a $6,242,500 civil penalty for DBN’s violation of the consent order, in which DBN agreed not to import or sell in the United States “any two-way global satellite communication devices, system, and components . . . that infringe [certain] claims of the ’380 Patent after April 1, 2013, until the expiration, invalidation, and/or unenforceability of the ’380 Patent.” The CAFC also concluded that the invalidation of the asserted claims “did not negate—under the consent order’s unambiguous terms—DBN’s pre-invalidation violations of the consent order.”

Later that year, DBN petitioned before the ITC under 19 C.F.R. § 210.76 seeking to rescind or modify the civil penalty order issued against DBN for violating the consent order. DBN asserted that the invalidation of the claims constituted a changed condition of fact or law, warranting the civil penalty’s modification or rescission under Section 210.76. However, ITC denied DBN’S petition on res judicata grounds, interpreting DBN II as deciding that the CAFC’s contemporaneous invalidity affirmance in DBN I had no effect on the civil penalty order.

Again, DBN appealed to the CAFC in DBN III, arguing that the ITC erred in relying on res judicata grounds to deny DBN’s petition. The CAFC sided with DBN, explaining that “DBN II did not divest the ITC of the authority to rescind or modify the civil penalty in light of the invalidity judgment.” Accordingly, the CAFC remanded for the ITC to decide whether to rescind or modify the civil penalty in light of the CAFC decision that the relevant patent claims were invalid.

On remand, the ITC denied DBN’s petition to rescind or modify the order. The ITC highlighted that Section 210.76(a)(1) contemplates modifying or rescinding “remedial orders, i.e., exclusion orders, cease and desist orders, and consent orders,” but “does not refer to civil penalty orders.” The ITC also rejected DBN’s argument that the ITC had rescinded civil penalty orders in similar cases, such as the Magnets case discussed below.

The ITC also reassessed the EPROMs factors for determining civil penalties and concluded that “the invalidation of the asserted claims did not change its original assessment of those factors when imposing the penalty” and DBN had not presented any basis for modifying or rescinding the civil penalty.

The EPROMs factors include:

(1) the good or bad faith of the respondent,

(2) the injury to complainant,

(3) respondent’s ability to pay,

(4) the extent to which respondent has benefited from its violations,

(5) the need to vindicate the authority of the Commission, and

(6) the public interest.

San Huan New Materials High Tech, Inc. v. Int’l Trade Comm’n, 161 F.3d 1347, 1362 (Fed. Cir. 1998); Certain Erasable Programmable Read Only Memories, Inv. No. 337-TA-276 (Enforcement), Comm’n Op. (July 19, 1991) [EPROMs].

The ITC again reasoned that “DBN’s position overlook[ed] the fact that the consent order expressly accounts for the subsequent invalidation of the patent claims.” DBN agreed to not commit unfair trade acts of infringement up until the point of patent invalidation, but DBN violated the consent order by infringing upon the claims before that point.

The ITC further explained that “‘it is important that violators like [DBN] and potential future violators of consent orders clearly understand that the Commission expects such orders to be complied with and that there will be consequences if they are not.’”

Did the ITC Abuse Its Discretion?

Now, DBN again appealed to the CAFC, arguing that the CAFC’s precedent and ITC practice support its petition to modify or rescind the ITC’s civil penalty order, and accordingly that the ITC abused its discretion by denying the petition.

The Magnets Case

DBN argued that the ITC incorrectly held that the Magnets case does not compel modification or rescission of the civil penalty order. Magnets involved a retroactive license agreement between the parties that negated prior acts of infringement. The CAFC found the Magnets case did not govern the case. In Magnets, the consent order prohibited importation of the infringing articles, “except under consent or license.” After a subsequent violation of the consent order, the parties reached a settlement and vacated the civil penalty on the grounds that they had agreed upon a retroactive license.

Here, the CAFC found the parties did not reach any such retroactive settlement addressing the consent order violations. DBN also made no assertions on how its violations of the consent order were authorized.

From a contractual perspective, the CAFC reasoned that a breach of the consent order provides the ITC a “distinct ground for imposing a civil penalty.” The terms of the consent order unambiguously indicate that the invalidation trigger applies only prospectively. The CAFC added that “[h]ad the consent order been written in retrospective terms, DBN might have [had] a stronger argument that the invalidation of the asserted claims renders the consent order null and void, or that modification is required.”

ITC Practice

On appeal, DBN pointed to cases involving modification or rescission of remedial orders as a basis to modify or rescind the civil penalty order in this case. However, the CAFC disagreed with DBN that remedial orders and civil penalty orders were “the same” for relevant purposes.

The CAFC acknowledged that Section 210.76 allows ITC discretion in deciding to rescind or modify previous orders. Thus, the CAFC concluded the ITC’s past practice involving the recission or modification of a remedial order did not support DBN’s position that the civil penalty order must be rescinded or modified. Therefore, the ITC did not abuse its discretion by denying DBN’s petition.

EPROMs Factors

On appeal, DBN also argued that the ITC erred in reassessing the EPROMs factors and concluding that those factors do not require rescission or modification of the civil penalty order. The CAFC reviewed all the EPROMs factors and discerned that the ITC did not abuse its discretion and its reassessment of each factor did not warrant recission or modification.

Notably, the CAFC disagreed with DBN’s argument that it violated the consent order in good faith “because it believed, when committing the violation, that the asserted claims were invalid.” DBN attempted and failed to equate the intent requirement for induced infringement with the good faith factor here, but the CAFC reasoned that lacking the intent for induced infringement does not necessarily mean a party acts in good faith when violating an ITC consent order. Thus, the CAFC held that these two tests were “separate legal analyses and determinations.”

The CAFC added that “[b]ecause consent orders would be useless if their violation had no consequence, the ITC’s enforcement of the consent order via a civil penalty was a reasonable exercise of its enforcement authority under Section 337 and ITC regulations, especially in light of the record evidence of DBN’s bad faith in violating the consent orders.”

 

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