United States: Delorme v. ITC: Federal Circuit Upholds $6.2 Million Penalty For Consent Order Violation Despite Finding Patent Invalid

On November 12, 2015, a divided Federal Circuit panel upheld enforcement of the ITC's $6.2 million civil penalty against DeLorme Publishing Company, Inc. and DeLorme inReach LLC.  It did so despite the fact that, in an order issued the same day, the same panel affirmed a district court ruling that the patent-in-suit is invalid.

The patent, U.S. Patent No. 7,991,380, claimed a two-way global satellite emergency monitoring and reporting system comprised of two major components:  a user unit and a monitoring system.  The ITC had found that DeLorme violated a consent order that prohibited its importation of satellite communication devices and components until the expiration or invalidation of the patent.  Although the claims were subsequently invalidated in a district court proceeding, the Federal Circuit held that, because the consent order "unambiguously" indicated that the effect of invalidation would apply prospectively, the penalty must be upheld.

We reported on the oral argument in a post dated October 23, 2015, here:

Background

In Certain Two-Way Global Satellite Communication Devices, System and Components Thereof, Inv. No. 337-TA-854, complainant BriarTek IP, Inc. accused its competitor DeLorme of violating Section 337 by infringing BriarTek's '380 patent.  BriarTek alleged that DeLorme's inReach messaging devices infringed the '380 patent when used with other components of the patented system.  DeLorme resolved the ITC investigation through a consent order in which it agreed not to import or sell after importation "any two-way global satellite communication devices, system, and components thereof, that infringe claims 1, 2, 5, 10-12, and 34 of the '380 patent after April 1, 2013, until the expiration, invalidation, and/or unenforceability of the '380 patent."

Immediately following entry of the consent order and termination of the investigation, BriarTek filed an enforcement complaint on April 10, 2013.  The enforcement proceeding challenged DeLorme's domestic assembly of its inReach devices using various imported components.  One model was assembled almost entirely from imported parts:  an Iridium modem and antenna, a keypad, a battery and the plastic housing.  A second model used only two imported components: the plastic housing and a clip to hold the device on a user's belt.  None of these components was alleged, by itself, to infringe.  Following discovery and an evidentiary hearing before the ALJ, the Commission issued an opinion and order on June 9, 2014.  It found that DeLorme violated the consent order and induced infringement by selling the domestically assembled devices with imported components to end users with instructions to use the entire system in an infringing manner.  The Commission found 227 days of violation and imposed a civil penalty of $27,500 per day, for a total of $6,242,500.

In the meantime, in May 2013, DeLorme filed a declaratory judgment action in the Eastern District of Virginia seeking to invalidate BriarTek's '380 patent.  Following motions for summary judgment, the district court entered judgment on November 19, 2014, finding the asserted claims of the '380 patent invalid.  BriarTek's appeal of the invalidity judgment was heard on the same day as DeLorme's appeal of the ITC penalty.

The Federal Circuit Opinion

The appeals were heard by a panel consisting of Judges Moore, Reyna and Taranto.  Judge Moore authored the majority opinion in the ITC case, and Judge Taranto dissented.  The panel was unanimous in its one-paragraph opinion affirming the district court's invalidity judgment.

The Court first addressed DeLorme's arguments that clearly non-infringing components such as a belt clip or the plastic housing cannot be the basis of a finding of violation of the consent order.  The Court rejected DeLorme's argument that the standard language of a consent order – barring importation or sale after importation of "any ... devices, system, and components thereof, that infringe" – could not reach domestically assembled devices containing imported, noninfringing components.

The Court also rejected DeLorme's argument that its good faith belief in the invalidity of the '380 patent precluded the Commission's finding of induced infringement, relying on the Supreme Court's recent decision in Commil USA, LLC v. Cisco Systems Inc., 135 S. Ct. 1920, 1928 (2015).

DeLorme argued that the ITC's civil penalty of $27,500 per day was "grossly excessive," but the Court held that the Commission did not abuse its discretion.  It noted that the amount was "substantially less" than the $100,000 maximum authorized by statute.

As was the case during oral argument, the primary issue addressed by the Court was the interplay of the consent order and the district court's later judgment of invalidity.  The Court held that the consent order was unambiguous in stating that it applies, and bars the specified acts, "'until' one of three events occurs: 'expiration, invalidation, and/or unenforceability.'"  Moreover, any adjudication of  invalidity must be "final and non-reviewable."  Accordingly, because the conduct found to violate the order occurred prior to the invalidity finding, the order was binding on DeLorme.  Indeed, the Court noted that because the invalidity judgment was still reviewable (because of possible petitions for rehearing or rehearing en banc, and a petition for certiorari), the consent order was still binding.

Judge Moore also found that because expiration and invalidation were joined in this clause, and it would be absurd to conclude that expiration would erase an earlier violation, DeLorme's interpretation of the consent order was incorrect.

DeLorme argued that the Federal Circuit's opinion in ePlus, Inc. v. Lawson Software, Inc., 789 F.3d 1349 (Fed. Cir. 2015) supported the conclusion that the ITC penalty could not stand.  In ePlus, the Federal Circuit vacated an injunction and contempt order because both were based on a claim that had been cancelled by the PTO during reexamination.  Judge Moore distinguished ePlus, however, because the injunction itself was still subject to appellate review at the time the contempt order was appealed and after the claims were cancelled by the PTO.  In DeLorme's case, however, the ITC's consent order was final and non-appealable.  Because of this "critical" distinction, the ITC's penalty could not be set aside.

Judge Moore mentioned, but did not decide, a question that was discussed at length during oral argument – whether the ITC's "civil penalty" was in fact more like a criminal contempt penalty that could not be set aside in view of later events.

Judge Taranto filed an opinion dissenting in part.  Judge Taranto joined in the holding that the ITC did not err in imposing penalties for violation of the consent order, but argued that the appeal should be remanded to the Commission to consider the effect of the subsequent invalidation in district court on whether the penalty should be enforced.  The Commission itself had stated that remand is "necessary" to allow such consideration.

Contrary to the majority, Judge Taranto found the consent order to be ambiguous.  He concluded that it would be helpful to have the Commission's analysis and interpretation of the order, including an exploration of how the ITC and other agencies have treated similar issues and of the background and development of the regulations relating to consent orders.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved