Chip Law : Semiconductor Lawyer & Attorney : Perkins Coie Law Firm : Intellectual Property, Patent Litigation

We've written quite a bit about ITC 337 proceedings. One of the issues to watch out for is collateral damage from your general exclusion orders. General exclusion orders usually prohibit the importation of all infringing articles, regardless of their owner, importer, and place of origin, and whether or not the owner or importer participated in the investigation.

Imagine your client, patentee A, wins a general exclusion order against foreign manufacturer B. The order is implemented, and the next thing you know patentee A receives an irate call from a customer or licensee asking why their products are being excluded at the US border. The licensee can be importing a legitimately licensed product manufactured by manufacturer B. The customer can be importing a downstream product excluded on the basis of including a component covered by the exclusion order.

When you receive an exclusion order, you'll need thorough due diligence to ensure current customers and licensees aren't impacted.
 

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We've written before about the increasing popularity of the ITC as a patent litigation forum, particularly for semicon companies.  However, success at the ITC is turning out to be a bit more elusive than hoped for by patent owners.  In the latest setback for a semicon company at the ITC, Qimonda last week lost the first round to LSI and Seagate.  Last year, Qimonda asked the ITC to investigate LSI's and Seagate's importation of certain chips.  Of the four patents asserted (USP 6495918, USP 5851899, USP 5646434, and USP 5213670), three were found to be not infringed and one was invalid. 

Perhaps more interesting is that Judge Rogers found that a domestic industry doesn't exist - i.e., Germany based Qimonda doesn't have enough activity in the U.S. to qualify for protection under Section 337. 

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US companies will increasingly find themselves as respondents in Section 337 actions. Given the advantages to the complainant in such actions (fast docket, lower threshold for standing, and exclusion orders), the advice we previously gave foreign companies now also applies to US companies. React quickly when you receive a complaint, and ideally, have a short list of counsel familiar with your industry and market. Given the fast docket, you want to minimize the amount of time spent obtaining counsel and getting counsel up to speed.

Foreign companies are increasingly initiating Section 337 actions to protect their US market share and intellectual property. Over one-third of the Section 337 cases instituted in 2009 to-date named foreign complainants. In part, this can be attributed to the importance of the US market in the global economy and the growing patent portfolios held by foreign companies.

Section 337 actions were originally intended to protect American industry from foreign competition by allowing US manufacturers to bar imports infringing US patents. Previously, Section 337 required a complainant's product to be made in whole or significant part within the US to satisfy the domestic industry requirement. The domestic industry requirement was later changed to include "sufficient investments" in US activities related to the asserted patents. With the lower threshold for standing, foreign companies are finding it easier to pursue Section 337 actions, against both foreign and domestic competitors in the US market.
 

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The US ITC staff has endorsed a proposed settlement between Multitest Electronic Systems Inc. and Cognex Corp. in a patent infringement case over machine vision software. Multitest was the first the nearly 20 named respondents to reach a settlement with Cognex.

Interestingly, several of the other respondents, including MVTec and Delta Design Inc., filed confidential partial oppositions to the motion. Some possible reasons for opposition can include keeping as many respondents in the case as possible to dilute complainant's efforts moving forward, overbroad language in the proposed settlement, or other tactical and strategic considerations.

The complaint alleges that MVTec Software GmbH manufactures machine vision software that infringes Cognex patents. The software is then sold to third parties, including Multitest, who incorporate the software into their manufacturing equipment products. The case is In the matter of Certain Machine Vision Systems, Software and Products Containing Same, investigation number 337-TA-680, in the U.S. International Trade Commission.

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As a follow up on our earlier post on Tessera's ITC action, the Administrative Law Judge (ALJ) recently made an Initial Determination that respondents TwinMOS Technologies Inc. and TwinMOS Technologies USA Inc. (collectively "TwinMOS") are in default for failure to respond. Given the speed of ITC actions, it is crucial to bring your attorneys into the loop as soon as possible. This decision is a reminder that burying your head in the sand will not make the problem go away.

On March 12, 2008, the ALJ issued an order to show cause regarding entry of default against TwinMOS. TwinMOS replied in a letter to the ALJ, asserting it replied to Tessera's Complaint on January 8, 2008 and stating it is "a memory module house" and is "not in a position to involve in the patent litigation matters or to be liable to the charge."

The ALJ found that since TwinMOS' letter, TwinMOS has failed to participate in the investigation, including failing to participate in discovery, appear at evidentiary hearings, and filing any requested briefings. As a result of the entry of default, TwinMOS have waived their right to appear, to be served with further documents, and to contest the allegations at issue in the investigation.

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We've covered the value of ITC 337 actions in prior posts, and the recent events have continued the trend. MagnaChip has settled its patent dispute before the ITC with LSI and Agere Systems. On July 21, the Administrative Law Judge issued an initial determination terminating the investigation against MagnaChip after it reached a settlement and patent licensing agreement. Just the previous week, two respondents, Microchip Technology and Dongbu HiTek Semiconductor were also dropped from the suit based on a settlement with the complainants.

The settlement terms are all confidential, which makes it difficult to analyze any settlement trends. With flat to sequential growth in the semiconductor industry, respondents may be more open to settlement in order to conserve resources and capitalize on market opportunities. On the other hand, complainants may be more open to settlement in light of the fact that many competitors are struggling and are unable to pay out large settlements.
 

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ITC exclusion orders and cease and desist letters have teeth. Faced with an uncertain economic outlook, an unfavorable ITC decision, and unclear appeal prospects, Motorola signed a license with Tessera settling all outstanding litigation. Under the worldwide licensing agreement, Motorola will pay Tessera royalties on shipments into the U.S. of certain electronic products incorporating semiconductor chips that use Tessera's technology. In a statement Wednesday, Motorola called the licensing deal a "prudent business action" allowing the company to continue to meet its customers' needs.

With the addition of two administrative law judges in the last 2 years (Carl. C. Charneski in April ’07 and Robert K. Rogers in July ’08 - bringing the total to five administrative law judges), the ITC is an attractive option for US patentees seeking to protect their IP in the post-eBay world. For patentees finding injunctions difficult to obtain, an ITC exclusion order almost as effective.

As this case illustrates, ITC exclusion orders and cease and desist letters put an inordinate amount of pressure on respondents to settle, or risk being unable to import infringing goods into the US. In today's distributed world, preventing the importing of infringing products can be almost as good as a injunction.

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Historically, ITC 337 cases tend to be very pro-complainant. This is, in part, because the ITC encourages potential complainants consult with its Office of Unfair Import Investigations (OUII) before filing complaints. But as this result shows, there are no guarantees in life or before the ITC.

In an initial determination issued Friday, Administrative Law Judge Charles E. Bullock ruled that the four companies did not infringe the asserted claims of SanDisk's patents, and that one claim of one of the patents was invalid for obviousness.

Don't feel too bad for SanDisk: even with this setback, SanDisk still has a good record. SanDisk initially asserted five patents in the ITC on Oct. 24, 2007 against 25 companies. The ITC has since ruled that six of the companies have infringed, 11 of the companies have entered licensing and settlement agreements with SanDisk, and four companies have reached settlement agreements where they agreed to limit their imports of certain products to those licensed by SanDisk.
 

As for SanDisk's one patent found invalid for obviousness, there is still hope to resurrect the patent by reissue or reexamination.

Moving forward, the Initial Determination is automatically adopted by the ITC as its final determination unless at least one Commissioner votes, within forty-five days, to review the determination. There is also a Presidential approval process for 60 day and an appeal process.

 

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