“Even though they have won an ITC exclusion order, Netlist doesn’t want SK hynix to stop importing the accused LRDIMM memory modules into the United States. Quite the opposite. Netlist would love nothing more than for SK hynix to import as much product into the United States as they possibly can. Netlist just wants to get paid.”
Several weeks ago, the International Trade Commission (ITC) announced that Chief Administrative Law Judge (ALJ) Charles Bullock issued a Notice of Initial Final Determination recommending that certain memory modules manufactured and imported by SK Hynix, Inc. and its subsidiaries should be excluded from importation into the United States.
As is common with these announcements, the ITC first released a one-page indication of the decision, which was followed by the redacted full decision once the parties had an opportunity to request redaction of trade secrets and confidential information. The full decision has now been released, and the ITC is asking for comments relating to public interest issues from the parties, interested persons, and other government agencies and departments. See 19 C.F.R. 210.50(a)(4).
Second ITC Win for an SEP
This case is of such interest because this marks only the second time that the ITC has found a violation of Section 337 of the Tariff Act of 1930 based on the infringement of a standard essential patent (SEP). The previous time the ITC had found exclusion appropriate relating to an SEP was in the patent wars dealing with Apple and Samsung, when the ITC issued a final determination finding a violation of Section 337 and granted a limited exclusion order prohibiting Apple from importing certain wireless communication devices, portable music and data processing devices and tablet computers. Ultimately, President Obama vetoed the limited exclusion order, so it never went into effect.
Will Netlist, the owner of the infringed patent in question, be able to hold on to this exclusion order? In addition to the typical questions of fact and law that will ordinarily be argued about and potentially considered by the Commission on review, there are political and philosophical questions raised by this case.
The Thorny Issue for an ITC Exclusion Order
An ITC exclusion order is for all intents and purposes an injunction; an order that prohibits the act of importation into the United States. Should an SEP be capable of supporting an injunction? There are some that believe the answer should be no; if you own an SEP there should be no possibility of an injunction even if the recalcitrant infringer refuses to take a license under fair, reasonable and non-discriminatory terms (FRAND).
This is a thorny political issue because the U.S. Department of Justice (DOJ) and the U.S. Patent and Trademark Office (USPTO) are no longer on the same page relating to the appropriateness of an injunction as a remedy for the infringement of SEPs. And while the casual observer may suspect it would be the USPTO that would be in favor of injunctions when the patents they issue are infringed, that would be an erroneous belief. It is the DOJ that is leading the reform efforts to bring some semblance of sanity back to the patent world for innovators who have invested in the creation of multi-billion dollar innovations and spent years obtaining large patent portfolios that contain assets that are supposedly presumed to be valid. See 35 U.S.C. 282.
Delrahim Leads the Way on SEPs
In December 2018, Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, Makan Delrahim, withdrew assent to the 2013 Joint Policy Statement during remarks delivered at the 19th Annual Berkeley-Stanford Advanced Patent Law Institute. Delrahim has acknowledged that there are times when an injunction or exclusion order may be an appropriate remedy even when the underlying patent is an SEP.
The 2013 Statement, a joint statement of policy entered into between the Department of Justice and the USPTO, advised that injunctions or ITC exclusion orders may not be appropriate with respect to SEPs because such orders may be “inconsistent with the public interest.” The statement said:
When a standard incorporates patented technology owned by a participant in the standards-setting process, and the standard becomes established, it may be prohibitively difficult and expensive to switch to a different technology within the established standard or to a different standard entirely. As a result, the owner of that patented technology may gain market power and potentially take advantage of it by engaging in patent hold-up, which entails asserting the patent to exclude a competitor from a market or obtain a higher price for its use than would have been possible before the standard was set, when alternative technologies could have been chosen.
The problem with the policy against injunctions and exclusion orders became evident over time. Without the fear of an injunction or exclusion order an unwilling or recalcitrant implementer has no incentive to enter into a license, regardless of whether the royalty rate offered is FRAND or RAND. The decision to infringe is not personal, it is strictly business, and frankly it has become a reasonable approach to business to simply ignore patents given how weak U.S. patents have become, the lack of any real injunctive threat, and the reality that damages (if ever obtained) will only be what would have been negotiated at an arms-length deal prior to the start of infringement.
Given the time value of money and the reality that at least some patents (likely many patents) will be invalidated by the Patent Trial and Appeal Board (PTAB), and the further reality that damages are low and almost guaranteed to be reduced on appeal to the Federal Circuit, it is almost malpractice for an attorney to advise a client to take a license. That is extraordinarily sad, but that is the state of the law and business of the industry.
Now It’s Up to the USPTO
So, where is the USPTO? Director Andrei Iancu has yet to take a public position on whether he agrees with Assistant Attorney General Delrahim that there are situations where an injunction or exclusion order may be appropriate even when the underlying patent is an SEP.
It is obvious to everyone in the industry with knowledge of licensing talks and litigation that the supposed problem of hold-up, where the patent owner can stop an implementer altogether, is pure fiction. Innovators do not want to stop implementers, and anyone who believes that is either crazy or misinformed. Innovators innovate and get paid when implementers implement. What innovators want is to get paid, period. Unfortunately, because the problem of hold-out is very real, and the problem of efficient infringement is very real, many implementers make the reasonable business decision based on the laws to simply ignore patents because they do not fear an injunction or exclusion order.
This case is a prime example. In October 2017, Netlist filed a complaint at the ITC claiming that SK hynix imported into the U.S. and sold in the U.S. certain memory module products infringing U.S. Patent No. 9,606,907 and 9,535,623. Meanwhile, as is typical with these types of disputes, Netlist also sued in federal court in California. In that federal lawsuit, Netlist did point out that they attempted to license SK hynix under FRAND terms, which was rebuffed in favor of a path of infringing importation.
Even though they have won an ITC exclusion order, Netlist doesn’t want SK hynix to stop importing the accused LRDIMM memory modules into the United States. Quite the opposite. Netlist would love nothing more than for SK hynix to import as much product into the United States as they possibly can. Netlist just wants to get paid. And we know they have good claims because the claims of the ‘907 patent found to infringe survived a PTAB challenge.
So, what say you Director Iancu? Will the USPTO file public comments at the ITC by the deadline? Will the USPTO finally recognize that in at least some cases an injunction and/or exclusion order is appropriate?
Do We Want an Open Source Patent System?
At least when a FRAND offer has been made and infringement of a valid patent claim continues, an injunction and/or exclusion order has to be an available remedy or the U.S. patent system isn’t even a compulsory licensing system. Infringers who can infringe with impunity? That sounds like open source to me, and hardly what Title 35 and the U.S. Constitution envision for the U.S. patent system.
Join the Discussion
9 comments so far.
Kenneth ThomasDecember 26, 2019 01:14 pm
This is a test of American justice and indeed to the rule of law. Should NLST lose this, from this point it will show that democracy is certainly dead [ it is already writhing ] and plutocracy is the order of the day. That this injustice has been allowed to go on for so long is a sad indictment on the legal system and we all know that justice delayed is justice denied. However that said we now have to decide where our faith lies. Do we still believe in justice being served and invest in NLST or have we by our non investment admitted that corporate corruption has won the day. Should NLST win this it will have a bad result for other large corporations who have also illegally used NLST’s IP and further enormous payouts will be won by the company. So are you, by further investment backing justice or are you scared to have to admit to yourselves that the foxes guard the hen house? Interesting times ahead and lessons for all of us. All the best for we are about to learn whose side the law is really on and indeed if corruption controls the markets. If it does it is proof to all that the whole system we are supposed to believe in that it has collapsed in on its self.
BEStoneDecember 1, 2019 03:40 pm
It would be a sad day if American innovation is not protected and rewarded. Congressman Bunn is a sellout to his country and should be ashamed of himself for taking the side of a foreign company that has been stealing others ideas for years and profiting without paying. The courts need to step up and reward this small company (Netlist) with a multibillion dollar settlement as a message to other would be technology thieves of American ingenuity!
Jhon jhonstonNovember 30, 2019 11:59 am
This is so outrageous I am lost for words; Rep Ted Budd and his other cohorts should be ASHAMED to attend a S. Korean party then follow it up by writing a letter to USITC against an small American company but in favor of S. Korean company. Voters in N.C. and other states whose reps agreed the exchange the love of America for a glass of wine and some caviar should send these guys to history’s trash bin. And how in the world did ITC allow a former SK Hynix attorney be part of ITC and hence adversely effect Netlist’s rights.
Is it now down to allowing a giant foreign entity to rape a tiny American company and then allow a former attorney of that foreign company to be one of the judges that rule on the crime? Is this real or did I die and went to hell?!!
AlanNovember 23, 2019 07:40 pm
Who will have the courage to allow justice to be achieved in this matter?
The OUII doesn’t get the fact that the exclusion order is needed to motivate infringer SK Hynix to pay for years of theft..like they did with Rambus.
Now we have Comgressman Ted Budd coming out in support for no, not the American company, but The S. Korean infringers.
Who will be on the side of justice??
A.ScalaNovember 21, 2019 08:58 pm
Mr. Quinn, what’s your opinion on congressman Ted Bunn attending a SK Hynix party in Washington, then writing the following letter to ITC…maybe it is the ground for another article…
SPOTTED: At a party hosted by the SK Group at its Washington office on Thursday evening, according to a PI tipster: Reps. Doug Collins (R-Ga.), Joe Wilson (R-S.C.), Ted Budd (R-N.C.) and Frank Lucas (R-Okla.); former House Speaker John Boehner and former Sen. John Breaux (D-La.) of Squire Patton Boggs, which represents SK Hynix, an SK Group subsidiary; Karen Dunn Kelley, the Commerce Department’s deputy secretary; and Chey Tae-won of SK Group.
Kenneth ThomasNovember 21, 2019 02:29 pm
I too am really shocked to learn that the former attorney of SK Hynix is part of the ITC and wonder what influence even his presence in the organization will have in the case. Justice must at least be seen to being done here or we all have to accept that laws and democracy are for sale to the wealthiest participant and theft of your property is now dressed up, not in justice but in the folds of dirty dollars. Any loss to NLST in this case will make it glaringly obvious that theft is now just a business opportunity in the USA and that following the law and living morally and legally is only for fools, horses and the little guy.
Khalid ElbarjajNovember 19, 2019 07:20 pm
I was really shocked when I came to know that a former attorney of SK Hynix is part of ITC comission… In every civilized society,the norm in a judicial process is that all members of a comission are checked for conflicting interests to prevent the suspicion of bias… Obviously the ITC has failed ominously in this case…
Joseph O’ShaughnessyNovember 19, 2019 02:16 pm
I think the question for the uninitiated is this. What is the alternative for small firm like Netlist in the face of either an exclusion some other consideration? Especially when we see such suspect situations as that of a former Hynix attorney now occupied in the very determination on fairness in the system?
Silvia JuarezNovember 17, 2019 04:29 pm
Excellent article Mr Quinn. And though we don’t yet have input from USPTO, we do have input from the Office of Unfair Import Investigations at USITC. Does it bother you that Brian Koo (formerly of attorneys Sidley Austin / Hynix’s current defenders) is now part of OUII and could have influence over the USITC case? Wouldn’t we, at the very least, not want the appearance of a conflict of interest?