Limited Exclusion Orders at the ITC

A review of the initial EPROMs decision is instructive. The EPROMs factors were first announced ' and applied ' in the context of the ITC's consideration of an LEO against a respondent. EPROMs, 1989 WL 1716252, *88-89. This seminal decision was issued shortly after Congress eliminated the requirement that a complainant prove injury to the domestic industry by the importation or sale of infringing articles. Id. at *87. Thus, in EPROMs, the ITC first addressed what factors it should consider when fashioning exclusion orders, as the determination of which products to exclude could no longer hinge on injury to the domestic industry. Id. The ITC concluded that when considering the proper scope of a general exclusion order (GEO) or LEO, it may “balance the complainant's interest in obtaining complete protection from all infringing imports” against the potential disruption of “legitimate trade in products which were not themselves the subject of a finding of violation of section 337.” Id. The ITC then articulated nine factors that it may consider when determining which downstream products to exclude from importation: 1) the incremental value of the infringing component compared to the overall value of the downstream product; 2) whether the downstream products are manufactured by a respondent or non-respondent; 3) the value to the complainant of excluding the downstream products; 4) the detriment to respondents of such exclusion; 5) burdens on third-parties; 6) the availability of non-infringing substitutes; 7) the likelihood that downstream products actually contain the infringing articles and are thereby subject to exclusion; 8) the opportunity for evading an exclusion order that does not include downstream products; and 9) the enforceability of an order by Customs. Id. The list is not exhaustive, and the ITC may “take into account any other factors which it believes bear on the question of whether to extend remedial exclusion to downstream products, and if so to what specific products.” Id.

Although the language of EPROMs broadly encompasses exclusion orders issued against downstream products manufactured by respondents and non-respondents, the underlying facts relate solely to the application of these factors to products sold by respondent Hyundai Electronics Industries Co., Ltd. In particular, the ITC exercised its discretion to exclude some, but not all, of Hyundai's products, issuing an LEO against Hyundai's computers, computer peripherals, telecommunications equipment, and automotive electronics but not automobiles. Id. at **88-89. The ITC explained that excluding automobiles would be per se excessive and would not significantly increase the relief afforded the complainant. Id. at *89. The ITC did not consider any products sold by non-respondents ' this was not at issue in EPROMs.

The Federal Circuit affirmed the ITC's remedy determination in EPROMs, expressly approving of the EPROMs factors and the ITC's balancing of the parties' interests. Hyundai Electronics Indus. Co. v. U.S. Int'l Trade Comm'n, 889 F.2d 1204 (Fed. Cir. 1990). The Federal Circuit stated that the remedy determination “represents a careful and common-sense balancing of the parties' conflicting interests as well as other relevant factors and is solidly based on the evidence of record.” Id. at 1209. The Federal Circuit considered the EPROMs factors and concluded that the ITC's remedy determination was “a reasonable accommodation of these factors.” Id.

Although EPROMs concerned an exclusion order against a respondent's products, the ITC applied the decision broadly, considering the EPROMs factors when fashioning LEOs against products of respondents and non-respondents, when those non-respondents' products incorporated a respondent's infringing component. That changed in 2008, when the Federal Circuit determined that the ITC lacked the authority to issue LEOs against products of non-respondents. Kyocera Wireless Corp. v. ITC, 545 F.3d 1340, 1358 (Fed. Cir. 2008). In Kyocera, complainant Broadcom Corporation named Qualcomm Incorporated ' and only Qualcomm ' as a respondent. Id. at 1343. The ITC determined that certain Qualcomm baseband processor chips and chipsets infringed the claims of an asserted patent. Id. at 1346. The ITC issued an LEO against those chips and chipsets as well as certain wireless devices incorporating those infringing components. Id.'at 1354-55. In effect, the LEO applied both to Qualcomm (the respondent) and to Qualcomm's customers (non-respondents). Id. Qualcomm and several of its customers appealed, arguing that the ITC lacked the authority to exclude products of non-respondents. Id. The Federal Circuit agreed. The court distinguished between the scope of the ITC's authority to issue GEOs versus LEOs, concluding that GEOs could apply to both respondents and non-respondents but that LEOs could apply only to respondents. Id. at 1356. As Broadcom had not met the heightened requirements for obtaining a GEO, the court held that the ITC could not exclude the products of Qualcomm's (non-respondent) customers. Id.

In effect, Kyocera reined EPROMs back to its original state when considering LEOs. Following Kyocera, if a complainant seeks to exclude from importation a particular downstream product, it must now name the entity involved in making, selling, or importing that product ' just as the complainant in EPROMs named Hyundai as a respondent ' or seek a GEO, which imposes additional evidentiary burdens. Nothing in Kyocera altered the ITC's authority to fashion appropriate LEOs against respondents. In fact, the Federal Circuit explicitly noted that its conclusion was consistent with its decision in Hyundai (the EPROMs appeal), explaining that Hyundai concerned the exclusion of products of a respondent, not third parties. Kyocera, 545 F.3d at 1357-58. Notably, two current and one former ITC Commissioner have indicated that they agree with this reading of Kyocera, stating “we understand the [c]ourt to address the dispute that was being litigated before it: whether a Commission LEO can exclude the importation of downstream products that were manufactured by non-respondents.” Certain GPS Devices and Products Containing Same, Inv. No. 337-TA-602, Additional Views of Chairman Shara L. Aranoff, Vice Chairman Daniel R. Pearson, and Commissioner Deanna Tanner Okun, at 3 (Jan. 27, 2009).

Decisions After Kyocera

Post-Kyocera, several ALJs questioned whether the EPROMs analysis remains viable, even as applied to respondents. For example, former ALJ Rogers concluded that consideration of the EPROMs factors “has been obviated by the Federal Circuit's decision in Kyocera.” Certain Flash Memory Chips and Products Containing Same, Inv. No. 337 TA 735, Order No. 22, 2011 WL 2117598, *5 (May 9, 2011). ALJ Rogers noted that in EPROMs , the ITC was concerned with whether exclusion orders would “disrupt legitimate trade in products which were not themselves the subject of a finding of violation of section 337.” Id. He thus concluded that because the ITC can no longer issue LEOs against products that were not themselves the finding of a violation of section 337 (i.e., products of non-respondents), the EPROMs factors are no longer relevant. Id . Both Chief ALJ Bullock and former ALJ Charneski appear to have reached the same conclusion, as indicated by the Initial Determinations in Investigation Nos. 337-TA-664 (Bullock, CALJ), 337-TA-685 (Charneski, ALJ), and 337-TA-792 (Bullock, CALJ).

On the other hand, former Chief ALJ Luckern and ALJs Gildea, Essex, and Shaw appear to have concluded that EPROMs remains viable following Kyocera, as indicated by the Initial Determinations in Investigation Nos. 337-TA-634 (Luckern, CALJ), 337-TA-692 (Gildea, ALJ), 337-TA-709 (Luckern, CALJ), 337-TA-753 (Essex, ALJ), and 337-TA-781 (Shaw, ALJ), the Recommended Determination in Inv. No. 337-TA-784 (Shaw, ALJ), and, more recently, at a hearing in Investigation No. 337-TA-884, Hearing Tr. 10:25 – 11:3 (Aug. 22, 2012) (Essex, ALJ) (“In looking at Kyocera, and I've read that one a lot and I read EPROMs, and I don't see that EPROMs has been specifically overturned in any way. I don't see that either in the Circuit's decision or in any of the subsequent Commission actions.”).

Thus, the current ALJ's have split on this issue, with the chief ALJ rejecting the EPROMs factors, and three current ALJs concluding that the factors remain relevant. A fifth current ALJ (ALJ Pender) has yet to issue a public decision on the issue.

The ITC has had limited opportunity to address the issue. In many cases, parties settle, or the ITC finds no violation of Section 337 and thus has no reason to review the scope of an LEO. Notably, shortly after Kyocera, the ITC appeared to reaffirm the applicability of EPROMs. In Investigation No. 337-TA-634, the ITC stated that “[i]n determining whether an exclusion order should extend to downstream products, the Commission applies a test first articulated in [ EPROMs ],” and it adopted the ALJ's detailed EPROMs analysis as its own. Certain Liquid Crystal Display Modules, Products Containing Same, and Methods for Using the Same, Inv. No. 337-TA-634, 2009 WL 4087135, *2 (Nov. 24, 2009). But even after this decision, ALJs questioned the viability of the EPROMs analysis, perhaps because the parties did not raise ' and thus the ITC could not consider ' the argument that Kyocera obviated the need for EPROMs. Arguably, despite the ITC's application of EPROMs in Investigation No. 337-TA-634, it remains unclear whether it will apply the EPROMs factors in the future, if its discretion to consider those factors is challenged.

Certain commentators (and ALJs) have cited to the ITC's decision in Investigation No. 337-TA-661 when concluding that it is no longer necessary to consider the EPROMs factors (e.g., Inv. No. 337-TA-792). In Investigation No. 337-TA-661, the ITC issued an LEO covering downstream products of respondents, this time without mentioning EPROMs at all. Certain Semiconductor Chips Having Synchronous Dynamic Random Access Memory Controllers & Products Containing Same, Inv. No. 337-TA-661, 2010 WL 3196463, *7 (Aug. 10, 2010). But in this case, there is no indication that the ITC rejected the EPROMs analysis; rather, it appears that the parties did not rely on EPROMs factors in their arguments. Therefore, this opinion does not establish that the ITC deems EPROMs inappropriate or irrelevant. At most, it shows that if the parties fail to brief the EPROMs factors, the ITC might not consider them sua sponte.

Conclusion

Given the split among the current ALJs, ITC litigants await a definitive ruling from the ITC concerning the applicability of EPROMs. Following Kyocera, the ITC remains free to consider the EPROMs factors in their original context,'i.e., when fashioning exclusion orders against respondents. However, the ITC “has broad discretion in selecting the form, scope, and extent of the remedy, and judicial review of its choice of remedy is necessarily limited.” Hyundai, 899 F.2d at 1209. Thus, although the ITC has the discretion to consider the EPROMs factors, it is not limited to this analysis, and only time will tell whether or how the ITC will apply EPROMs in the future.

Maximilienne Bishop is an Associate of Finnegan, Henderson, Farabow, Garrett & Dunner, LLP in Washington, DC. She can be reached at [email protected]. Elizabeth A. Niemeyer is a Partner with the firm. She can be reached at [email protected]. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.

The United States International Trade Commission (ITC) has the authority to stop unfair trade practices, including the importation of products found to infringe a valid U.S. patent. But does that authority automatically extend to downstream products incorporating a relatively insignificant infringing component ' such as an automobile that happens to include an infringing light-emitting diode? And is the ITC required to balance the parties' interests and consider factors such as the value of an infringing component compared to the overall value of the imported downstream product? This article examines a current split in authority answering those questions.

Background

For nearly 20 years, the ITC applied a nine-factor test to determine whether to exclude products that incorporate an infringing component after finding a violation of Section 337. See Certain Erasable Programmable Read-Only Memories, Inv. No. 337-TA-276, Pub. No. 2196, 1989 WL 1716252, *88 (U.S.I.T.C. May 1989) (EPROMs). These nine factors are referred to as EPROMs factors, from the investigation where they were first articulated. Over the last few years, administrative law judges (ALJs) have questioned whether the EPROMs factors remain viable in the wake of a decision by the Court of Appeals for the Federal Circuit concerning the scope of the ITC's authority to issue limited exclusion orders (LEOs) against non-respondents (non-parties) in ITC investigations. This has created a split at the ITC, with some of the ALJs concluding that the EPROMs factors are no longer relevant and others concluding they still apply.

A review of the initial EPROMs decision is instructive. The EPROMs factors were first announced ' and applied ' in the context of the ITC's consideration of an LEO against a respondent. EPROMs, 1989 WL 1716252, *88-89. This seminal decision was issued shortly after Congress eliminated the requirement that a complainant prove injury to the domestic industry by the importation or sale of infringing articles. Id. at *87. Thus, in EPROMs, the ITC first addressed what factors it should consider when fashioning exclusion orders, as the determination of which products to exclude could no longer hinge on injury to the domestic industry. Id. The ITC concluded that when considering the proper scope of a general exclusion order (GEO) or LEO, it may “balance the complainant's interest in obtaining complete protection from all infringing imports” against the potential disruption of “legitimate trade in products which were not themselves the subject of a finding of violation of section 337.” Id. The ITC then articulated nine factors that it may consider when determining which downstream products to exclude from importation: 1) the incremental value of the infringing component compared to the overall value of the downstream product; 2) whether the downstream products are manufactured by a respondent or non-respondent; 3) the value to the complainant of excluding the downstream products; 4) the detriment to respondents of such exclusion; 5) burdens on third-parties; 6) the availability of non-infringing substitutes; 7) the likelihood that downstream products actually contain the infringing articles and are thereby subject to exclusion; 8) the opportunity for evading an exclusion order that does not include downstream products; and 9) the enforceability of an order by Customs. Id. The list is not exhaustive, and the ITC may “take into account any other factors which it believes bear on the question of whether to extend remedial exclusion to downstream products, and if so to what specific products.” Id.

Although the language of EPROMs broadly encompasses exclusion orders issued against downstream products manufactured by respondents and non-respondents, the underlying facts relate solely to the application of these factors to products sold by respondent Hyundai Electronics Industries Co., Ltd. In particular, the ITC exercised its discretion to exclude some, but not all, of Hyundai's products, issuing an LEO against Hyundai's computers, computer peripherals, telecommunications equipment, and automotive electronics but not automobiles. Id. at **88-89. The ITC explained that excluding automobiles would be per se excessive and would not significantly increase the relief afforded the complainant. Id. at *89. The ITC did not consider any products sold by non-respondents ' this was not at issue in EPROMs.

The Federal Circuit affirmed the ITC's remedy determination in EPROMs, expressly approving of the EPROMs factors and the ITC's balancing of the parties' interests. Hyundai Electronics Indus. Co. v. U.S. Int'l Trade Comm'n, 889 F.2d 1204 (Fed. Cir. 1990). The Federal Circuit stated that the remedy determination “represents a careful and common-sense balancing of the parties' conflicting interests as well as other relevant factors and is solidly based on the evidence of record.” Id. at 1209. The Federal Circuit considered the EPROMs factors and concluded that the ITC's remedy determination was “a reasonable accommodation of these factors.” Id.

Although EPROMs concerned an exclusion order against a respondent's products, the ITC applied the decision broadly, considering the EPROMs factors when fashioning LEOs against products of respondents and non-respondents, when those non-respondents' products incorporated a respondent's infringing component. That changed in 2008, when the Federal Circuit determined that the ITC lacked the authority to issue LEOs against products of non-respondents. Kyocera Wireless Corp. v. ITC, 545 F.3d 1340, 1358 (Fed. Cir. 2008). In Kyocera, complainant Broadcom Corporation named Qualcomm Incorporated ' and only Qualcomm ' as a respondent. Id. at 1343. The ITC determined that certain Qualcomm baseband processor chips and chipsets infringed the claims of an asserted patent. Id. at 1346. The ITC issued an LEO against those chips and chipsets as well as certain wireless devices incorporating those infringing components. Id.'at 1354-55. In effect, the LEO applied both to Qualcomm (the respondent) and to Qualcomm's customers (non-respondents). Id. Qualcomm and several of its customers appealed, arguing that the ITC lacked the authority to exclude products of non-respondents. Id. The Federal Circuit agreed. The court distinguished between the scope of the ITC's authority to issue GEOs versus LEOs, concluding that GEOs could apply to both respondents and non-respondents but that LEOs could apply only to respondents. Id. at 1356. As Broadcom had not met the heightened requirements for obtaining a GEO, the court held that the ITC could not exclude the products of Qualcomm's (non-respondent) customers. Id.

In effect, Kyocera reined EPROMs back to its original state when considering LEOs. Following Kyocera, if a complainant seeks to exclude from importation a particular downstream product, it must now name the entity involved in making, selling, or importing that product ' just as the complainant in EPROMs named Hyundai as a respondent ' or seek a GEO, which imposes additional evidentiary burdens. Nothing in Kyocera altered the ITC's authority to fashion appropriate LEOs against respondents. In fact, the Federal Circuit explicitly noted that its conclusion was consistent with its decision in Hyundai (the EPROMs appeal), explaining that Hyundai concerned the exclusion of products of a respondent, not third parties. Kyocera, 545 F.3d at 1357-58. Notably, two current and one former ITC Commissioner have indicated that they agree with this reading of Kyocera, stating “we understand the [c]ourt to address the dispute that was being litigated before it: whether a Commission LEO can exclude the importation of downstream products that were manufactured by non-respondents.” Certain GPS Devices and Products Containing Same, Inv. No. 337-TA-602, Additional Views of Chairman Shara L. Aranoff, Vice Chairman Daniel R. Pearson, and Commissioner Deanna Tanner Okun, at 3 (Jan. 27, 2009).

Decisions After Kyocera

Post-Kyocera, several ALJs questioned whether the EPROMs analysis remains viable, even as applied to respondents. For example, former ALJ Rogers concluded that consideration of the EPROMs factors “has been obviated by the Federal Circuit's decision in Kyocera.” Certain Flash Memory Chips and Products Containing Same, Inv. No. 337 TA 735, Order No. 22, 2011 WL 2117598, *5 (May 9, 2011). ALJ Rogers noted that in EPROMs , the ITC was concerned with whether exclusion orders would “disrupt legitimate trade in products which were not themselves the subject of a finding of violation of section 337.” Id. He thus concluded that because the ITC can no longer issue LEOs against products that were not themselves the finding of a violation of section 337 (i.e., products of non-respondents), the EPROMs factors are no longer relevant. Id . Both Chief ALJ Bullock and former ALJ Charneski appear to have reached the same conclusion, as indicated by the Initial Determinations in Investigation Nos. 337-TA-664 (Bullock, CALJ), 337-TA-685 (Charneski, ALJ), and 337-TA-792 (Bullock, CALJ).

On the other hand, former Chief ALJ Luckern and ALJs Gildea, Essex, and Shaw appear to have concluded that EPROMs remains viable following Kyocera, as indicated by the Initial Determinations in Investigation Nos. 337-TA-634 (Luckern, CALJ), 337-TA-692 (Gildea, ALJ), 337-TA-709 (Luckern, CALJ), 337-TA-753 (Essex, ALJ), and 337-TA-781 (Shaw, ALJ), the Recommended Determination in Inv. No. 337-TA-784 (Shaw, ALJ), and, more recently, at a hearing in Investigation No. 337-TA-884, Hearing Tr. 10:25 – 11:3 (Aug. 22, 2012) (Essex, ALJ) (“In looking at Kyocera, and I've read that one a lot and I read EPROMs, and I don't see that EPROMs has been specifically overturned in any way. I don't see that either in the Circuit's decision or in any of the subsequent Commission actions.”).

Thus, the current ALJ's have split on this issue, with the chief ALJ rejecting the EPROMs factors, and three current ALJs concluding that the factors remain relevant. A fifth current ALJ (ALJ Pender) has yet to issue a public decision on the issue.

The ITC has had limited opportunity to address the issue. In many cases, parties settle, or the ITC finds no violation of Section 337 and thus has no reason to review the scope of an LEO. Notably, shortly after Kyocera, the ITC appeared to reaffirm the applicability of EPROMs. In Investigation No. 337-TA-634, the ITC stated that “[i]n determining whether an exclusion order should extend to downstream products, the Commission applies a test first articulated in [ EPROMs ],” and it adopted the ALJ's detailed EPROMs analysis as its own. Certain Liquid Crystal Display Modules, Products Containing Same, and Methods for Using the Same, Inv. No. 337-TA-634, 2009 WL 4087135, *2 (Nov. 24, 2009). But even after this decision, ALJs questioned the viability of the EPROMs analysis, perhaps because the parties did not raise ' and thus the ITC could not consider ' the argument that Kyocera obviated the need for EPROMs. Arguably, despite the ITC's application of EPROMs in Investigation No. 337-TA-634, it remains unclear whether it will apply the EPROMs factors in the future, if its discretion to consider those factors is challenged.

Certain commentators (and ALJs) have cited to the ITC's decision in Investigation No. 337-TA-661 when concluding that it is no longer necessary to consider the EPROMs factors (e.g., Inv. No. 337-TA-792). In Investigation No. 337-TA-661, the ITC issued an LEO covering downstream products of respondents, this time without mentioning EPROMs at all. Certain Semiconductor Chips Having Synchronous Dynamic Random Access Memory Controllers & Products Containing Same, Inv. No. 337-TA-661, 2010 WL 3196463, *7 (Aug. 10, 2010). But in this case, there is no indication that the ITC rejected the EPROMs analysis; rather, it appears that the parties did not rely on EPROMs factors in their arguments. Therefore, this opinion does not establish that the ITC deems EPROMs inappropriate or irrelevant. At most, it shows that if the parties fail to brief the EPROMs factors, the ITC might not consider them sua sponte.

Conclusion

Given the split among the current ALJs, ITC litigants await a definitive ruling from the ITC concerning the applicability of EPROMs. Following Kyocera, the ITC remains free to consider the EPROMs factors in their original context,'i.e., when fashioning exclusion orders against respondents. However, the ITC “has broad discretion in selecting the form, scope, and extent of the remedy, and judicial review of its choice of remedy is necessarily limited.” Hyundai, 899 F.2d at 1209. Thus, although the ITC has the discretion to consider the EPROMs factors, it is not limited to this analysis, and only time will tell whether or how the ITC will apply EPROMs in the future.

Maximilienne Bishop is an Associate of Finnegan, Henderson, Farabow, Garrett & Dunner, LLP in Washington, DC. She can be reached at [email protected]. Elizabeth A. Niemeyer is a Partner with the firm. She can be reached at [email protected]. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.