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No Safety for Infringers

No Safety for Infringers
By Tom M. Schaumberg and Michael L. Doane

With the passage of the Uruguay Round Agreements Act in late 1994, Congress signaled its intent to bring the United States into compliance with its historical obligations as a signatory of the General Agreement on Tariffs and Trade and as a member of the newly created World Trade Organization. Among the issues addressed by the URAA are the national treatment concerns raised in a 1988 GATT panel decision that declared certain provisions of ¤337 of the Tariff Act of 1930 to be inconsistent with GATT. Substantial changes were also made to U.S. patent law in accordance with the Agreement on Trade-Related Aspects of Intellectual Property Rights. Ironically, the URAA's patent reforms could arguably place the United States once again in violation of its national treatment obligations under GATT.

Among the aspects of U.S. patent law revised by the URAA was 35 U.S.C. ¤154 to extend the patent term from 17 years from the date of issuance to 20 years from the date the application was filed. For patents in force on or resulting from an application filed before June 8, 1995, the patent term became either 20 years from the date of filing or 17 years from the date the patent was granted, whichever is greater.

To protect the interests of certain potential infringers, Congress extracted a quid pro quo for this bonus term. During the bonus term of a patent thus extended by the URAA, the patentee may only seek "equitable remuneration," essentially royalties, from parties ("invested infringers") who commenced allegedly infringing activity or made substantial investment toward such activity prior to June 8, 1995. Under such circumstances, patentees are specifically proscribed from obtaining injunctive relief, damages, and attorney fees. As invested infringers may have initiated their activities in good faith reliance on the original expiration date of the patent, it was deemed inequitable for these harsher remedies to be available against them.

Disputes regarding the extent of this safe harbor for invested infringers have arisen in a variety of contexts, including in investigations under ¤337 of the Tariff Act (19 U.S.C. ¤1337).

Section 337, administered by the U.S. International Trade Commission, serves as the United States' primary border enforcement mechanism for the protection of intellectual property rights, particularly patents. Importations of articles into the country that infringe a valid and enforceable U.S. patent, copyright, or trademark violate ¤337. The existence of a violation is determined through an adversarial proceeding conducted before an administrative law judge under the Administrative Procedure Act.

Closing the Borders

If the ITC determines that a violation exists, it may issue an order to the U.S. Customs Service to exclude all infringing products from entry into the United States. The ITC may also issue orders to importers in the United States to cease and desist from selling the infringing products. This ability to exclude products from the U.S. marketplace has made ¤337 an effective yet controversial mechanism for the protection of intellectual property rights.

The effect of the URAA's changes to the patent term on the relief that is available under ¤337 was first addressed by the ITC in Certain Microsphere Adhesives, Process for Making Same, and Products Containing Same, Including Self-Stick Repositionable Notes, Inv. No. 337-TA-366 (1995). In Microsphere Adhesives, a respondent asserted that any exclusion order that might be issued by the commission must terminate on the original expiration date of the patent at issue because the only relief available to the patentee after that date would be equitable remuneration, as set forth in the patent extension law.

Rejecting this argument, the ITC, in dictum, took the position that an award of equitable remuneration is a prerequisite for the exemptions newly established in 35 U.S.C. ¤154(c). The commission also noted that it is powerless to award equitable remuneration. As this prerequisite for protection from the proscribed forms of relief cannot be met, the ITC found that relief under ¤337 is not precluded by the URAA during the extended patent term. The ITC further held that relief under ¤337 is available against an invested infringer because it is not among the remedies specifically proscribed by the URAA. Based on this analysis, the commission asserted its authority to issue an exclusion order against the products of an invested infringer beyond the original expiration date of a patent extended by the URAA.

The commission recently reiterated this position by sua sponte extending the terms of several previously issued exclusion orders to make them coextensive with the respective extended patent terms. 61 Fed. Reg. 5803 (Feb. 14, 1996).

The ITC's interpretation of the URAA and ¤337 is being challenged in Certain Self-Powered Fiber Optic Modems, Inv. No. 337-TA-387, by respondents RAD Data Communications Ltd. and RAD Data Communications Inc. (collectively known as RAD). Upon institution of the ITC investigation over RAD's objections, RAD immediately filed a petition for a writ of mandamus from the U.S. Court of Appeals for the Federal Circuit to cause the commission to withdraw the notice of investigation.

Lack of Authority

The basis for RAD's challenge was that the ITC's investigation could not be completed and exclusionary relief, if any, could not be awarded until well into the extended term of the patent at issue. As RAD met the definition of an invested infringer, it objected to the investigation on the ground that the commission lacked the authority and subject matter jurisdiction to issue relief against it during the extended term of the patent. Furthermore, RAD argued that an interpretation of the URAA permitting the application of ¤337 to invested infringers would violate the national treatment provisions of GATT and, therefore, is contrary to the intent of Congress.

Without reaching the merits, the Federal Circuit on June 6, 1996, denied the mandamus petition on procedural grounds, stating that RAD could raise the issue on appeal at the conclusion of the investigation. In re RAD Data Communications Ltd. and RAD Data Communications Inc., Misc. No. 461, slip op. at 4.

RAD's challenge to the ITC interpretation of 35 U.S.C. ¤154(c) is based on two premises.

The first is that the commission's interpretation of its authority under ¤337 conflicts with the congressional mandate underlying the amendments to the patent laws in the URAA. On its face, the purpose of 35 U.S.C. ¤154(c) is to permit invested infringers, whether foreign or domestic, to practice the patent during its bonus term "upon payment of an equitable remuneration to the patentee." During the extended term of a patent, therefore, a patentee, in order to obtain relief, may only pursue an award of equitable remuneration before an Article III court. As the commission determined in Certain Polymer Geogrid Products and Processes Therefor, Inv. No. 337-TA-303 (1991), the only two remedies it has authority to issue-exclusion orders and cease and desist orders-constitute injunctive relief. The imposition of such relief would directly impinge upon the safe harbor provided to invested infringers.

Limiting Language

In a series of recent decisions, the Federal Circuit addressed the limitations on remedies available to patent holders against invested infringers after the original expiration date of a patent extended by 35 U.S.C. ¤154(c). The court has consistently stated that the alleged infringing conduct of invested infringers "will give rise only to the limited remedy of equitable remuneration." Bristol-Myers Squibb Co. v. Royce Laboratories Inc., 69 F.3d 1130 (Fed. Cir.), cert. denied, 116 S. Ct. 670 (1995). This language limits a patent holder to an award of equitable remuneration against an invested infringer during the extended term of the patent. The issuance of an exclusion order and/or a cease and desist order under ¤337 would appear to thwart the carefully crafted legislative balance in the URAA's patent extension provision.

The second premise of RAD's challenge to the ITC's view of its authority as set forth in Microsphere Adhesives is that the ITC's interpretation contravenes congressional intent by needlessly creating a new potential GATT violation. The express purpose of the URAA was to bring U.S. law, including ¤337, into compliance with GATT. The commission is obligated to interpret this legislation implementing an international agreement in a manner consistent with U.S. obligations under that agreement. An interpretation of the URAA inconsistent with the national treatment provisions of GATT would violate congressional intent.

National treatment, one of the key principles of international trade, is secured by Article III:4 of GATT, which provides that imported products "shall be accorded treatment no less favorable than that accorded to" domestically produced goods. The URAA and ¤337 apply to imports and must be interpreted in a manner consistent with this provision. But the ITC's assertion in Microsphere Adhesives that the URAA does not prevent it from issuing relief against invested infringers during an extended patent term likely violates this principle.

The URAA amended the definition of infringement for purposes of the patent laws to include, for the first time, importation of infringing products. For the patent laws to be in accord with national treatment principles, the only remedy available for this type of infringement by an invested infringer during the extended term of a patent must be the same as that for other types of infringement, i.e., equitable remuneration awarded by a federal district court. The commission, however, would permit a patentee to obtain an exclusion order and/or a cease and desist order against infringing imported products under circumstances in which an equivalent civil remedy, an injunction, is unavailable for other types of infringement by both domestic and imported products. Imported products, therefore, would be accorded less favorable treatment by the commission than either domestic or foreign products receive in federal court.

The ITC's interpretation of the URAA in Microsphere Adhesives raises important legal and policy questions with respect to the proper application of 35 U.S.C. ¤154(c) in a ¤337 investigation. It also raises the broader issue of U.S. compliance with GATT. Due to the potential GATT problem, the issue has already attracted attention abroad as well as from the Office of the U.S. Trade Representative. Yet until the ITC's interpretation is overruled, either judicially or legislatively, ¤337 will continue to provide an injunctive remedy where none is available in district court.

Tom M. Schaumberg is a partner and Michael L. Doane an associate at D.C.'s Adduci, Mastriani & Schaumberg.

LEGAL TIMES ¥ WEEK OF SEPTEMBER 9, 1996

Reprinted with permission of Legal Times, 1730 M St., N.W., Suite 802, Washington, D.C. 20036. Phone: 202-457-0686. Copyright, Legal Times, 1996.

Legend:
§ 337
Unfair practice complaint

§ 332
Request for study

§ 731
Antidumping petition

§ 701
Countervailing duty petition

§ 751
Changed circumstances petition

§ 201
Escape clause petition

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