Goodwin Insights July 03, 2019

Federal Circuit Decisions And Arguments

The Preclusive Effect of Commission Trademark Rulings Remains Unclear

Swagway, LLC v. Int’l Trade Comm’n, No. 2018-1672, 2019 WL 2049148 (Fed. Cir. May 9, 2019) (on appeal from Inv. Nos. 337-TA-1007 and 337-TA-1021

Before: Federal Circuit (Dyk, Mayer, Clevenger)

Practice Tips and Insights:

There Is a Circuit Split as to Whether Commission Determinations on Trademark Issues Have Preclusive Effect in District Courts. While the Federal Circuit held that such determinations are not entitled to preclusive effect, other circuits have reached the opposite conclusion. Parties litigating trademark issues concurrently before the Commission and in district court should consider whether the district court is subject to binding precedent concerning the preclusive effect of Commission trademark determinations.

Lack of Actual Confusion, on Its Own, May Not Weigh Against Likelihood of Confusion. A litigant defending against a trademark infringement claim should support an absence of actual confusion with evidence of “long-term, concurrent use [of the trademarked products and the accused products] in the same channels of trade.”

Holding and Status:

The Federal Circuit affirmed the Commission’s determination that the accused products infringed the asserted trademarks. The Federal Circuit further held that the Commission’s decisions pertaining to trademark infringement or validity are not entitled to preclusive effect in the district courts.

Case Background:

Segway Inc., DEKA Products Limited Partnership and Ninebot (Tianjin) Technology Co. Ltd. (collectively, “Segway”) initiated the 1007 and 1021 Investigations alleging infringement of six patents and two registered trademarks. At issue on appeal were the two trademarks Segway held for stylized and non-stylized versions of the “Segway” mark which covered “motorized, self-propelled, wheeled personal mobility de-vices, namely, wheelchairs, scooters, utility carts, and chariots.”

In its complaints, Segway alleged that self-balancing hoverboards marketed under the names “Swagway” and “Swagtron” infringed its marks. Following institution and consolidation of the investigations, Swagway moved for a partial termination as to the trademark infringement allegations on the basis of a consent order stipulation.  Swagway’s proposed consent order stipulated that it would not sell or import hoverboards bearing the “Swagway” designation.

ALJ Shaw subsequently issued an Initial Determination finding that Swagway’s use of the “Swagway” designation infringed the asserted marks, but its use of the “Swagtron” designation did not. In light of the Initial Determination, ALJ Shaw denied Swagway’s motion for partial termination, along with other pending motions not yet decided. The Commission affirmed the likelihood of confusion and trademark infringement determinations and declined to review the denial of Swagway’s consent order motion.

Notable Disputed Issues and Related Points of Law:

Likelihood of Confusion/Actual Confusion: ALJ Shaw’s determination of a likelihood of confusion was based on an analysis of six factors: (1) evidence of actual consumer confusion; (2) the degree of similarity in appearance and pronunciation between the marks; (3) the intent of the actor in adopting the designation; (4) the relation in use and manner of marketing between the products bearing the mark or designation; (5) the degree of care exercised by consumers of the marked or designated products; and (6) the strength of the mark. As to the actual confusion factor, ALJ Shaw found “overwhelming evidence” of actual confusion between the “Swagway” designation and the “Segway” marks.

The Commission modified the Initial Determination as to actual confusion, finding that evidence of actual confusion “d[id] not weigh in favor of likelihood of confusion,” because the incidents of actual confusion were relatively few compared to the overall volume of sales bearing the “Swagway” designation.  The Commission nonetheless found that the factors collectively weighed in favor of a likelihood of confusion.

On appeal, Swagway contended that the Commission weighed the absence of actual confusion incorrectly and that the absence of actual confusion was “especially probative” because the accused products and the marked products were sold concurrently over a substantial period of time. But the Federal Circuit rejected this argument, noting that Swagway made no showing that it had presented any evidence warranting a finding of “long-term, concurrent use in the same channels of trade.” Without such evidence, the Federal Circuit concluded that Swagway “failed to establish that the absence of actual confusion evidence should even weigh against, let alone strongly against, a likelihood-of-confusion finding.”

Preclusive Effect: Swagway also argued that the Commission erred procedurally by failing to consider its consent order motion. While both the proposed consent order and the Commission’s exclusion order would have essentially the same practical effect—precluding importation or sale of hoverboards bearing the “Swagway” designation—Swagway argued that the Commission’s order would have preclusive effect over a co-pending case in the United States District Court for the District of Delaware, whereas the consent order would not.  The Federal Circuit held that “the Commission’s trademark decisions, like its patent decisions, do not have preclusive effect,” effectively mooting Swagway’s argument.

The Federal Circuit’s holding is in conflict with decisions of the Second Circuit and Fourth Circuit which have each held that ITC determinations as to trademark claims are entitled to preclusive effect.  See Union Mfg. Co. v. Han Baek Trading Co., 763 F.2d 42 (2d Cir. 1985); Baltimore Luggage Co. v. Samsonite Corp., 977 F.2d 571 (4th Cir. 1992).

Commission Will Not Institute if Allegations Intrude on The Jurisdiction of the FDA

Amarin Pharma, Inc. v. Int’l Trade Comm’n, No. 2017-2563, 2019 WL ____ (Fed. Cir. May 1, 2019) (on appeal from Inv. Nos. 337-TA-3247)

Before: Federal Circuit (Prost, Wallach, Hughes)

Practice Tips and Insights:

Although it is possible to state a claim under the Lanham Act at the ITC for products that are regulated by the FTC, practitioners will need to draft the Complaint carefully. The Complaint cannot appear to be asking the ITC to make what would amount to a “preemptive determination” on how the FDA would interpret its own regulations .  If the Complaint can base the claim on a false statement concerning an issue that the FDA has already ruled on or gave guidance on, your claim might survive.

Holding and Status:

The Federal Circuit affirmed the Commission’s determination not to institute the investigation in this case. The Federal Circuit held that Amarin failed to state a cognizable claim under § 337 because the claim required that Amarin prove violations of the FDC. Because the FDCA provides the United States with “nearly exclusive enforcement authority”, the Court found Amarin’s claims are precluded by the FDCA. The Federal Circuit also found that it had jurisdiction to review a Commission decision denying institution.

Case Background:

Amarin filed a complaint alleging violations under § 337 by certain companies who were allegedly falsely labeling and deceptively advertising their imported synthetically produced omega-3 products. The Complaint alleged that these products were being marketed as “dietary supplements” when the products are actually “new drugs” as defined in the Food, Drug, and Cosmetic Act (“FDCA”) that required approval but had not actually been approved for sale or use in the United States.

Amarin claimed that the importation and sale of the articles is an unfair act or unfair method of competition under § 337 because it violates § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Amarin also alleged that importation of the articles violates § 337 “based upon the standards set forth in the FDCA.”

After the complaint was filed but before institution, the FDA submitted a letter urging the Commission not to institute an investigation because, according to the FDA, the FDCA precludes any claim that would “require[] the Commission to directly apply, enforce, or interpret the FDCA.” The Commission subsequently issued its decision declining to institute the investigation, reasoning that Amarin’s allegations are precluded by the FDCA.

Amarin appealed and argued that the Commission had a mandatory duty to institute an investigation because 19 U.S.C. § 1337(b)(1) imposes a non-discretionary duty on the Commission to institute an investigation when presented with a complaint under oath. Based on the “shall” language of that section (“The Commission shall investigate any alleged violation of this section on complaint under oath or upon its initiative.”) Amarin argued that the ITC was required to institute. Amarin also argued that it had stated a cognizable claim and relied heavily on the POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102 (2014) which held that the FDCA does not categorically preclude a Lanham Act claim based on a product (e.g., a label) that is regulated by the FDCA.

The intervenors argued that the Federal Circuit did not have jurisdiction to review the decision not to institute which they asserted was not a final determination under § 1295(a)(6) because a “final determination” at the ITC is one made “as a result of an investigation.” In other words, because no investigation was instituted, there could be no final determination.

Notable Disputed Issues and Related Points of Law:

Jurisdiction:

On the jurisdictional question, the Federal Circuit found that it had jurisdiction to review the Commission’s decision not to institute. Relying on Amgen Inc. v. ITC, 902 F.2d 1532 (Fed. Cir. 1990), the Court found that the Commission’s decision not to institute was “intrinsically a final determination, i.e., a de-termination on the merits.”

Is the ITC’s institution decision discretionary?

On the issue of whether the ITC was required to institute, the Federal Circuit recognized that § 1337(b) specifically contemplates certain scenarios in which the Commission need not institute an investigation. For example, § 1337(b)(3) states that the Commission “may institute” under specified circumstances). The Court also recognized that the Commission Rules, such as Rule 210.10, also contemplate non-institution.  Relying on those rules and the decision in Syntex Agribusiness, Inc. v. ITC, 659 F.2d 1038 (CCPA 1981), the Court found that the Commission may decline to institute an investigation where a complaint fails to state a cognizable claim under § 337.

Can a Lanham Act Claim at the ITC be based on a product label that is regulated by the FDCA?

On the issue of whether the complaint stated a cognizable claim, the Federal Circuit held that Amarin failed to state a cognizable claim under § 337 because the claim required that Amarin prove violations of the FDC. Because the FDA had not taken the position that the articles at issue do, indeed, violate the FDCA, and because the FDCA provides the United States with “nearly exclusive enforcement authority”, such claims are precluded by the FDCA.

The Court recognized that POM Wonderful held that the FDCA does not categorically preclude a Lanham Act claim based on a product (e.g., a label) that is regulated by the FDCA, but held that POM Wonderful did not open the door to Lanham Act claims that are based on proving FDCA violations. The Court distinguished that case, reasoning that the allegations underlying the Lanham Act claim in POM Wonderful did not require proving a violation of the FDCA itself.

The Federal Circuit was careful to note, however, that its holding was “limited” and that Amarin’s claims are precluded at least until the FDA has provided guidance as to whether the products at issue are dietary supplements.

Appeal Becomes Moot In Part Because a Subject Patent Expired

Hyosung TNS, Inc. v. Int’l Trade Comm’n, No. 2017-2563, 2019 WL ____ (Fed. Cir. June 17, 2019) (on appeal from Inv. Nos. 337-TA-972

Before: Federal Circuit (Dyk, Clevenger, O’Malley)

Practice Tips and Insights:

The Federal Circuit will likely dismiss an appeal as moot if the patent at issue expires before the appeal is heard.  In cases where the patent at issue expires before appellate review, the Court has and will likely dismiss the appeal from the ITC decision as moot. This is true even if there is co-pending civil litigation that could possibly be impacted by a decision on appeal. The Court’s ruling on that issue here was based at least in part on the fact that the ITC’s determination of patent infringement and validity do not have claim or issue preclusive effect even if affirmed by the Federal Circuit.

Past substantial expenditures can be used to satisfy the economic prong. When trying to establish the economic prong of the domestic industry requirement, it’s okay to submit and rely on older research and development expenses if you can also submit substantial evidence tying those older “substantial investments” to ongoing qualifying and meaningful expenditures exploiting the patented technology and show that there is a sufficient nexus between the earlier investment in research and the continuing expenditures.

Holding and Status:

The Federal Circuit affirmed the Commission’s determination that the accused products infringed one of the asserted patents and found that the portion of the appeal related to the second patent was moot because the patent had since expired.

Case Background:

Hyosung and Diebold are both in the market of manufacturing and selling ATMs. Diebold filed a Complaint with the International Trade Commission claiming that Hyosung was importing ATMs that infringed Diebold’s’616 and ’631 patents.  The ITC concluded that Hyosung’s accused products infringed both the ’616 and ’631 patents; that the asserted claims were not shown to be invalid; and that the domestic industry requirement was met for both patents.  The ITC entered a limited exclusion order and cease and desist orders against Hyosung.

The issue on appeal regarding the ‘616 Patent was weather the Federal Circuit should even reach Hyosung’s arguments that the ITC erred in its claim construction and infringement analysis because the appeal became moot upon the expiration of the ’616 patent.

With regard to the non-expired patent, Hyosung made two main arguments.  First, Hyosung argued that the ITC applied an erroneous legal analysis for motivation to combine and that the ITC should have found the asserted claims obvious in view of the two references put forth by Hyosung, along with the knowledge of a POSITA. The second argument, related to the economic prong of the domestic industry requirement and Hyosung’s argument that the ITC erred by considering investments that occurred five years or more before a complaint was filed.

Notable Disputed Issues and Related Points of Law:

The Appeal Became Moot upon Expiration of the ‘616 Patent: The Federal Circuit recognized in its opinion that, because the ’616 patent had expired, ITC’s limited exclusionary order and cease and desist orders as to that patent have no further prospective effect. Slip Opinion at 6, citing Tessera, Inc. v. Int’l Trade Comm’n, 646 F.3d 1357, 1371 (Fed. Cir. 2011) (citing Tex. Instruments Inc. v. U.S. Int’l Trade Comm’n, 851 F.2d 342, 344 (Fed. Cir. 1988)).

The Court then went on to reject Diebold’s argument that possible collateral consequences of a decision on the merits prevented the case from becoming moot. Although the Court recognized that a case may remain alive based on collateral consequences, any potential consequences would not save the case from being rendered moot because “the ITC’s determination of patent infringement and validity do not have claim or issue preclusive effect even if affirmed by our court.” Slip Opinion at 8, citing Bio-Tech. Gen. Corp. v. Genentech, Inc., 80 F.3d 1553, 1563–64 (Fed. Cir. 1996); Tex. Instruments Inc. v. Cypress Semicon-ductor Corp., 90 F.3d 1558, 1568–69 (Fed. Cir. 1996); Tan-don Corp. v. U.S. Int’l Trade Comm’n, 831 F.2d 1017, 1019 (Fed. Cir. 1987).

Prior Expenditures Can Be Relied On:  The Federal Circuit also found no error in the ITC’s acceptance of some five-year old expenses used to support domestic industry. The Court recognized that the ITC has previously held that “[p]ast expenditures may be considered to support a domestic industry claim so long as those investments pertain to the complainant’s industry with respect to the articles protected by the asserted [intellectual property] rights and the complainant is continuing to make qualifying investments at the time the complaint is filed.” Certain Television Sets, Television Re-ceivers, Television Tuners, & Components Thereof, Inv. No. 337-TA-910, 2015 WL 6755093, at *36 (Oct. 30, 2015). The Federal Circuit further found that, “There is nothing in the statutory language that supports Hyosung’s bright line rule for rejecting research expenditures that are made more than five years earlier.” Slip Opinion at 14. Although the Federal Circuit recognized “a past investment may have such an attenuated connection to the continued existence of a domestic industry as to be irrelevant” there was no legal error in the ITC’s conclusion that a past investment may be used to support a finding of domestic industry where there is a connection to ongoing service and assembly expenses. “Here, there is substantial evidence supporting the ITC’s finding that Diebold’s earlier substantial investment in research and development relating to the ’631 patent was relevant based on the ongoing qualifying and meaningful expenditures exploiting that technology, and that there was a sufficient nexus between the earlier investment in research and the continuing expenditures.” Slip Opinion at 15.