United States: ITC Flexes Its Muscle In Cell Phone Case; Agency Can Offer IP Rightsholders Broad Relief Against Infringement

Considering a new cell phone or iPhone alternative? Your choices will be limited by the U.S. International Trade Commission’s ("ITC") recent order banning new models of next-generation cell phones from entering the United States. The ITC’s order has highlighted the power of this relatively obscure federal agency, thrusting it into the limelight and sending the cellular telephone industry scrambling to react.

Established in 1930 to protect business interests in the United States against unfair competition from imported foreign goods, the ITC can investigate infringement of American intellectual property rights in response to complaints brought by rightsholders. ITC investigations are similar to infringement cases in federal court but typically proceed to trial much more quickly. After trial, an administrative law judge ("ALJ") renders an initial decision, which can be reviewed by the six commissioners who preside over the ITC. A notable difference between such investigations and federal court cases is the available relief. While a court can award monetary damages and enjoin infringers, the ITC is empowered to issue orders to exclude products from entering the United States, enforced by the U.S. Customs Service at the border, as well as orders to cease and desist from engaging in domestic activities with those products.

At patentholder Broadcom’s request, the ITC instituted an investigation of various Qualcomm chips for possible infringement of five patents. In the Matter of Certain Baseband Processor Chips and Chipsets, Transmitter and Receiver (Radio) Chips, Power Control Chips, and Products Containing Same, Including Cellular Telephone Handsets, Inv. No. 337-TA-543. Recognizing the investigation’s importance, many phone manufacturers and network providers intervened. The presiding ALJ found infringement of one patent, which covers power-saving features implemented in cell phones designed for next-generation "3G" networks operated (or soon to be operated) by the major networks.

The ALJ recommended that Qualcomm’s chips be excluded from entering the United States but declined to recommend exclusion of cell phones containing those chips. Since the infringing chips were not imported in significant quantities outside of the phones, it was questionable whether this remedy would provide meaningful relief to Broadcom.

On June 7, 2007, the full Commission modified the ALJ’s recommended remedy in a rare split decision. The Commission was charged with balancing Broadcom’s interests against the interests of the industry and consumers. Four Commissioners struck this balance by ordering to exclude new models of cell phones containing the infringing chips while "grandfathering" all models previously imported. The other two Commissioners, including the Chairman, dissented from this novel order because they did not agree with excluding the cell phones.

The ITC’s order became effective immediately, though parties can continue to import new phone models during the 60-day presidential review period by posting a bond. On August 6, 2007, unless the order has been disapproved by the President – a power last exercised 20 years ago – it will become final. On June 21, 2007, the ITC rejected a request to stay the order. Qualcomm and several others have already appealed the ITC’s order to the U.S. Court of Appeals for the Federal Circuit and requested that the appellate court stay the order while the appeal is pending.

Meanwhile, Qualcomm and Verizon have announced that they will pursue presidential intervention. The National Public Safety Communications Council and The Wireless Association have joined their cause, arguing in part that new phone models have enhanced location technology used to locate distressed callers who place 911 calls.

The distinction between the remedies available in the ITC and federal court stems from their differing jurisdictions. While a court has jurisdiction over the persons or companies before it, the ITC has jurisdiction over the goods at issue. A court is therefore limited to awarding injunctive relief against the particular persons or companies in the case, but the ITC can exclude infringing goods, or products containing those infringing goods, from entering the United States regardless of who may be in possession of them.

Although the ITC’s order instructing the Customs Service to exclude new models of cell phones is far-reaching, as a practical matter it is not significantly different from relief Broadcom could have obtained in court. Broadcom could have sued phone resellers in court and, upon proving infringement by Qualcomm chips, could have sought to enjoin those resellers from selling phones containing those chips. To the extent some resellers avoided involvement in this suit, they would not be covered by the injunction, but nevertheless would likely be dissuaded from selling the enjoined phones because they would risk treble damages for willful infringement.

In deciding the appropriate relief, the judge in federal court, like the ITC’s six Commissioners, would have needed to balance Broadcom’s need for effective relief against the public interest. The main difference is that while the judge would take into account the monetary damages available to Broadcom, this is not considered in the ITC because the ITC cannot award damages.

The ITC is a powerful agency that can expeditiously award broad prospective relief against infringement. This relief can be extremely valuable, particularly for intellectual property rightsholders seeking to capture market share from competitors manufacturing abroad. When contemplating enforcement of intellectual property rights, an ITC action often should be considered as a potential alternative, or adjunct, to federal court litigation.

Goodwin Procter LLP is one of the nation’s leading law firms, with a team of 700 attorneys and offices in Boston, Los Angeles, New York, San Diego, San Francisco and Washington, D.C. The firm combines in-depth legal knowledge with practical business experience to deliver innovative solutions to complex legal problems. We provide litigation, corporate law and real estate services to clients ranging from start-up companies to Fortune 500 multinationals, with a focus on matters involving private equity, technology companies, real estate capital markets, financial services, intellectual property and products liability.

This article, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin Procter LLP or its attorneys. © 2007 Goodwin Procter LLP. All rights reserved.