Sunday, February 04, 2007

337 Case Review

I’m a little behind blogging case law. As I told a few readers who came up to me at the Georgetown function, I’m trying to catch up. Here’s the first, it is Fuji Photo Film Co., Ltd. v. International Trade Commission.

You know those single-use disposable cameras you see at tourist spots and excessively fun weddings? There has been a lot of litigation over whether, and to what extent, a company can collect the used cameras, fix them up, reload them with film, and resell them. It seems like a good thing to do. At least it keeps them out of the landfill. Very likely the companies that manufacture them have recycling programs. The question in this case was whether another company can do that without infringing the patent on the camera.

You might reasonably ask what this has to do with customs law. This case came up through an action at the International Trade Commission under section 337 of the Tariff Act. That provision makes it illegal to import merchandise that infringes a U.S. intellectual property right or that is otherwise unfair competition. When the ITC find a violation, it can order Customs and Border Protection to exclude the merchandise and, in some cases, can issue cease and desist orders against importers. Violations of a cease and desist order can result in a monetary penalty.

This case at the Federal Circuit involved a couple issues including whether Fuji, the patent holder in question, can appeal from a finding of non-infringement which resulted in no civil penalty for violating a cease and desist order. Turns out it can’t since it is not entitled to relief in the form of damages. Remember, penalty money goes to the government. I gather it would be up to the United States to appeal if it wanted to.

The more interesting question was whether replacing the entire back of the camera was infringing reconstruction as opposed to allowable repair. This came up because of a concept called patent exhaustion. In the copyright context, it is called “first sale” (not to be confused with the customs valuation concept). Basically, it means that once the patent holder sells the merchandise, the new owner can do pretty much what they want with it including resell, rent, lease, or repair it. But, there are limits. The buyer can’t recondition the merchandise so much that it is essentially re-building it. After all, manufacturing is one of the patent holder’s exclusive rights.

At the ITC, the Administrative Law Judge held that replacing the entire back of the disposable camera was too much because it required replacing components critical to what is protected by the patent. The Federal Circuit rejected this approach and remanded the case back to the agency to recalculate the penalty amount.

More generally, 337 cases are interesting. I’ve heard them described as patent litigation on steroids. Things happen very fast. The entire case is to be resolved in 11 to 15 months. In a district court, that is light speed. The ITC tends to follow the law from the courts fairly closely. Still, it is perceived as a better place for U.S. companies to get protection from grey market merchandise—sometimes called parallel imports.

One last point, and this is just me musing. I know the ITC has years of experience in these cases. I also know that the patent bar is quite happy with the ITC process. But, I have always thought that it would be a natural development to move 337 cases to the Court of International Trade.

The CIT is an article III court with all the powers of a district court, which is where patent cases generally go. Like the district courts, the CIT uses the Federal Rules of Evidence and slightly modified Federal Rules of Civil Procedure. The ITC only has jurisdiction over intellectual property infringement when it involves an importation. The CIT basically only deals with importations as well.

There is a messy problem in a 337 case when one of the parties starts a parallel action in a district court. The ITC proceeding can be stayed and the record developed in the district court transferred to the ITC when that proceeding is complete. Also, the ITC can’t fully enforce its orders. It has subpoena powers but I believe it would ultimately would need a court order to impose sanctions for contempt, for example. Finally, appeals from the ITC go right to the Federal Circuit, where all patent cases from the district court go and all appeals from the CIT.

Why not eliminate all the issues that result from the ITC not being a court and shift the cases to the CIT? The patent bar will squawk that the CIT judges lack patent experience. Well, so do the majority of new district court judges. That problem would take care of itself in short order. Another concern is that ITC cases are subject to pretty strict guidelines (the old “rules” violated GATT) to keep things moving and the courts have no such limitations. That may be true, but the docket at the CIT permits it the luxury of focusing on a smaller number of cases and it could endeavor to keep the cases moving.

Of course, the CIT judges may have no interest in this work (although it is actively looking for broader jurisdiction). Like I said, this is just me thinking out loud, but over the years this has always struck me as an efficient and logical use of judicial resources.

So, to the patent lawyers out there, tell me why I am wrong.

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