After winning a hard-fought litigation at the U.S. International Trade Commission (ITC) and obtaining an exclusion order against an infringer, most patent owners would like to believe that their problem is solved and that they no longer need to worry about infringing products entering the U.S. But from the infringer’s perspective, the battle might be just beginning. In particular, the issue of what is actually “covered by” the claims can remain contentious since ITC exclusion orders are broadly defined to encompass all products “covered by” the patent claims included in the exclusion order—rather than specifically-named products. This is especially the case when the adjudged infringer introduces a new, redesigned product and argues that this new product is not covered by the existing exclusion order by virtue of being materially different from the products that were at issue at the ITC.
Over the last year, U.S. Customs and Border Protection (CBP)—the entity responsible for enforcing ITC exclusion orders—has been implementing a new inter partes procedure to address disputes between patentees that have obtained exclusion orders at the ITC and adjudged-infringers who are attempting to bring redesigned products into the U.S. While CBP has long had the authority to address these types of issues pursuant to 19 C.F.R. § 177, the inter partes procedure is new. Before the introduction of the inter partes procedure, either the adjudged-infringer or the patentee could approach CBP and seek an ex parte ruling on whether a new product was subject to an exclusion order. In contrast, the inter partes procedure imparts more fairness to the proceedings by allowing both sides to present their best arguments for consideration by CBP before CBP makes any determination.
We are aware of three final ruling letters that CBP has issued in inter partes proceedings under 19 C.F.R. § 177:
These three examples suggest that CBP intends to make its infringement determinations under 19 C.F.R. § 177 in an efficient and expeditious manner.
In the ’719 proceeding, Nautilus Hyosung Inc., Nautilus Hyosung America Inc., and HS Global, Inc. (collectively, “Nautilus Hyosung”) filed a ruling request with CBP on May 26, 2017, asking for a ruling on whether a redesigned ATM machine was covered by the limited exclusion order issued in ITC Inv. No. 337-TA-972. Diebold-Nixdorf Inc. and Diebold Self-Service Systems, Inc. (collectively, “Diebold”) filed a response letter on June 16, 2017. CBP held a hearing on June 30, 2017. Both parties submitted post-hearing briefs on July 10, 2017, and both parties submitted post-hearing reply briefs on July 17, 2017. CBP then issued its decision a week later, on July 24, 2017, finding that the redesigned ATM was not covered by the existing exclusion order because it did not meet a particular limitation of the patent claims included in the exclusion order.
Thus, the key milestones in the ’719 proceeding, from the May 26, 2017, request, occurred as follows:
In the ’282 proceeding, Diebold filed a ruling request with CBP on July 17, 2017, asking for a ruling on whether certain redesigned products were covered by the limited exclusion order issued in ITC Inv. No. 337-TA-989. Two Nautilus Hyosung entities filed a response letter on Aug. 11, 2017. CBP held a hearing on Aug. 25, 2017. Both parties submitted post-hearing briefs on Sept. 1, 2017, and both parties submitted post-hearing reply briefs on Sept. 8, 2017. CBP then issued its decision 12 days later, on Sept. 20, 2017, finding that the redesigned products were not covered by the existing exclusion order because they did not meet a particular limitation of the patent claims included in the exclusion order.
Thus, the key milestones in the ’282 proceeding, from the July 17, 2017, request, occurred as follows:
The ’032 proceeding appears to be an outlier because the parties had previously engaged in ex parte proceedings with CBP before participating in the new inter partes procedure. In the ’032 proceeding, the opposing parties—Arista Networks, Inc. and Cisco Systems, Inc.—appear to have filed initial submissions with CBP on Feb. 2, 2017. CBP then held a hearing shortly thereafter, and the parties filed post-hearing submissions on Feb. 23, 2017. The decision was then issued about six weeks later, on April 7, 2017, finding that certain redesigned Arista products were not subject to the limited exclusion order in ITC Inv. No. 337-TA-944.
Thus, the key milestones in the ’032 proceeding, from the Feb. 2, 2017, initial submissions, occurred as follows:
Based on these three proceedings, it appears that CBP is endeavoring to conduct its inter partes proceedings under 19 C.F.R. § 177 scheduling varied somewhat among the three proceedings, they have all been fast, with a final ruling issuing about 60 days after the start of the proceeding.
One reason that inter partes CBP proceedings can proceed so quickly is that they are narrowly-focused on a single substantive issue: whether the redesigned product infringes any patent claim included in the ITC’s existing exclusion order.
In its ruling letters, CBP has explained that it does not apply the “colorable differences” test that district courts apply in determining whether a new product is subject to an existing injunction for patent infringement. See, e.g., ’282 proceeding final ruling letter at 17. The colorable differences test provides that, if new or redesigned products are so different from the product that the district court previously found to infringe such that they raise a fair ground of doubt as to the wrongfulness of the defendant’s conduct, the new or redesigned products are considered to be more than colorably different from the previous products that were found to infringe. Id. This in turn means that violation of the district court’s injunction is no longer the appropriate consideration; rather, a new trial would be required to litigate whether the new or redesigned products infringe. See id.; TiVo Inc. v. Echostar Corp., 646 F.3d 869, 876, 881-83 (Fed. Cir. 2011) (en banc).
In contrast, exclusion orders apply to any articles that are “covered by” the patent claims included in the exclusion order. See ’282 proceeding final ruling letter at 18; Certain Optical Disk Controller Chips and Chipsets, Inv. No. 337-TA-506, Comm’n Op. at 56-57 (Aug. 7, 2006) (“The Commission’s long-standing practice is to direct its remedial orders to all products covered by the patent claims as to which a violation has been found, rather than limiting its orders only to those specific models selected for the infringement analysis …. [W]hile individual models may be evaluated to determine importation and infringement, the Commission’s jurisdiction extends to all models of infringing products that are imported at the time of the Commission’s determination and to all such products that will be imported during the life of the remedial orders.”).
Accordingly, in determining whether a new product is within the scope of an existing exclusion order, CBP employs the familiar two-step test for patent infringement, i.e., claim construction followed by a determination of whether the construed claims read on the product in question. See ’282 proceeding final ruling letter at 18; Certain Sleep-Disordered Breathing Treatment Systems and Components Thereof, Inv. No. 337-TA-879, Advisory Op. at 10, n. 2 (Aug. 11, 2014). This is consistent with the ITC’s intent to issue exclusion orders that cover future infringing products:
“The Commission has always issued its orders in terms of “infringing” products, and has always intended them … to prohibit to future importation or sale of products which were not specifically adjudged infringing in the violation proceeding, but do in fact infringe. The Commission has consistently issued exclusion orders coextensive with the violation of section 337 found to exist. Thus, in cases where the violation found involves infringement of patent claims, the Commission has consistently ordered the exclusion of articles which infringe the relevant patent claims.” Certain Erasable Programmable Read Only Memories, Components Thereof, Products Containing Such Memories, and Processes for Making Such Memories, Inv. No. 337-TA-276, Enforcement Proceeding, Comm’n Op. at 10-11 (Aug. 1, 1991).
There is an important difference in the way CBP handles infringement. Unlike the ITC (or district court), CBP places the burden on the adjudged infringer to prove that its redesigned products do not infringe. See ’282 proceeding final ruling letter at 18; ’719 proceeding final ruling letter at 13; ’032 proceeding final ruling letter at 27. While the normal rule in patent law is that “the burden of proving infringement generally rests upon the patentee,” Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843, 849 (2014), this is not the case when there is an existing exclusion order under consideration, as in a Section 177 proceeding at CBP or an ITC advisory opinion proceeding. See Certain Sleep-Disordered Breathing Treatment Systems, Inv. No. 337-TA-879, Advisory Op. at 6-11.
The bottom line is that a CBP inter partes proceeding under 19 C.F.R. § 177 generally boils down to a single issue: Can the adjudged infringer prove that its new product does not infringe any claim included in the existing exclusion order? This narrow focus allows the proceeding to proceed swiftly.
There are a few other interesting points that can be gleaned from the three inter partes ruling letters issued so far.
First, regarding the doctrine of equivalents, CBP has indicated that it will not apply the doctrine when administering an exclusion order pursuant to Section 337 except in two specific instances. See ’032 proceeding final ruling letter at 26. First, if the Commission finds a violation of Section 337 during the underlying investigation through infringement under the doctrine of equivalents, CBP will apply the doctrine to the same extent that the Commission did in the underlying investigation. Id. Second, if the Commission finds only literal infringement in the underlying investigation, CBP will apply the doctrine of equivalents with respect to a new product only where the party seeking to import the product fails to show a prima facie case that the doctrine does not apply to the product. Id. CBP’s limited willingness to apply the doctrine of equivalents in the first instance will likely provide an advantage to adjudged-infringers seeking to circumvent an existing exclusion order with new or modified products.
Another important point is that CBP appears to treat the parties’ Confidential Business Information (CBI) with essentially the same degree of confidentiality as at the ITC. See ’282 proceeding final ruling letter at 11-15. First of all, anything that was redacted from the public version of the agency record at the ITC will be similarly redacted from the public version of the CBP final ruling letter. Id. at 15. Beyond that, if a party is able to establish a likelihood of substantial harm to its competitive position if additional information is disclosed, that additional information will also be redacted as long as the harm outweighs CBP’s general policy in favor of transparency and disclosure. Id. at 14.
Lastly, CBP has noted that it generally has the power to issue a ruling under 19 C.F.R. § 177 as long as the product at issue in the CBP proceeding was not already at issue in the underlying ITC investigation and is not being considered in an appeal at the U.S. Court of Appeals for the Federal Circuit. See ’282 proceeding final ruling letter at 10-11. However, if the ITC ever issues a ruling on the redesigned product (e.g., in an ITC enforcement proceeding) that is inconsistent with a CBP determination in a § 177 proceeding, CBP will defer to the ITC’s decision. See ’032 proceeding final ruling letter at 40-41.
The new inter partes proceeding under 19 C.F.R. § 177 appears to be an improvement over the old ex parte system of obtaining rulings from CBP on redesigned products. These inter partes proceedings allow for a relatively quick and fair way to resolve disputes over whether a redesigned product is covered by an existing exclusion order.
All participants in Section 337 investigations at the ITC should be aware of these proceedings and should consider using them in appropriate circumstances.
