When Microsoft Corp. won a patent suit against Motorola Mobility Inc. at the International Trade Commission last year, it looked like a decisive victory. The ITC issued an exclusion order directing U.S. Customs and Border Protection to bar the importation of all infringing Android phones made by Motorola — a seemingly brutal blow.
In reality, it turned out to be just the first round of the fight. Microsoft this month sued the federal government in U.S. District Court for the District of Columbia to enforce the judgment, alleging that Customs violated the Administrative Procedure Act by continuing to allow imports of infringing phones.
The suit was without precedent, but the problem was not. For years, parties on both sides of ITC cases have struggled with customs officials over how to enforce exclusion orders. Enforcement decisions tend to be based in part on one-sided, confidential meetings in which each party argues about which products should — and should not — be let into the country.
"It's like going into a black box," said Smith Brittingham IV, a partner at Finnegan, Henderson, Farabow, Garrett & Dunner who has worked on more than 50 ITC cases. "The real issue is, you spend months or a year or two years and millions of dollars [at the ITC] proving your patent is valid and your opponent's product infringes. And then you go to Customs, and you don't know what they're doing or why they decide not to exclude a product."
A FORMIDABLE JOBB
It's a formidable job for the customs department, and it's only getting harder. As the ITC's popularity in recent years has soared, so too has the number of exclusion orders on the books, jumping from 47 in late 2006 to 97 at last count, according to ITC records. At the same time, the patents at issue are increasingly narrow, making it tricky for customs officials to decide whether redesigned products still infringe.
Tensions surrounding this obscure corner of patent law have escalated to the point that the White House in June announced that a task force would review enforcement of exclusion orders, with the goal of making the process "transparent, effective, and efficient."
Suits before the International Trade Commission are brought under Section 337 of the Tariff Act of 1930. If a complainant convinces the agency that an imported product infringes its intellectual property rights, the prize is an exclusion order directing Customs and Border Protection to turn away all offending merchandise for the life of the patent.
Where it gets complicated is in determining exactly what that merchandise may be. ITC exclusion orders don't specify model names or product numbers (which easily could change), but instead simply refer to the patent infringed. It's up to Customs to decide what that means in the real world.
"The case is dropped in their lap," said F. David Foster, a name partner at ITC boutique Foster, Murphy, Altman & Nickel. "The ITC typically does not provide recommendations or guidance."
Instead, the parties usually engage in private, ex parte meetings with officials from the tiny Intellectual Property Rights branch, making PowerPoint presentations that spell out what products they think fall under the ITC verdict. "It's important to be proactive," said McDermott Will & Emery intellectual property partner Blair Jacobs, who has litigated extensively before the ITC. "If you obtain an exclusion order, you work with the Customs and Border Protection folks to help them define the scope."
Meanwhile, those on the losing side try to come up with a redesigned product that doesn't use the patented technology. Then, the mission is to "go to Customs and present why the design-around is a success," Jacobs said — "to try to convince Customs that the new product truly is a new product" that can be imported legally.
One catch: Neither side gets a copy of the other's materials or knows exactly what their lawyers are saying. "It's rather Kafka-esque in some ways, and frustrating," Foster said, explaining that the procedure is intended to protect confidential business information related to product redesigns.
Once the customs bureau makes its determination, it issues instructions to the 329 ports of entry specifying what products are banned. Because the agency views this as a confidential law enforcement document, the parties in the case don't get to see the actual list.
All intellectual property owners can do, at least initially, is monitor the market and see what turns up for sale. In 2010, the ITC surveyed prevailing complainants about exclusion orders, and more than half said they "believed that infringing goods covered by the order have been imported since the issuance of the order."
In one case involving disposable cameras, for example, Customs between 2001 and 2003 allowed 25 million infringing cameras made by Jazz Photo Corp. to be imported, an ITC judge later found.
If a company believes customs enforcers are wrongly allowing infringing products into the country, the usual recourse is to go back to the ITC and request an enforcement proceeding — a complex undertaking that can rival the original case in duration and cost.
That's what Apple Inc. did last year. The company had successfully sued HTC Corp. before the ITC for ­infringing Apple's "data tapping" patent, winning an exclusion order in late 2011. But six months later, Apple complained that HTC was continuing to import infringing Android-based smartphones.
Represented by Kirkland & Ellis, Apple asked the ITC for unprecedented "temporary emergency action" — that is, to order Customs to detain all HTC products at the border or to require its rival to post a bond equal to 100 percent of its U.S. revenue.
The ITC said no, ruling that the "Com­mission does not have the information necessary to determine whether [HTC is] currently violating the Commission's limited exclusion order." However, the ITC did institute slower-moving enforcement proceedings to determine if the imported phones infringed Apple's patent, generating reams of legal filings before the companies settled the matter in December.
Perhaps learning from Apple's experience, Microsoft on July 12 tried an all-new tactic. Like Apple, Microsoft had won an exclusion order from the ITC, in this case alleging that certain Motorola mobile phones infringed its patent covering calendar synchronization.
Also like Apple, Microsoft complained that Customs and Border Protection was unfairly permitting the import of infringing phones. But Microsoft, represented by a team from Sidley Austin led by Joseph Guerra, didn't go to the ITC. Instead, the company sued in district court, seeking both preliminary and permanent injunctions. (Guerra, co-chairman of Sidley's appellate practice, declined to comment.)
The complaint is sharply critical of the way U.S. Customs goes about its business. Officials have "allowed the importation of infringing devices based on claims that Motorola has made on an ex parte basis, and that [Customs] has accepted without providing Microsoft notice of those claims, much less an opportunity to address them," Guerra wrote, describing what most ITC lawyers would consider standard operating procedure.
According to the complaint, Customs and Border Protection then made a series of specific legal errors. First, the agency granted Motorola's request for a ­"transition period," during which it could continue to import infringing phones while it worked to develop a noninfringing alternative. But Motorola had already made the same request to the ITC, which "flatly rejected that claim," Guerra wrote.
Motorola also asked the ITC to limit the exclusion order so it could continue to import phones that use Google servers. Again, the ITC said no — and the customs bureau said yes. "That decision is also flatly inconsistent with the Commission's ruling and thus equally unlawful," according to Guerra.
The customs agency "has allowed Motorola to re-litigate — in secret — issues that Motorola lost before the Commis­sion, and has granted Motorola precisely the relief that the Commission expressly refused to grant after full, fair, and open litigation," Guerra wrote [emphasis in the original].
Customs, he continued, was "led astray" by Motorola, ignored evidence and pulled "a complete administrative bait-and-switch." Such actions are arbitrary and capricious and "not in accordance with the law," according to the complaint.
Motorola was represented in the ITC case by Steptoe & Johnson LLP international trade and intellectual property partner Charles Schill and a team from Quinn Emanuel Urquhart & Sullivan, including star litigator Charles Verhoev­en. Schill declined to comment and Verhoeven did not respond to a request for comment. A Customs and Border Protection spokeswoman also declined to comment on the litigation.
ITC experts said Microsoft's lawsuit marks the first time a company has bypassed the ITC and complained to a district court, and they wonder whether the court would decline jurisdiction and refer the matter to the commission. They hope the White House task force triggers reforms — and perhaps gives the ITC a greater role in what happens at the U.S. customs office.
"What people really want is consistency and predictability," Brittingham said, "and as much transparency as possible."
Contact Jenna Greene at firstname.lastname@example.org.