Duane Morris LLP: ITC Administrative Law Judge Rules That Ongoing Royalty Precludes Exclusion Order

In a recent decision that continues the U.S. International Trade Commission's (ITC) evolving jurisprudence on licensing, Administrative Law Judge (ALJ) Theodore R. Essex held that a running royalty awarded in a prior district court case foreclosed relief at the ITC.1

The complainant at the ITC was Mondis Technology, Ltd., a U.K. non-practicing entity (NPE). Prior to bringing the case in the ITC, Mondis successfully sued the respondent in the U.S. District Court for the Eastern District of Texas.2 It did not seek injunctive relief based on the verdict, but rather, a running royalty. That request was granted by the district court.

Arguing that the ongoing royalty constituted a license, the defendant in the district court/ITC respondent moved for summary determination in the ITC. Mondis made three principal arguments in opposition:

  1. that an ongoing royalty is not a license as a matter of law,
  2. that an ALJ previously held that an ongoing royalty was not necessarily a license precluding relief at the ITC and
  3. that there were public-policy reasons why NPEs should be able to obtain exclusion orders at the ITC since they could not obtain injunctions in district courts under eBay.3

The ALJ flatly rejected all three points in opposition, characterizing the latter two as "meritless."4 In finding that an award of an ongoing royalty is a license, the ALJ held:

"[O]ngoing royalties are not continuous damages payments for continuing damages, but instead they are compensation for giving up the right to exclude. Giving up the right to exclude is the essence of a license. . . . The court fashions a license between the two parties under its equitable power that prevents the violation of the rights under the patent by compensating the patentee for giving up the right to exclude."5

The ALJ distinguished the earlier decision relied upon by Mondis.6 In that case, complainant Paice previously sued Toyota in a district court. The jury found infringement and Paice moved for a permanent injunction. The district court denied injunctive relief, instead awarding an ongoing royalty. In the subsequent ITC case, Paice sought an exclusion order only for accused products not covered by the district court's ongoing royalty order. There, the ALJ found that the payment of ongoing royalties on the products covered by the district court action was not an authorization for importation by Toyota for the products on which it was not paying a running royalty.

In response to Mondis' public-policy argument, the ALJ noted that the order in which Mondis proceeded, rather than any "absurd result" as claimed by Mondis, was the sole cause of an absence of available relief at the ITC:

"[S]ection 337 provides a remedy for infringement [and] there is no longer any infringement as a matter of law because the products are licensed. . . . Mondis chose to pursue its case in the order that it did. It could have pursued its Section 337 investigation first and possibly obtained an exclusion order. . . . [i]n this case, the order does matter."7

The ALJ disposed of the notion of a gap-filling function of Section 337 for NPEs after eBay as speculation: "Mondis did not even attempt to obtain an injunction. Mondis sought only ongoing royalties. Indeed, the ALJ cannot say an injunction would not have issued because other courts have granted injunctions even where the company was willing to license its patents."8

In combination with Certain Hybrid Vehicles and Components Thereof, this case appears to provide useful guidance of the potential implications of seriatim district court and ITC proceedings. Generally, such cases are filed contemporaneously. That limits the possibility of a declaratory judgment action triggered by the ITC case. Almost always, the respondents avail themselves of the automatic stay of the district court case,9 thus permitting the ITC case to proceed first. Where the district court case is filed first, however, different considerations come into play, as illustrated here.

It may be prudent to consider the variance in preclusive effect of decisions from different fora. ITC patent determinations (the law is different for copyright and trademark cases), even those reviewed by the Federal Circuit, have no preclusive effect in a subsequent district court action.10 Conversely, the ITC is bound by prior district court judgment.11

For Further Information

If you have any questions about this Alert, please contact Rodney R. Sweetland IIIMichael G. McManus, any member of the ITC Section 337 Litigation Practice Group or any attorney in the firm with whom you are in regular contact.

Notes

  1. Certain Video Displays and Products Using and Containing Same, Inv. No. 337-TA-828, Order No. 9 (August 1, 2012) [enhanced version available to lexis.com subscribers].
  2. Mondis v. LG Electronics, Inc., et al., Case No. 07-565 (E.D. Texas) [enhanced version available to lexis.com subscribers].
  3. eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) [enhanced version available to lexis.com subscribers].
  4. Certain Video Displays and Products Using and Containing Same, Inv. No. 337-TA-828, Order No. 9 at 18.
  5. Id. at 15 (citations omitted).
  6. Certain Hybrid Vehicles and Components Thereof, Inv. No. 337-TA-688 [enhanced version available to lexis.com subscribers].
  7. Id. at 19-20.
  8. Id. at 20 (citations omitted).
  9. 28 U.S.C. § 1659(a).
  10. Texas Instruments, Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558, 1568-69 (Fed. Cir. 1996) [enhanced version available to lexis.com subscribers].
  11. Young Eng'rs, Inc. v. Int'l Trade Comm'n, 721 F.2d 1305, 1316 (Fed. Cir. 1983) [enhanced version available to lexis.com subscribers].

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, or should be construed, as legal advice. For more information, please see the firm's full disclaimer.

© 1998-2012 Duane Morris LLP.

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