As discussed in our November 3, 2016, post, defaulting at the ITC to avoid the cost of litigation is a risky strategy.

In Certain Beverage Brewing Capsules, Components Thereof, And Products Containing the Same, Inv. 337-TA-929, Eko Brands, LLC defaulted in the ITC’s original investigation and the Commission concluded that Eko infringed claims 8 and 19 of U.S. Patent No. 8,720,320 even though the Commission also determined independent claims 5 and 18, from which claims 8 and 19 depend, were invalid for lack of written description support.

After Eko defaulted, the investigation proceeded against the other respondents. During the investigation, Complainants Adrian Rivera and Adrian Rivera Maynez Enterprises (“ARM”) dropped claims 8 and 19 from the proceeding as to the non-defaulting respondents. At the conclusion of the Investigation, the Commission found that there was no written description support for certain limitations in claims 5 and 18, and it therefore invalidated these claims. Commission Opinion at 34 (Apr. 6, 2016). Notably, because claims 8 and 19 were still asserted against Eko, and no invalidity evidence was presented at the hearing with respect to those claims, the Commission declared: “We do not find that claims 8 and 19 are invalid, and presume that ARM’s allegations in its complaint against [Eko] are true.” Id. at 83.

ARM filed enforcement proceedings against Eko alleging violations of the remedial orders. In its response to the enforcement complaint, Eko included affirmative defenses of non-infringement, invalidity, and collateral estoppel. Eko also moved the Commission to institute proceedings seeking to rescind the remedial orders which was granted. The Commission instituted rescission proceedings and consolidated them with the enforcement action.

As discussed in our previous post, Judge Essex granted ARM’s motion to strike Eko’s invalidity and non-infringement affirmative defenses based on res judicata. Order No. 30 (Sept. 19, 2016). ARM also moved for summary determination on Eko’s collateral estoppel defense. In response to the motion, Eko argued that ARM “should be collaterally estopped from enforcing claims 8 and 19 of the ‘320 patent at least based upon the Commission’s Opinion invalidating the independent claims from which the asserted claims depend.” Order No. 33 at 6. Judge Essex disagreed. On December 8, 2016, he issued the public version of his Initial Determination granting ARM’s motion and holding that Eko could not prove its collateral estoppel defense as a matter of law.

In the initial determination, Judge Essex concluded that “because the issue on which [Eko] seek[s] preclusion has not been—and cannot be, see Order 30—raised in the enforcement phase of this investigation, Respondents cannot satisfy . . . their collateral estoppel defense.” Id. at 26. Accordingly, since the invalidity of claims 8 and 19 was not, and could not be, raised, Eko’s collateral estoppel defense failed.

Eko filed a petition for review of Judge Essex’s initial determination. The Commission issued a notice on January 12, 2017, determining to review the initial determination, and on review, upholding the conclusions of the ALJ but modifying the reasoning. The opinion providing the Commission’s rationale is not yet available.

Takeaway

Although some respondents may believe that defaulting at the ITC is an inexpensive way to avoid litigating a Section 337 investigation, this case demonstrates that there can be risks in choosing that strategy. Because of the default, Eko must defend against the enforcement proceeding without the defense that claims 8 and 19 are invalid for lack of written description support even though the claims include limitations previously adjudicated by the Commission as not supported by the specification. This is a unique situation, as it seems unlikely that ARM could successfully assert these same claims at the ITC in a new violation proceeding. Based on this ruling, there could also be interesting outcomes to the case. For example, Eko could be found liable for past violations of the cease and desist order (and have to pay a penalty) and also successfully rescind the remedial orders. Jones Day will continue to monitor this interesting case as it unfolds.