StraussDeborah-49402-6882-bwrGuest Commentary

by Deborah S. Strauss, Counsel, Adduci, Mastriani & Schaumberg LLP

On June 7, 2013, in InterDigital Communications, LLC v. Int’l Trade Comm’n, the U.S. Court of Appeals for the Federal Circuit reversed and remanded the International Trade Commission’s termination of Certain Wireless Devices with 3G Capabilities, Investigation No. 337-TA-800.  The decision sends the underlying patent dispute to arbitration based on a prior license agreement between patentee InterDigital and LG Electronics, Inc.  The divided panel held that the Federal Circuit had jurisdiction to hear the appeal, and that the ITC erred in concluding that under the Federal Arbitration Act, LG’s assertion that all matters in dispute should be determined by arbitration under the prior license was not “wholly groundless.”  In its decision, the Federal Circuit held that termination of an investigation in favor of arbitration was “the equivalent of a final determination” and was therefore an action that could be appealed.

Implications.  The InterDigital ruling affirms that a party may appeal any Commission determination terminating an investigation if the effect of such a determination is equivalent to a final determination and if the moving party suffered prejudice as a result of the Commission’s action.  The appealability of a Commission determination under Section 337 does not necessarily turn solely on whether it formally arises out of Section 337(d), (e), (f) or (g).

The Federal Circuit also indicated that while the Commission might have discretion on whether to apply the Federal Arbitration Act, once it chooses to do so, the statute must be applied properly.

As a practical matter, the lesson from InterDigital for parties seeking to invoke an arbitration clause in an existing agreement at the ITC is that the better course of action would be to request that the Commission stay its investigation pending an arbitrability determination by the arbitrator.  After that determination, the stay can be lifted and the Commission can reopen the investigation to either consider the matter in its entirety (if the arbitrator concludes that the issue is not encompassed by the arbitration clause in the existing agreement) or to rule on any remaining issues, such as domestic industry and remedy (if the arbitrator issues a ruling on the substance of the claim).  Following this approach, the Commission would not issue a final determination, or the equivalent thereof, until all matters are properly considered, which allows the complaining party to avoid a costly and time-consuming appeal.

It is not clear how InterDigital might apply to other types of Commission actions.  For example, if the Commission declines to institute an investigation because it finds that a complaint does not allege an unfair act or method of competition cognizable under Section 337, is such an action the equivalent of a final determination and, therefore, appealable? (See, e.g., Determination Not to Institute a Complaint, Commission Letter to Adam H. Gordon, Esq., Dec. 21, 2012.)  InterDigital suggests that the Federal Circuit might find that it is.

Underlying Investigation. In the underlying investigation, InterDigital alleged that LG has violated Section 337 by importing, selling for importation, or selling after importation wireless devices that infringed several of InterDigital’s patents relating to 3G wireless technology.  LG moved to terminate the investigation, contending that its products were covered by an arbitration clause in a license agreement between the parties.

The administrative law judge analyzed the situation under the Federal Arbitration Act, 9 U.S.C. § 3, in accordance with the Federal Circuit’s ruling in Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366 (Fed. Cir. 2006).  There, the appeals court held that a district court should stay its proceedings pending arbitration only after first determining whether the parties delegated arbitrability decisions to an arbitrator and, if so, then performing a limited inquiry to determine whether the claim of arbitrability is not “wholly groundless.”  The ALJ granted LG’s motion to terminate, finding that the parties clearly intended that the question of arbitrability was to be decided by an arbitrator and that LG’s request for arbitration was not “wholly groundless.”  Wireless Devices, Initial Determination at **3, 4 (June 4, 2012).   The ALJ made his determination without analyzing the text of the license agreement.  The ITC declined to review the ALJ’s determination, which then became the final Commission determination in the matter.

Federal Circuit Ruling.  The Federal Circuit first addressed the threshold question of whether it had jurisdiction to hear the appeal.  Section 337(c) provides a right to appeal “final determinations” issued under subsections (d), (e), (f) and (g).  These provisions authorize the Commission to issue a remedy upon a finding of violation of Section 337.  Accordingly, appeals of such final determinations concern the substantive grounds for a finding of violation or no violation.  The ITC terminated the investigation below under Section 337(c), which provides the ITC authority to not make a finding regarding violation in certain circumstances, such as when the parties settle or pursue arbitration.  On appeal, LG and the ITC argued that because the Commission had terminated the investigation under subsection (c), and not one of the specifically enumerated subsections, its action was not appealable.  The Federal Circuit, relying on the holding of its predecessor court in Import Motors, Ltd. v. U.S. Int’l Trade Comm’n, 530 F.2d 940 (C.C.P.A. 1976), and its progeny, held that a party may appeal an ITC order that is not a final determination on the merits if the effect of that order is the equivalent of a final determination.  It concluded that an order terminating an investigation in favor of arbitration amounted to a final determination because the investigation below could not be reopened.  The Commission’s order terminating the investigation, therefore, could properly be appealed.

The Federal Circuit specifically rejected the Commission’s argument that the termination was not “final” because InterDigital could re-file its complaint in the future.  The court noted that InterDigital would be required to wait until the conclusion of the arbitration proceedings before it could file a new complaint, during which time LG could continue to import allegedly infringing devices.  In other words, the ITC termination in favor of arbitration had “‛the same operative effect, in terms of economic impact’ as a final determination.” Interdigital at *4 (quoting Import Motors, 530 F.2d at 945-46).

Regarding the merits of the appeal, the Federal Circuit held that once the ALJ concluded that the matter of arbitrability was clearly delegated to the arbitrator, he should have assessed the text of the parties’ license agreement to the limited extent necessary to determine whether LG’s license argument was “wholly groundless.”  While it specifically did not endorse the “wholly groundless” standard (it noted that none of the parties challenged its applicability, so it “simply assume[d]” that it applied, Interdigital at *8n11), the court found that even “a cursory review of the relevant provisions in the Agreement confirms that LG no longer holds a license” to the patents asserted by InterDigital. Id., at *9.  On this basis it reversed the ITC’s order terminating LG and remanded to the Commission for further proceedings.

Interestingly, the dissent agreed that “there is no plausible argument that LG could prevail under its patent license agreement, and hence that LG’s position is ‘wholly groundless.’” Id. (Lourie, J. dissenting).  Acknowledging the exception for determinations that are equivalent to final determinations under subsections (d), (e), (f) and (g), the dissent argued that it is not necessary to reach that far because termination due to an arbitrability agreement is explicitly not a determination of a violation under Section 337 (d), (e), (f) or (g) and, as a result, is not appealable.