On September 25, 2014, the Federal Circuit issued its opinion in uPI Semiconductor Corp. v. Int'l Trade Comm'n (2013-1157, 1159).  This was an appeal by Respondent uPI Semiconductor Corp. ("uPI") and the companion appeal of Complainants Richtek Tech. Corp. and Richtek USA, Inc. (collectively, "Richtek") from the International Trade Commission's (the "Commission") rulings in an enforcement proceeding, Certain DC-DC Controllers and Products Containing Same (Inv. No. 337-TA-698).

By way of background, Richtek filed a complaint in 2010 alleging that uPI misappropriate Richtek's trade secrets and violated Section 337 through the importation and/or sale of DC-DC controllers and downstream products containing same that infringed Richtek's U.S. Patent Nos. 7,315,190 ("the '190 patent"), 6,414,470 ("the '470 patent") and 7,132,717 ("the '717 patent").  Shortly before the evidentiary hearing, uPI moved to terminate the investigation by unilaterally offering to enter into a consent order whereby uPI would cease importation of all products produced using or containing Richtek's trade secrets or infringing Richtek's patents.  Over Richtek's objection, the ALJ agreed to enter the consent order substantially as drafted and proposed by uPI.  The Commission declined to review the ALJ's grant of uPI's motion, and terminated the investigation and entered the consent order. 

Approximately one year later, Richtek filed an enforcement complaint alleging that uPI was in violation of the consent order.  The Commission instituted an enforcement proceeding, the ALJ held an evidentiary hearing, and on June 8, 2012, the ALJ issued an Enforcement Initial Determination ("EID").  The EID separated the accused uPI products into two categories: (1) products that were accused in the prior investigation (the "formerly accused products"); and (2) products allegedly developed and produced after entry of the consent order (the "post-Consent Order products").  The ALJ found that the formerly accused products contained or were produced using Richtek's trade secrets, and that those products – either alone, or incorporated into downstream products – infringed the '190, '470 and '717 patents.  The ALJ also found that the post-Consent Order products infringed the '470 and '717 patents; however, the ALJ found that the post-Consent Order products were independently developed and therefore not produced using Richtek's trade secrets.  The ALJ assessed a civil penalty against uPI in the amount of $10,000 for each day on which the formerly accused or post-Consent Order products entered or were sold in the United States.  With respect to formerly accused products sold to downstream customers after the Consent Order issued, the ALJ adopted uPI's estimate of five months lag time (over Richtek's estimate of three months) between the sale of a formerly accused chip to a downstream customer and the importation of the product containing that chip, and excluded from violation any downstream products containing the formerly accused chips imported or sold in the

United States before January 29, 2011.  The ALJ further found that there was evidence of a maximum of 75 days "on which an importation of articles, or their sale, occur[red] in violation of the order," and levied a total penalty of $750,000.  See our December 7, 2012 post for more details on the EID.

The Commission affirmed the ALJ's findings that the formerly accused products contained or were produced using Richtek's trade secrets, and that the post-Consent Order products were produced without Richtek's trade secrets.  The Commission also affirmed the ALJ's finding that the formerly accused products violated the Consent Order with respect to the '190 patent because uPI knowingly aided or abetted the sale or importation of formerly accused products that when incorporated into downstream products directly infringe the '190 patent.  The Commission reversed, however, the ALJ's finding that uPI's post-Consent Order and formerly accused products violated the Consent Order with respect to the '470 patent, and vacated as moot the ALJ's finding of violation of the Consent Order with respect to the '717 patent since the asserted claims were cancelled in reexamination.  The Commission adopted the ALJ's recommendation of a $10,000 penalty for each day of violation of the Consent Order, but having declined to adopt some of the ALJ's findings as to violations, the Commission reduced the number of days of violation from 75 to 62 and sustained a civil penalty of $620,000.

Richtek appealed the Commission's ruling that the post-Consent Order products do not use or contain Richtek's trade secrets, while uPI appealed the ruling of liability for imported downstream products that contain formerly accused products and the ruling of infringement of the '190 patent.

According to the opinion, uPI argued that its agreement by Consent Order not to knowingly aid, abet or induce importation of violative products did not apply to third-party importations under Kyocera Wireless Corp. v. Int'l Trade Comm'n., 545 F.3d 1340 (Fed. Cir. 2008), which prohibits the Commission from excluding imports of non-respondents absent a general exclusion order.  Thus, according to uPI, no penalty can be based on importations by non-respondents, whether or not they were knowingly aided or abetted by uPI, since the investigation was terminated by Consent Order, with no general exclusion order.  The Federal Circuit, however, found that "Kyoceradoes not prohibit the Commission from enforcing the Consent Order in accordance with its terms, although the Commission did not impose an exclusion order."  Accordingly, the court ruled the Commission had statutory authority to assess a civil penalty against uPI for its violation of the Consent Order's knowingly aiding or abetting provision.

uPI also argued that substantial evidence does not support the Commission's finding of a violation of the Consent Order because the Commission had the burden of proving which imported downstream products were derived from uPI's post-Consent Order sales of formerly accused controllers, and it is possible that all of the imports of downstream products containing formerly accused DC-DC controllers were derived from uPI sales of the formerly accused products occurring before the Consent Order issued.  The Federal Circuit, however, found that "[s]ubstantial evidence supports the Commission's findings that uPI post-Consent Order upstream sales were linked to subsequent downstream United States imports or sales," including spreadsheets produced by uPI showing purchase order data and sales of formerly accused products to downstream customers after the Consent Order issued, and testimony by uPI executives allegedly intimating uPI's intent to conduct its business in a manner that could violate the Consent Order.

Richtek challenged the Commission's finding that uPI's post-Consent Order controllers do not contain or use Richtek trade secrets (defined as computer files used to design circuits and circuit schematics), arguing that uPI's "clean room" procedures did not avoid all use of Richtek's trade secrets, and that substantial evidence does not support the Commission's finding.  The Federal Circuit agreed with Richtek, noting that 23 lines of code covered by the Richtek's patents were used by uPI for its formerly accused and post-Consent Order products, and that "many examples of repetition of extraneous markings, notations and purported design errors from Richtek's trade secrets are in uPI's schematics for its post-Consent Order products."  Because the court ruled that substantial evidence does not support the Commission's conclusion that uPI's post-Consent Order products were independently developed, the case was reversed and remanded for further proceedings.