Federal Circuit’s Ruling Against Comcast Highlights Significance of ITC for Patent Owners

“The Federal Circuit’s opinion solidifies the ITC’s authority as the ultimate policer against deceptive practices in the international trading arena.”

U.S. International Trade Commission

As IPWatchdog reported last week, on March 2, in what can only be characterized as the most significant crackdown against patent evasion in a generation, TiVo Corporation won a groundbreaking U.S. Court of Appeals for the Federal Circuit ruling against Comcast.

Within its opinion, the Federal Circuit came out swinging against the cable company. It affirmed all of the findings and decision-making previously made by the International Trade Commission (ITC) concerning the company’s infringement of TiVo Corporation’s intellectual property.

The Court’s opinion provides a noteworthy precedent that will spell trouble for the future of Comcast’s business practices, particularly for the company’s upcoming cases with the ITC. More significantly, however, it will protect the authority of the ITC to police similarly profiled instances of patent trolling in the future, which will make the opinion go down in history as one of the most substantial victories for the strength and sanctity of patent evasion in the 21st century

For years, Comcast has offered its customers a set-top box digital recorder, used for both recording material and broadcasting live television.

At issue is the significant amount of technology that TiVo, the country’s DVRing pioneer, created that is integrated within the set-top box. Like most other entities, Comcast used to pay TiVo for the licensing rights; however, it abruptly stopped doing so when its contract came up for renewal.

Because the digital recorders are produced overseas, the ITC – the independent U.S. agency tasked with halting unfair trade practices – imposed a ban on their importation into the United States.

Comcast’s ITC Evasion Strategy

No one denies that the set-top boxes involve patent infringement in some way – not even Comcast. As stated by the Commission, “Comcast does not dispute direct infringement by its customers, and does not dispute that it induces infringement by its customers.” In short, Comcast is merely arguing in its appeal that, despite the clear infringement of TiVo’s IP, it should evade penalty by the ITC for three reasons:

  1. Comcast is not the infringer – Because the devices only become patent violations once consumers choose to hook them up to Comcast’s domestic servers, Comcast customers are the ones violating TiVo’s patents, not the company itself.
  2. Comcast is not the importer – Comcast argued that it does not physically import the devices, which is done by two other companies, and therefore it cannot be penalized.
  3. Upon importation, the devices are not patent violations – Since the set-top boxes can only be used for predatory behavior upon consumers’ integration of the set-top boxes with Comcast’s servers, the ITC has no authority to stop the set-top boxes’ importation.Comcast may induce consumers to commit the breach of patents, but it does so “entirely domestically, well after, and unrelated to, the article’s importation.” And so, the ITC has no jurisdiction to stop the devices from being brought into the United States, said Comcast.

Federal Circuit Tosses Comcast’s Arguments

Thankfully, the Court recognized Comcast’s arguments as a lackluster attempt to create loopholes around U.S. patent law and dilute the ITC’s enforcement authority. In rejecting all three of its appeal arguments, the Court noted that:

  1. While Comcast may not produce the set-top boxes by hand, it still directs the manufacturing process of the devices overseas and requires the manufacturers to install all Comcast software onto the devices. The company and its intermediaries also fit the set-top boxes themselves, hence making Comcast the infringer by default.
  2. Through the forecasts and orders it sends to the two devices’ producers, Comcast singlehandedly controls the volume of the set-top boxes that enter the United States. It may place the directing of the manufacturing in the hands of other companies, but, its actions and dictations nevertheless still point to it being the importer.
  3. Since the ITC’s order only prohibits the devices’ importation on behalf of Comcast, which imports them for no reason other than to evade TiVo’s patents, The Commission’s order was within its jurisdiction.

Significance of the Opinion

The Federal Circuit’s opinion has wide-reaching implications, both for Comcast’s long-term IP strategy and the future of IP enforcement at large.

For the company itself, it will mark an all-but-guaranteed net loss for the entirety of its strategy to “ITC-proof” its business model.

As a result of The Court’s opinion, at the end of this month, the ITC will inevitably uphold Comcast’s loss when issuing its Final Determination for the second case related to Comcast’s patent infringements against TiVo, just as it likely will in June with case three.

Most importantly, however, the Federal Circuit’s opinion solidifies the ITC’s authority as the ultimate policer against deceptive practices in the international trading arena.

Never before has a corporation attempted to rip the teeth out of The Commission’s enforcement mechanisms with this degree of thought and calculation. If history is any indication, other institutions would have quickly seized on the precedent and rode Comcast’s coattails to evading the ITC and patent law at large should it have succeeded in implementing this loophole.

For these reasons and more, U.S. innovators across the nation should thank the Court for protecting the ITC’s statutory power. Because of it, their patent rights will remain safe and secure for the years to come.


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Join the Discussion

3 comments so far.

  • [Avatar for angry dude]
    angry dude
    March 9, 2020 08:23 pm

    Who’s next ? Apple ?

    “Designed by Apple in California (using patented technologies stolen from smaller US patent holders), assembled in China, imported back to US”

    Dream on…

  • [Avatar for Pro Say]
    Pro Say
    March 9, 2020 03:42 pm

    Comcast got caught with its hand in the cookie jar . . . and the CAFC (rightfully so) bit their hand off for doing so.

    Thanks James and TFCFM for the insight and analysis.

  • [Avatar for TFCFM]
    March 9, 2020 11:19 am

    Of the three primary issues adjudicated in this dispute:

    JS: “1. Comcast is not the infringer…
    2. Comcast is not the importer…
    3. Upon importation, the devices are not patent violations…

    two seem pretty obvious and predictable, and only the third surprising and potentially significant.

    The Easy Bits

    It seems to me pretty easy to predict how the court would come donw on each of items #1 and #3. Section 337(1)(B) focuses on imported articles and specifies that (a) importation, (b) sale FOR importation, and (c) sale AFTER importation of such articles. However, the literal language of 337(1)(B) specifies that these importation-related activities are unlawful only for

    19 USC 1337(1)(B): “…articles that (i) infringe a … patent… or (ii) are made, produced, processed, or mined under, or by means of, a process covered by … a patent…

    Thus, on account of poor legislative drafting, the focus of the inquiry is supposed to be on whether ‘ARTICLES infringe a patent.’ Articles are, of course, inanimate (in all instances relevant for our purposes); articles do not infringe or fail to infringe — regardless of whether they fall within the literal scope of the claims of a valid, enforceable patent. They are just articles. Merely being an article does not “infringe” any patent. It is, as 35 USC 271 defines, certain ACTS which infringe patents. That is, PEOPLE (real and legal) perform infringing acts — not articles.

    Thus, literally interpreted, section 1337 would render infringement impossible, and the statute is a nullity (despite clear Congressional intent to enact the statute for its clearly-enough-intended purpose). That is, it was pretty easy to predict — it seems to me — that a court would read section 1337 to assess infringement of the importation-related acts (importation, sale for importation, and sale after importation) by the person(s) committing those acts, rather than infringement by the articles themselves. With that intellectually-tiny clarifying interpretation, it seems clear that one who induces any of those acts-defined-as-infringing is itself an infringer and subject to the enforcement provisions of section 1337.

    Thus, the fact that Comcast provides the imported articles to customers so as to induce infringement by the customers seems to me a very direct application of section 1337(1)(B) (albeit an application requiring a slight interpretive gloss): Customers infringe patents when they use the importated articles; Comcast induces customers to do this; therefore, Comcast’s is equally liable for the customer’s infringement. Couple that with the fact that Comcast “sells” (rents) the imported articles to the customers, and section 1337 liability seems clear.

    The More Significant Point
    In this case, the court dismissed Comcast’s arguments that “Comcast is not the importer.” However, the court’s reason for dismissing this argument seems very limited, and it will be interesting to see where the law leads on this question.

    Here, the court found so high a degree of coordination between Comcast and the actually-importing companies that it was an “easy call” to hold Comcast liable. When companies are closely coordinating their importing activities, it makes sense to hold that the “controlling” company is really the effective “importer,” even if a formal (and actual) corporate boundary exists between that company and another.

    Consider a less-close case, though. Imagine, for example, that Comcast simply announced, “We want to buy boxes like this ___ (and we don’t care where you get them from).” Assume that Comcast DIDN’T coordinate any type of importation of the boxes by other companies, but still bought imported boxes. Would Comcast still be liable under section 337, and should they be?

    (The non-Comcast actual-importers quite possibly would, but that’s fact-specific, perhaps depending on whether they reasonably ‘know’ that the boxes will be used solely for infringing purposes… but let’s not go down that rabbit hole.)

    Likewise, how does the versatility of the imported article affect who (if anyone) is liable? For a case like this, where set-top cable boxes are the imported article and (I assume) all uses of the boxes would infringe, at least the actual-importers clearly ought to be liable under section 337, but what about ‘innocent’ purchasers (who genuinely don’t know or care whether the article they buy is imported)?

    – If such purchasers know that use of the article infringes, they’re liable under 35 USC 271, but should they be liable under 19 USC 1337, too?

    – If the article has both infringing and non-infringing uses (real world uses, not just theoretical ones), how does the importer’s knowledge of customers’ use(s) of the imported article affect section 337 liability? If the importer genuinely doesn’t know how a customer will use the imported article (i.e., in an infringing way or not), it seems clearly inappropriate to exclude ALL imports. Should ANY be banned (and how to determine which)? Should the 337 remedy be limited to a cease-and-desist order requiring the importer not to sell the imported article to a person the importer KNOWS to plan to use it in an infringing way? (Should the importer be required to inquire? to inspect? ???)

    Interesting stuff. It will be interesting to see how this develops.