United States: Final ITC Terminations In Favor Of Arbitration Under Section 1337(C) Are Appealable To The Federal Circuit

In InterDigital Communications, LLC v. International Trade Commission, No. 12-1628 (Fed. Cir. June 7, 2013), the Federal Circuit reversed the ITC's order terminating an investigation as to LG Electronics, Inc., LG Electronics USA, Inc., and LG Electronics Mobilecomm USA, Inc. (collectively "LG") in favor of arbitration per a prior patent license agreement between InterDigital Communications, Inc. (formerly InterDigital Communications, LLC) ("InterDigital") and LG, and remanded to the ITC for further proceedings, explaining that "there is no plausible argument that the parties' dispute in this case arose under their patent license agreement."  Slip op. at 2.

InterDigital and LG entered into a patent license agreement ("Agreement") in which InterDigital granted LG for the term of the Agreement a license to certain InterDigital patents with respect to devices designed to operate according to both second ("2G") and third ("3G") generation wireless standards.  According to its terms, the Agreement terminated on December 31, 2010.  A "survival" clause included in the Agreement provided that at the end of the term of the Agreement, LG will have a "fully paid-up" license for the life of InterDigital's patents for 2G products.  The Agreement also permitted either party to submit to arbitration any dispute arising under the Agreement.

The following year, InterDigital amended its complaint with the ITC, asserting that LG violated section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, by importing wireless devices that infringed patents relating to its 3G wireless technology.  LG subsequently moved to terminate the investigation, arguing that its accused 3G products were still covered under the Agreement and that InterDigital's infringement claim was subject to arbitration because it arose under the Agreement.  Despite InterDigital's arguments that LG did not have an ongoing license for 3G products under the plain text of the Agreement, the ALJ issued an initial determination granting LG's motion to terminate the investigation as to LG based on the framework for analyzing a motion to stay pending arbitration outlined in Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (Fed. Cir. 2006).  Under that framework, the ALJ determined that "the parties clearly intended to delegate the question of arbitrability to an arbitrator" and that LG's request for arbitration was not "wholly groundless."  Slip op. at 7.  The ITC declined to review the ALJ's decision.  InterDigital subsequently appealed the ITC's order terminating the investigation as to LG.

"[A] party may appeal an ITC order that is not a final decision on the merits if 'its effect upon appellants is the equivalent of a final determination.'"  Slip op. at 13 (quoting Import Motors, Ltd. v. U.S. Int'l Trade Comm'n, 530 F.2d 940, 944 (C.C.P.A. 1976)).

As a threshold matter, the Federal Circuit first addressed whether it had jurisdiction over InterDigital's appeal.  Section 1337 lists various ITC determinations for which a party may seek review by the Federal Circuit, namely, a final determination of the ITC under subsection (d), (e), (f), or (g).  LG and the ITC argued, however, that the investigation termination was not a final determination under one of the enumerated subsections.  Specifically, the ITC terminated the investigation under subsection (c), which permits the ITC to terminate an investigation on the basis of an agreement between the private parties to present the matter for arbitration.  The Federal Circuit first looked to precedent from the Court of Customs and Patent Appeals that provided a framework for analyzing whether an ITC order is appealable under section 1337(c).  Specifically, the Federal Circuit noted that the proper inquiry as to whether a party may appeal an ITC order that is not a final decision on the merits is if "its effect upon appellants is the equivalent of a final determination."  Id. at 10 (quoting Import Motors, Ltd. v. U.S. Int'l Trade Comm'n, 530 F.2d 940, 944 (C.C.P.A. 1976)).  Additionally, the Federal Circuit relied on the general rule that "judicial review will not be precluded on the sole ground that specific procedures for judicial review of a particular agency action are not spelled out in a statute."  Id. at 13 (quoting Allied Corp. v. U.S. Int'l Trade Comm'n, 850 F.2d 1573, 1579 (Fed. Cir. 1988)).

In evaluating whether the ITC order had an effect equivalent to that of a final determination, the Federal Circuit analogized the facts of this case with those of Farrel Corp. v. U.S. International Trade Commission, 949 F.2d 1147 (Fed. Cir. 1991), in which the Court found an order terminating an investigation in favor of arbitration to be an appealable final determination because "the dismissal was with prejudice and [the] petitioner [could] not request reopening."  Slip op. at 14-15 (alterations in original) (quoting Farrel, 949 F.2d at 1151 n.4).  Similarly, the Federal Circuit found that "InterDigital will have to await the outcome of the proceeding before the arbitrators to find out whether it can file a new complaint.  Until the arbitrators determine whether InterDigital's claims are subject to arbitration, any new complaint InterDigital filed would also be terminated in favor of arbitration."  Id. at 15.  Thus, the Court found that the ITC's "order therefore has 'the same operative effect, in terms of economic impact' as a final determination" and thus is an appealable final determination under 19 U.S.C. § 1337(c).  Id. (quoting Import Motors, 530 F.2d at 945-46).

As to the merits of the ITC's termination, the Federal Circuit noted that the ALJ applied the appropriate framework outlined in Qualcomm, in which once it is determined that "the parties to the agreement did clearly and unmistakably intend to delegate the power to decide arbitrability to an arbitrator, then the court should perform a second, more limited inquiry to determine whether the assertion of arbitrability is 'wholly groundless.'"  Id. at 17 (quoting Qualcomm, 466 F.3d at 1371).  The Court found, however, that the ALJ did not perform the proper analysis under that framework when he failed to assess the text of the parties' license agreement to determine whether LG's assertion of arbitrability was "wholly groundless."  Specifically, the Court explained that in Qualcomm, it noted that "[i]n undertaking the 'wholly groundless' inquiry, the district court should look to the scope of the arbitration clause and the precise issues that the moving party asserts are subject to arbitration."  Id. (quoting Qualcomm, 466 F.3d at 1374).   After examining the provisions of the Agreement, the Court found LG's assertion of arbitrability to be "wholly groundless" because "the only surviving portion of the grant clause is that portion providing LG with a 'fully paid-up' license for the life of InterDigital's patents for 2G products."  Id. at 20.  The Court further stated that "[t]here simply is no plausible argument that LG's license for 3G products survived the termination of the Agreement."  Id.  Accordingly, the Court reversed the ITC's order terminating the investigation as to LG and remanded to the ITC for further proceedings.

Dissenting-in-part, Judge Lourie agreed that there is no plausible argument that LG could prevail under its patent license agreement.  Judge Lourie, however, would dismiss the appeal, because he did not believe that the Court had jurisdiction to entertain the appeal.  In his view, the first section of 19 U.S.C. § 1337(c) should be the Court's starting point in determining the subject matter jurisdiction of the Court.  According to Judge Lourie, the language of the statute is clear:  "[A] termination due to an arbitrability agreement is a termination 'without . . . a determination.'  As it is not a determination, it is also not a 'final determination.'"  Lourie Dissent at 2.  Judge Lourie also stated that the Court did not have jurisdiction because the ITC's determination was not a final determination under subsection (d), (e), (f), or (g).

Judges: Lourie (dissenting), Bryson, Prost (author)

[Appealed from ITC]

This article previously appeared in Last Month at the Federal Circuit, July, 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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