The U.S. International Trade Commission (“ITC”) recently denied a respondents request to use the Early Disposition Pilot Program to address “whether the asserted patents are standards-essential and are encumbered by mandatory licensing obligations giving rise to public interest concerns.”

Respondent 3S-Smart Software Solutions (“3S”) had submitted a first letter requesting use of the ITC’s Early Disposition Pilot Program because, among other things, the asserted patents may be essential to a standard set by the OPC Foundation (an automation industry standards setting organization) and subject to a royalty-free license.  On request, the OPC Foundation currently was determining whether the patents are essential to its standards.  3S asserts that, if the OPC Foundation finds that the patents are essential, OPC Foundation’s IPR Policy would require that the patents be licensed on a royalty-free basis.  3S argued that early determination of this defense would be an efficient way to proceed.

Complainant Rockwell Automation, Inc. (“Rockwell”) responded that it had not declared any patents to be essential, that the OPC Foundation’s review is not complete and that the outcome of such review will be subject to a challenge by Rockwell that could take months or years to resolve.  Further, Rockwell argues it could always withdraw from the OPC Foundation and assert its patents without being required to offer a royalty-free or FRAND license.  So early disposition would be inefficient and unduly delay resolution of the investigation.

3S replied that Rockwell could not cure its SEP issues by withdrawing from the OPC Foundation, because Rockwell was under an obligation to disclose its essential patents to the OPC Foundation and Rockwell’s withdrawal does not remove that promise.  Though not clear, 3S may be alluding to a potential defense that the patents may be unenforceable because Rockwell breached an obligation under the OPC Foundation’s IPR Policy to disclose its standard essential patents to the OPC Foundation.

The Commission rejected 3S’s request and gave the following short explanation for its decision:

The Commission assesses the effect of potential remedies on the statutory public interest factors following an affirmative determination on violation — once the actual scope of the Section 337 violation is determined, including the scope of valid and enforceable IP rights that are infringed (or other unfair acts) as well as the scope of imported infringing articles involved.  As such, this issue is outside the scope of the Early Disposition Pilot Program as the issue cannot be resolved at the beginning of an investigation.

As has been the ITC’s practice in instituting investigations involving SEPs, the Commission’s Order instituting this investigation delegated to the administrative law judge (“ALJ”) the authority to take evidence and hear arguments on the public interest.  So evidence and arguments on the SEP-related issues before the ALJ may be raised in both the liability and public interest portions of the investigation.  This may provide some interesting procedural issues to watch.  Past ITC investigations have indicated that the respondent has the burden to establish an SEP-based defense in the violation (i.e., liability) portion of the investigation (e.g., establish a breach of contract, equitable estoppel, etc.).  But neither party has the burden to establish whether the remedy would be against the public interest.   And the Commission’s review of the ALJ’s determination often includes consideration of additional submissions from the parties or interested public on whether the public interest should limit remedies.

These procedural nuances concerning the public interest inquiry, therefore, may give rise to some interesting issues:

  • After evidence on SEP-related defenses have been presented to the ALJ in the violation portion, what different evidence may be presented to the ALJ in the public interest portion?
  • If a respondent’s evidence on SEP-related defenses does not carry its burden to avoid liability, could that same evidence give rise to a limit on remedies based on the public interest in which the respondent has no burden of proof?
  • If an ALJ rules that SEP-related evidence and arguments do not preclude finding a violation or entering a remedy given the public interest, to what extent could additional SEP-related arguments or evidence on the public interest be considered by the Commission in reviewing the ALJ’s determination?  And what weight should be given to such additional arguments/evidence if they were not subject to the same type of adversarial cross-examination and counter-arguments as the evidence/arguments considered by the ALJ?

Recall that, in a prior decision in the 501 Investigation, Commissioner Aranoff suggested that, under principles of finality, a party that does not prevail in establishing an SEP-related defense in the violation phase may not be able to revisit that issue a second time under the public interest inquiry:

Commissioner Aranoff believes that the Commission’s approach . . . should be guided by principles of finality (including waiver and estoppel) and due process.  Parties to a section 337 investigation who wish to raise arguments or present evidence concerning (1) whether a patent is standard essential; (2) whether a complainant made and/or fulfilled its obligations pursuant to FRAND commitments; or (3) whether a respondent/implementer was a willing licensee should do so in the violation phase of the investigation by raising one or more FRAND-based affirmative defenses. . . . If the Commission were to find a FRAND-based affirmative defense is proven, the Commission could find no violation of section 337 and would not need to reach the issues of remedy and public interest.  When, as in this investigation, the parties have a full and fair opportunity to litigate these three SEP-related issues, the respondent fails to prove a FRAND-based affirmative defense, and the Commission finds a violation of section 337, Commissioner Aranoff believes that the Commission should not reconsider the same three issues a second time, in the context of its public interest inquiry. …

If the Commission were to routinely revisit the facts underlying a FRAND affirmative defense in the context of its public interest analysis, this would raise several concerns.  Could the Commission, consistent with its obligations under the APA, apply a different burden of proof or consider different evidence on the same issue in the violation and remedy phases of an investigation?  Would parties have an incentive to waive arguments or withhold evidence at the violation stage so as to raise them under a less exacting standard in the remedy phase?   Are there other affirmative defenses the Commission might reconsider at the remedy stage? (For example, one could argue it is contrary to the public interest to issue a remedy based on infringement of a patent that was obtained through inequitable conduct, even if the affirmative defense of inequitable conduct failed.)  Where there may be hypothetical situations that could warrant a second look at facts underlying a FRAND issue that was or could have been litigated before the ALJ in the violation phase, Commissioner Aranoff believes that they would be rare and are not present in this investigation. [Final Det. at 46-47 n.24]

In that same prior decision, Commissioners Pinkert, Broadbent and Kieff commented on the need to carefully follow procedures in addressing the SEP-related issues , though they did not state what exactly that would be:

Even if finding a RAND obligation in this case were warranted, the Commission would stand only at the threshold of the public interest analysis.  The Commission would then have to assess the substance of the obligation and whether [the patent holder’s] licensing conduct, considered in light of [accused infringer’s] conduct, is inconsistent with it.  The Commission would also have to evaluate the totality of the evidence, including the evidence of the parties’ conduct, regarding the impact of a Section 337 remedy on the public interest. …

[I]n a Section 337 investigation, the Commission is required to make several different types of determinations.  In its analysis of whether there is a violation, the Commission must, among other things, consider all legal and equitable defenses.  In any analysis of remedy, the Commission must consider the statutory public interest factors.  Undergirding all of this are vital procedures that safeguard due process rights and prevent undue prejudice to any party and to the agency itself.  These procedures enable each of the various determinations within the investigation to be as ground as possible in a consistent and adequately tested set of facts.  They help ensure that all of the relevant facts and arguments are developed on the record in a timely manner and, where appropriate and practicable, in formal adjudication by the ALJ. [Final Det. at 49 n.26]