The U.S. Court of Appeals for the Federal Circuit has affirmed a decision by the International Trade Commission (ITC) imposing a penalty of more than $11 million on a printer cartridge manufacturer and two of its U.S. subsidiaries for their continued importation and sales of refurbished ink cartridges subject to exclusion and cease and desist orders.  Ninestar Technology Co., Ltd. v. International Trade Commission, Case No. 09-1549 (Fed. Cir., Feb. 8, 2012) (Newman, J.).  The Federal Circuit held that its ruling in Jazz Photo Corp. v. ITC, (IP Update Vol. 4, No. 9 and Vol. 8, No. 1) had not been overruled by the Supreme Court’s opinion in Quanta Computer v. LG Elecs., (IP Update, Vol. 12, No.1) and that the patent exhaustion doctrine still requires (for exhaustion) that a first sale take place in the United States.

After the ITC issued general exclusion, limited exclusion, and cease and desist orders directed to ink cartridges imported by Ninestar and its subsidiaries that had been found to infringe nine U.S. patents held by Epson, Ninestar continued to import and sell the infringing ink cartridges, filing false affidavits of compliance with the ITC.  After Epson brought enforcement proceedings, the administrative law judge (ALJ) determined that Ninestar had committed “egregious” violations of the orders and issued a civil penalty of $20 million.  (This constituted the maximum penalty calculated at $100,000 per day of violation.  The ITC later reduced the penalty to $11 million, an amount they concluded was commensurate with Epson’s lost sales.  

Ninestar appealed to the Federal Circuit, claiming that the acts did not constitute infringement under the patent exhaustion doctrine.  Ninestar argued that the Federal Circuit’s holding in Jazz Photo, that a first sale must occur in the United States to give rise to patent exhaustion, had been overruled by the Supreme Court in Quanta, which held that a single licensed sale exhausts the monopoly rights to the article sold.  Thus Ninestar argued that its sale of refurbished ink cartridges could not constitute infringement because the original ink cartridges had already been sold, albeit outside of the United States.  The Federal Circuit disagreed and held that since Quanta concerned products first sold in the United States, the holding had no effect on the patent exhaustion’s territoriality requirement.  

Ninestar also attacked the ITC itself as “an unconstitutional monstrosity” and argued that the penalty was so punitive that it constituted a criminal penalty requiring a trial by jury.  The Federal Circuit rejected this argument as well, holding that the ITC enforces new rights “unknown to the common law” and thus not within the purview of the Seventh Amendment.