United States: Renting Is Not A Sale After Importation

On April 3, 2017, the Commission issued a Notice in Certain Semiconductor Devices, Semiconductor Device Packages, and Products Containing the Same, Inv. No. 337-TA-1010 determining not to review Judge Lord's finding of no violation with respect to accused products that were rented after importation. The Commission's decision raises interesting issues with respect to the ITC's jurisdiction under Section 337.

The Case

The Commission instituted the 1010 Investigation on June 24, 2016, based on a complaint filed by Tessera Technologies, Inc. and related entities alleging a violation of Section 337 through the importation, sale for importation, and sale after importation of products that infringe three patents by various Respondents including several Comcast entities.

On February 27, 2017, Judge Lord issued an Initial Determination granting Comcast's motion for summary determination of no violation of Section 337 as to certain of Comcast's rental products. In its motion, Comcast asserted that the vast majority of the Comcast products accused by Tessera in the investigation are cable set-top boxes, internet routers, and wireless gateways that are purchased by Comcast from manufacturers in the United States and then rented to Comcast customers. Comcast further argued that its activities could not be a violation of Section 337 because it was not accused of importing accused products and that its renting of products to customers in the United States did not amount to a sale after importation. Tessera argued in response that Comcast effectively sells the rental products to its customers through provisions of Comcast's subscriber agreement, and that the ITC has issued remedial orders precluding the renting or leasing of products that infringe.

Judge Lord sided with Comcast holding that the rental of infringing products in the United States after those products were imported by a different entity is not a violation of Section 337. The ALJ cited to Enercon GmbH v. Int'l Trade Comm'n which held that the term "sale" in Section 337 has its ordinary meaning as provided in Black's Law Dictionary and the Uniform Commercial Code. 151 F.3d 1376, 1381 (Fed. Cir. 1998). Judge Lord then determined that a rental or lease is not a sale under Section 337 because title is not transferred. She further found Tessera's argument concerning remedial orders unpersuasive because the scope of those orders is broader than what could be found to be a violation of Section 337 in the first instance. Accordingly, Judge Lord entered summary determination of no violation with respect to products that Comcast rented after importation. She did note, however, that other of Comcast's products remain in the case as they were admittedly sold by Comcast. Furthermore, the determination does not apply to any specific products as questions of fact remain as to whether other named Respondents imported the products before Comcast rented them.

Tessera petitioned for review of Judge Lord's Initial Determination. On April, 3, 2017, the Commission determined not to review the ID thus affirming its findings. Commissioner Kieff provided concurring additional views that are not yet publicly available.

Takeaway

One of the reasons that the ITC is an attractive venue for patent owners is its broad in rem jurisdiction over infringing products. However, the ITC's jurisdiction over infringing products must be predicated on a violation of Section 337 by a particular entity. Without entities that have violated Section 337 named in the investigation, a complainant cannot obtain an in rem exclusion order against infringing products or an in personam cease and desist order restricting the activities of a violator. Therefore, an ITC complainant needs to ensure that it has properly named as respondents the entities that have violated Section 337 by importing, selling for importation, or selling after importation products that infringe.

In this case, the Commission has clarified that renting products after importation is not a violation of Section 337 and thus cannot be an underlying act that triggers the ITC's jurisdiction over the infringing products.

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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