We previously wrote about the uphill battle Respondent Eko Brands faced in an enforcement proceeding after it defaulted in the underlying investigation.  The ALJ found during the proceedings that res judicata barred its defenses of non-infringement and invalidity.  However, Judge Essex issued an interesting determination this month finding that the Commission’s remedial orders are not enforceable against Eko because Complainant Adrian Rivera and Adrian Rivera Maynez Enterprises (“ARM”) did not properly establish the domestic industry requirement in the underlying investigation.  He further found that even if the remedial orders are enforceable, that they should be provisionally rescinded pending final resolution of a district court case.

Our previous posts contain the factual and procedural background of Certain Beverage Brewing Capsules, Components Thereof, And Products Containing the Same, Inv. 337-TA-929.  The highlights are:

• ARM filed a Section 337 complaint against a number of respondents, including Eko, alleging that their coffee pods infringed independent claims 5 and 18 and dependent claims 8 and 19 of U.S. Patent No. 8,720,320. ARM claimed that its domestic industry products practice claims 1, 5, 10, and 18.
• Eko never responded to the Complaint and was found in default.
• ARM subsequently dropped claims 8 and 19 from the proceeding as to the non-defaulting respondents.
• The Commission found no violation of Section 337 with respect to the non-defaulting respondents because claims 5 and 18 are invalid for not having written description support, but found Eko in violation for infringing claims 8 and 19 because it defaulted.
• The Commission also found that the technical prong of domestic industry was not met for invalid claims 5 and 18, but took no position as to claims 1 and 10.
• Eko brought a declaratory judgment action in district court which found that Eko’s products did not infringe any of the claims of the ’320 patent.
• ARM filed an enforcement complaint alleging that Eko has violated the remedial orders issued against it.
• ALJ Essex struck Eko’s affirmative defenses of non-infringement and invalidity.
• Eko moved for rescission of the remedial orders.

Enforceability

The ALJ based his finding that the remedial orders are unenforceable on an argument not directly raised by the parties: that the ITC lacked statutory authority to issue the remedial orders because ARM never established that it meets the domestic industry requirement.

Judge Essex explained that his initial determination in the underlying investigation found that ARM had satisfied the technical prong of the domestic industry requirement as to claim 5, and had also satisfied the economic prong of the domestic industry requirement.  On review the Commission found claim 5 to be invalid, and explained that “[b]ecause we find that claim 5 is invalid, ARM cannot satisfy the technical prong through claim 5.”  The Commission employed the same reasoning with respect to claim 18, and concluded that “because we find that claim 18 is invalid, ARM cannot satisfy the technical prong through claim 18.”  ALJ Essex further noted that ARM also alleged that its domestic industry articles practiced claims 1 and 10 of the ‘320 patent, but the initial determination made no findings on whether the domestic industry products practiced claims 1 and 10.  The Commission declined to “determine whether ARM’s products practice [claims 1 and 10.]”

The ALJ concluded that “[t]he Commission’s opinion, in invalidating claims 5, leaves ARM without an affirmative domestic industry determination. Domestic industry is a statutory requirement for finding a violation of Section 337, and a violation of Section 337 is a statutory prerequisite to the issuance of an exclusion or a cease and desist order. The absence of a domestic industry determination in this investigation renders the remedial orders effectively unenforceable.”

Rescission

After analyzing the ITC’s precedent for rescission of remedial orders, Judge Essex found that the ruling of noninfringement by the U.S. District Court for the Western District of Washington occurred subsequent to the Commission’s issuance of the remedial orders and has substantially changed the circumstances under which the orders were issued.  He thus recommended that the ITC provisionally rescind the remedial orders until the district court’s noninfringement decision is affirmed or reversed on appeal, or the time for appeal has passed.

Takeaway 

The ALJ’s determination is interesting for a couple of reasons.  First, Judge Essex seems to treat ARM’s allegations of infringement differently than its allegations that it meets the technical prong.  As a result of Eko’s default, the Commission presumed that ARM’s allegations in its complaint that were not specifically adjudicated to be true.  For example, Eko did not infringe claims 5 and 18 because the Commission found them invalid, but Eko was presumed to infringe claims 8 and 19 because there was no finding on invalidity.  Judge Essex ruled that res judicata barred Eko from challenging this infringement ruling.

The same does not seem to apply for the technical prong of domestic industry.  The Commission specifically found that ARM could not rely on claims 5 and 18 for satisfaction of the technical prong because they are invalid, but it took no position on ARM’s allegations in the complaint that its products practice claims 1 and 10.  Judge Essex appears to hold that the Commission could not presume that ARM practices claims 1 and 10 even though it could presume that Eko infringes claims 8 and 19.  It remains to be seen whether the Commission will agree on review.

Second, if its stands on review, Judge Essex’s ruling that a district court’s finding of non-infringement is grounds to rescind ITC remedial orders implicates possible strategies for respondents.  For example, a respondent that is found to violate Section 337 could consider filing a declaratory action in a fast jurisdiction such as the Eastern District of Virginia during the pendency of an appeal of the ITC action.