On October 12, 2016, ALJ MaryJoan McNamara issued the public version of Order No. 18 (dated September 6, 2016) denying Respondent Soitec S.A.’s (“Soitec”) motion for sanctions in Certain Silicon-On-Insulator Wafers (Inv. No. 337-TA-966).

By way of background, this investigation was instituted based on a complaint filed by Silicon Genesis Corporation (“SiGen”) alleging that Soitec violated Section 337 in the importation into the U.S. and sale of certain silicon-on-insulator wafers for use in semiconductors that infringe one or more claims of U.S. Patent Nos. 5,985,74; 6,013,563; 6,103,599; 6,162,705; 6,180,496; 6,294,814; 6,790,747; and 7,811,901. See our August 20, 2015 and September 22, 2015 posts for more details regarding the initial complaint and Notice of Investigation, respectively.

According to the Order, Soitec argued that SiGen engaged in sanctionable conduct in connection with filing an unsupported domestic industry case. In particular, Soitec had previously filed a motion for summary determination that SiGen failed to produce sufficient evidence to sustain its burden of proving the technical and economic prongs of the domestic industry requirement. As part of its opposition, SiGen filed an expert report that contained new domestic industry contentions, and which was accompanied by a number of documents and exhibits (e.g., profit and loss statements) that SiGen had not produced previously. Soitec then filed a motion to strike the new evidence and contentions. The Commission Investigative Staff (“OUII”) supported Soitec’s motion for summary determination as well as its motion to strike. ALJ McNamara issued Order No. 15 granting Soitec’s motion to strike in its entirety. Lacking sufficient evidence for its domestic industry case, SiGen filed an unopposed motion to terminate the Investigation based on withdrawal of the complaint.

Soitec argued that it should be awarded its attorneys’ fees under 19 U.S.C. § 1337(h), 19 C.F.R. §§ 210.27(f) and 210.33(c), and the Commission’s inherent authority because SiGen’s domestic industry allegations were “meritless” from the beginning. More specifically, Soitec described SiGen as a “bankrupt patent assertion entity” with no ongoing business, let alone the business investments that would constitute a viable domestic industry. Soitec also claimed that SiGen knew that at least one of its licensees, Shin-Etsu Chemical Co. Ltd. (“Shin-Etsu”), made no licensed products in the U.S. at the time of the complaint. According to Soitec, despite having this knowledge, SiGen maintained false theories based on false statements with regard to its own business and that of Shin-Etsu’s business. Soitec also noted that SiGen failed to produce evidence showing that its other licensee, SunEdison Semiconductor, Ltd. (“SunEdison”), had a viable business in the U.S. that practiced the asserted patents. At the close of discovery, Soitec asserted that SiGen’s “sole domestic industry case” consisted of three “unsubstantiated and incomplete summary spreadsheets” that SiGen admitted did not “show any current investments in capital, plant and equipment, or engineering and research and development directed to the Asserted Patents, and only de minimis employment of labor.” Soitec argued that SiGen compounded its initial failure to allege a viable domestic industry case by violating the procedural schedule set forth in Order Nos. 2 and 3 in failing to disclose its “true domestic industry contentions” and to supplement its discovery timely, thereby causing a considerable waste of resources to Soitec, the Commission, and the OUII.

SiGen argued in opposition that: (1) Section 337(h) does not itself provide for discovery sanctions, but rather only gives the Commission the authority to promulgate such rules; (2) under Commission Rules 210.33(a),(b) and (c), an award for sanctions in the form of attorneys’ fees is only possible when a party fails to obey an order compelling discovery, not the violation of a scheduling order such as Order Nos. 2 and 3 in the current Investigation; (3) there is no independent basis inherent in Commission Rule 210.27(f) by which the Commission can award sanctions for a litigant’s failure to supplement discovery responses or disclose witness information; (4) the Commission’s “inherent authority to police its own proceedings” as a separate basis for awarding sanctions is not supported by the case law cited by Soitec, and that Rule 210.33 alone permits an award of sanctions and only when an order to compel has been disobeyed; and (5) SiGen was sufficiently sanctioned when Soitec’s motion to strike was granted in its entirety, the result of which was withdrawal of the complaint. In addition, SiGen rejected Soitec’s characterization of SiGen as only a patent assertion entity, citing the testimony of SiGen’s CEO who certified that SiGen “sells various tools to licensees that practice the asserted patents while Complainant itself maintained some manufacturing capability of its own at the time it filed its Complaint.”

The OUII opposed Soitec’s request for sanctions under any theory. In particular, the OUII agreed with SiGen that the Commission did not import into Rule 210.33—or any other rule—sanctions for a litigant’s per se failure to disclose information or supplement discovery responses. Instead, a litigant is expected to file a motion to compel the appropriate discovery, and then, if that order is disobeyed, sanctions may be issued under Commission Rule 210.33 if appropriate. The OUII also noted that Rule 210.33(c) expressly provides for an award of expenses and attorneys’ fees only when there has been a failure by a party to obey a judicial order to compel discovery, and asserted that Soitec’s efforts to “shoehorn” SiGen’s failures to abide by the procedural schedule into Commission Rule 210.33(c) is wrong. Finally, the OUII urged that the Commission’s “inherent authority” to award sanctions as part of the governance of its own proceedings should be exercised only with “the greatest restraint and then only to the extent necessary,” and that Soitec did not adequately explain why the factual scenario in this Investigation requires such a rare sanction.

Based on the parties submissions, ALJ McNamara determined that although Soitec “has a sound basis for feeling aggrieved by the time and money that it spent in defending itself against what turned out to be Complainant’s failure of evidence with respect to its domestic industry case,” she agreed with SiGen and the OUII that the Commission’s rules that explicitly afford an award of sanctions do not apply in this situation. Accordingly, Soitec’s motion was denied.