Not Seeking Sanctions Before DivX ITC Complaint Withdrawn Dooms Realtek

Yesterday, the U.S. Court of Appeals for the Federal Circuit issued a precedential decision in Realtek Semiconductor Corp. v. International Trade Commission, dismissing Realtek’s appeal from the ITC’s denial of sanctions against DivX for pursuing baseless infringement theories during Section 337 proceedings at the agency. The Federal Circuit held that the ITC’s refusal to enter an order to show cause sua sponte was within the agency’s discretion and therefore unreviewable, underscoring the importance of timely pursuing concerns over sanctionable conduct for parties litigating in any adjudicatory forum.

Realtek Warned DivX About Sanctions Motion

The ITC instituted a Section 337 investigation in October 2020 against Realtek, TCL and other respondents over DivX’s allegations certain video processing devices imported into the U.S. for sale infringed its patent claims. Prior to an evidentiary hearing in July 2021, DivX filed an unopposed motion to withdraw its Section 337 complaint as it pertained to Realtek, proceeding on its infringement theories in the evidentiary hearing against TCL instead. Realtek argued in its appellate brief that DivX’s sanctionable conduct only became clear as of the July 2021 hearing. As a result, Realtek moved for sanctions in October 2021 without requesting an order to show cause. The administrative law judge (ALJ) presiding over the Section 337 proceedings denied the Realtek sanctions request, which the ITC ultimately upheld after Realtek’s request for review.

The brief filed by the ITC at the Federal Circuit paints a much different picture of Realtek’s apparent knowledge of the baselessness of DivX’s infringement contentions. In fact, the ITC brief points out that Realtek’s own appellate brief contradicts their primary contention, namely that they did not have reason to suspect sanctionable conduct until July 2021, which was after DivX withdrew its complaint. Indeed, the ITC pointed out that throughout the proceedings Realtek repeatedly alleged that the DivX allegations lacked support, were baseless, were misleading and lacked factual support.

“In sum, Realtek admits it believed DivX’s infringement contentions were unsupported as early as October or November 2020, or at least by April 2021, when it warned DivX it would be filing a motion for sanctions… Realtek thus admits that it knew of DivX’s alleged abuse of process for either 3 or 9 months before the evidentiary hearing in July 2021, and for nearly a year before it finally filed its sanctions motion in October 2021.”

Realtek Couldn’t Comply With Safe Harbor Requirement Once Objectionable Claims Withdrawn

The Federal Circuit’s ruling on appeal made quick work of Realtek’s arguments that the ITC violated the Administrative Procedures Act (APA) by failing to sua sponte enter the order to show cause against DivX. The ITC’s authority to enter sanctions derives from 19 CFR § 210.4(d) and Rule 210.4(d)(2)(ii).

The ITC’s authority to enter sanctions under Rule 210.4 closely tracks the framework of Federal Rule of Civil Procedure 11 that provides the framework for entering sanctions in the federal judiciary, according to Joshua Hartman, Partner at Merchant & Gould. “Like Rule 11, Rule 210.4(d) has a provision that the movant has to comply with a safe harbor requirement through which the non-movant has seven days to withdraw the pleading and cure the problem,” Hartman said.” By failing to move for sanctions until months after DivX withdrew its infringement allegations, Realtek could not properly comply with the safe harbor regarding the allegedly sanctionable conduct.

“If you buy Realtek’s position, it renders the safe harbor requirement of Rule 210.4(d) toothless,” Hartman said, adding that would essentially turn requests for orders to show cause onto a fallback that a party could order the ITC to enter despite failing to comply with the other requirements for sanctions. Hartman indicated that a more reasonable reading of Rule 210.4(d)(1)(ii) was as a gap filler allowing the ITC to address sanctionable conduct that went disregarded by the party impacted by the conduct.

This ruling also underscores the critical nature of working with the right counsel at the agency level, according to Evan Langdon, Partner and Chair ITC Practice for Fabricant LLP. “The CAFC’s opinion highlights the importance of hiring experienced and savvy ITC counsel who are familiar with the ITC’s intricate rules, which the ITC recently updated effective February 3, 2025, including Rule 210.4 that governs sanctions,” Langdon said. He added that the ITC promulgated Rule 210.4(d) under the agency’s authority pursuant to 19 U.S.C. § 1335 to adopt reasonable rules and regulations, which is a critical reason why the Federal Circuit found the agency’s ruling to meet the APA’s exception to appellate review for agency decisions found at 5 U.S.C. § 701(a)(2).

Image: U.S. International Trade Commission
Courtesy of DepositPhotos
Author: billperry
ID 18479953