It’s Not Over Until It’s Over: Federal Circuit Refuses to Reverse $6M Penalty for ITC Consent Order Violation Despite Subsequent Patent Invalidation

With the threat of a powerful exclusion order, the International Trade Commission (ITC or Commission) continues to be a popular venue for challenging unfair competition. For various reasons, the party facing a potential exclusion order will sometimes agree on its own to refrain from importing an accused product into the United States—even if it has credible defenses to a complainant’s allegations—by entering what is known as a consent order. While voluntarily entered, a consent order is still an order of the Commission, and its violation may result in stiff monetary civil penalties. In a recent opinion, the Federal Circuit affirmed the Commission’s ability to deter violation of its orders by declining to rescind a civil penalty, even when the underlying order is rescinded due to the intellectual property (IP) right at issue being held invalid.

Authorized under 19 U.S.C. § 1337, “Section 337” investigations conducted by the ITC frequently investigate claims involving IP rights. The Commission can remedy unfair competition by issuing exclusion orders, consent orders, and cease and desist orders barring the importation and sale of infringing products. Failure to adhere to an order can result in substantial and ongoing fines.

In addition to defending itself before the ITC, a respondent accused of patent infringement in a Section 337 investigation has other avenues to challenge the validity of a patent, including in a district court case or post-grant challenge at the US Patent and Trademark Office, and will often pursue those challenges. It can be (understandably) tempting to rely on the subsequent invalidation of a patent to negate the outcome of an ITC investigation. However, in DBN Holding, Inc. v. International Trade Commission, No. 2020-2342 (March 1, 2022), the Federal Circuit found that negation only goes so far: although the ITC may rescind an order, including a consent order, based on a changed condition of fact or law, it need not rescind a prior penalty issued for violating such an order. 

In DBN Holding, DeLorme Publishing Co., Inc.¹ agreed to a consent order barring the importation of two-way global satellite communication devices, systems, and components to resolve an ITC investigation based on allegations of infringing several claims of US Patent No. 7,991,380 (the ’380 patent).² As ITC rule 210.21(c) requires, the consent order expressly stated that it “shall not apply with respect to any claim of any intellectual property right that has expired or been found or adjudicated invalid or unenforceable by the [ITC] or a court or agency of competent jurisdiction,” provided that judgment has become final and non-reviewable.³ 

The alleged claims of the ’380 patent were later invalidated by the Eastern District of Virginia, in a decision affirmed by the Federal Circuit.⁴ 

Prior to invalidation, the ITC had imposed an approximately $6.2 million civil penalty on DeLorme for violating the consent order, which the Federal Circuit also affirmed.⁵ In response to a later appeal, the Federal Circuit instructed the ITC to assess on remand whether to modify or rescind the civil penalty under 19 C.F.R. § 210.76.⁶ On remand, the ITC determined that the civil penalty did not require modification or rescission.

In the instant appeal, the Federal Circuit found no abuse of discretion and again affirmed the ITC’s finding.⁷ The Federal Circuit held the ITC acted within its discretion under rule 210.76 and properly distinguished the few prior cases granting rescission or modification.⁸ The Federal Circuit further held that the ITC properly assessed the factors set forth in Certain Erasable Programmable Read Only Memories (also known as EPROMs).⁹ Notably, the Federal Circuit expressly “agree[d] with the ITC that deterring violation of its orders by imposing civil penalties for violative conduct is in the public interest.”¹⁰ 

By refusing to reverse the ITC’s decision declining to rescind DeLorme’s fine, the Federal Circuit is sending a clear message that parties are wise to comply with all Commission orders, pending invalidity challenges—no matter how promising the party may think its position is—unless, and until, that IP right is formally invalidated.
 

¹ Now known as DBN Holding, Inc.

² DBN, Slip Op. at 3.

³ DBN, Slip Op. at 3, n. 1.

⁴ DeLorme Publ’g Co. v. BriarTek IP, Inc., 622 F. App’x 912, 913 (Fed. Cir. 2015) (non-precedential).

⁵ DeLorme Publ’g Co. v. Int’l Trade Comm’n, 805 F.3d 1328, 1333-34 (Fed. Cir. 2015).

⁶ DBN Holding, Inc. v. Int’l Trade Comm’n, 755 F. App’x 993, 998 (Fed. Cir. 2018) (non-precedential).

⁷ DBN, Slip Op. at 1.

⁸ DBN, Slip Op. at 8-11.

⁹ DBN, Slip Op. at 11-14; see Erasable Programmable Read Only Memories, Inv. No. 337-TA-276 (Enforcement), Comm’n Op. (July 19, 1991). These factors include “(1) the good or bad faith of the respondent, (2) the injury to complainant, (3) respondent’s ability to pay, (4) the extent to which respondent has benefited from its violations, (5) the need to vindicate the authority of the Commission, and (6) the public interest.”

¹⁰ DBN, Slip Op. at 14.