Timing is Everything: Subsequent Invalidity Ruling Does Not Excuse Violation of an ITC Exclusion Order

In DBN Holding, Inc. v. ITC, the Court of Appeals for the Federal Circuit (“CAFC”) upheld a $6.2M civil penalty levied against DBN, an ITC respondent, for violating a remedial consent order, even though the patent upon which the consent order was based, had been invalidated¹.

This is the fourth appeal in the case. In the first appeal, the CAFC affirmed a district court’s grant of summary judgment invalidating the same patent claims asserted against DBN in the parallel ITC Investigation². In the second appeal, heard the same day, the CAFC held that the ITC did not abuse its discretion in imposing a $6.2M civil penalty against DBN for violating the consent order imposed by the Commission³. The third appeal concerned DBN’s request to modify or set aside the civil penalty because the invalidating of the claims constituted a “changed condition of fact or law” warranting rescission under 19 C.F.R. § 210.76. When the ITC denied DBN’s petition on res judicata grounds, DBN appealed, and the CAFC reversed, holding that the ITC had the authority to rescind or modify the civil penalty based on the invalidity judgment⁴. The fourth appeal, decided on March 1, 2022, involved a challenge to the ITC’s decision not to modify or change the monetary penalty.

The ITC has in the past–although rarely–rescinded civil penalties for violation of exclusion orders. See, e.g., Certain Neodymium-Iron-Boron Magnets, Magnet Alloys, and Articles Containing Same, Inv. No. 337-TA-372 (Enforcement Proceeding), 64 Fed. Reg. 56,515–16 (Oct. 20, 1999) (“Magnets”); see also Certain Erasable Programmable Read Only Memories, Inv. No. 337-TA-276 (Enforcement Proceeding) (May 11, 1992) (“EEPROMS”). In Magnets for example, the Commission entered a consent order prohibiting importation of infringing articles “except under consent or license.” When the Commission later determined that the respondents had violated the consent order, it issued a civil penalty. The parties then reached a retroactive settlement, and filed a joint motion to vacate the penalty on the grounds that the license granted in the settlement agreement authorized, ex-post-facto, the conduct that had violated the exclusion order⁶. Importantly, in both Magnets and EEPROMS, appeals from the Commission’s original violation decision were pending at the time the parties settled and sought to vacate the civil penalties.

Relatedly, timing also plays a critical role in the ITC’s policy about whether and how to suspend enforcement of an exclusion order based on parallel decisions of the Patent Trial and Appeal Board (“PTAB”). If the PTAB issues a final written decision invalidating the claims of a patent in parallel litigation at the ITC before the Commission has issued a final determination and remedy, the Commission will likely suspend enforcement of the remedial order pending final resolution of the PTAB’s Final Written Decision⁷. Alternatively, if the PTAB decision issues after the Commission has issued a final determination, the ITC will decline to stay or suspend the exclusion order unless and until the PTAB decision becomes final, or is affirmed at the Federal Circuit.

DBN’s petition to rescind the civil penalty under 19 C.F.R. § 210.76 came long after the Commission’s entry of a remedy. DBN argued that the civil penalty should be set aside because the patent claims asserted in the ITC investigation had been invalidated by a district court in a decision subsequently affirmed by the Federal Circuit. But unlike in Magnets, DBN’s assertion that invalidation of the claims constituted a “changed condition[] of fact or law” warranting the civil penalty’s modification or rescission failed to provide an excuse for its earlier violation of Commission’s order, at a time when the patent remained in force. Unlike in Magnets, the patent owner had not offered a retroactive license covering the time period of the violation.  DBN’s argument that it had acted in good faith under the belief that the patents were invalid, did not fall within any of the Ninestar factors the court considers when establishing the good or bad faith of the respondent, and DBN’s argument therefore failed⁸. Ultimately, both the Commission and the CAFC found that even if “invalidation of the claims may negate DBN’s infringement, we are not persuaded that such invalidation negates its consent order violations.”⁹