On August 27, 2012, ALJ Theodor R. Essex issued the public version of Order No. 9 (dated August 1, 2012) granting Respondents’ Chimei Innolux Corporation and Innolux Corporation (collectively, “CMI”) motion for summary determination of no violation of Section 337 in Certain Video Displays and Products Using and Containing Same (337-TA-828).  As the motion for summary determination was granted, ALJ Essex denied CMI’s alternative motion to stay the investigation as moot.

By way of background, the investigation is based on a January 13, 2012 complaint filed by Mondis Technology, Ltd. (“Mondis”) alleging violation of Section 337 in the importation into the U.S. and sale of certain video displays and products containing and same such as computer monitors and televisions that infringe one or more claims of U.S. Patent Nos. 6,247,090 and 7,089,342.  See our February 22, 2012 post for more details.

According to the Order, there are several undisputed facts that set the stage for the motion of summary determination.  Mondis filed suit against CMI in the Eastern District of Texas in 2007 based on the same patents at issue in the current investigation.  A jury found the patents to be valid and infringed willfully by CMI.  The court severed the damages issue into a new case, and in the final judgment of that case, established an ongoing royalty rate for the infringing products.

In light of the ongoing royalty payments, CMI argued that Mondis has “relinquished its right to exclude acts found to infringe,” and that CMI is authorized to practice the asserted patents in light of the ongoing royalty payments.  Mondis argued that the ongoing royalties do “not amount to per se authorization or license.”  The Commission Investigative Staff (“OUII”) filed a response in support of the motion for summary determination.  OUII  argued that the order from the court establishing an ongoing royalty rate permits importation and sale of infringing products in exchange for the royalty.  Thus, since “CMI’s importation is ‘authorized’ by the district court’s order, such importation cannot provide the requisite basis for a violation of Section 337.”

ALJ Essex began his analysis by noting that the motion presents a purely legal question suitable for summary determination — whether the ongoing royalties awarded by the district court are a license authorizing CMI to practice the claimed invention or not.  The ALJ concluded that the statutory basis, legal theory, and characteristics of the specific ongoing royalty arrangement of the case “compel the conclusion that the ongoing royalty is a license that allows CMI to continue to import the accused products.”  Specifically, ALJ Essex pointed out that the statutory language of 35 U.S.C. § 283, authorizing courts to “prevent violation” of patents by their equitable actions, supports viewing an ongoing royalty as a license.  Furthermore, the theory courts have relied on in awarding ongoing royalties is to compensate a patentee “for giving up his right [to exclude],” the essence of a license.  Last, the ALJ noted that the circumstances of the case suggest the ongoing royalties should be considered a license because Mondis did not seek an injunction and specifically sought the award of ongoing royalties.  Therefore, since the ALJ determined that the ongoing royalty order constitutes a license authorizing CMI to practice the patents, there can be no patent infringement or violation of Section 337.  Thus, the investigation was terminated.