ITC Policy Project Series: Stark Contrast Between District Court and the ITC

We have discussed how much easier it is to get an exclusion order from the International Trade Commission (ITC) compared to an injunction from a district court. The district courts regularly invoke equitable factors to deny injunctions to non-practicing entities (NPEs) or when public health is threatened. Conversely, the ITC rarely invokes the public-interest factors against potential exclusion orders, regardless of the parties or public-health arguments. Perhaps no recent set of cases shows this discrepancy better than the fight over e-cigarette technology we’ve covered before in the ITC Investigation of Certain Tobacco Heating Articles and Components Thereof (Inv. 1199).

Two recent decisions—involving the same parties and similar products—show that contrast in stark relief. Tobacco giants RJ Reynolds (part of British American Tobacco) and Philip Morris have developed e-cigarette technologies covered by each other’s patents. E-cigarettes aren’t harmless, but in the district court, both parties agreed they are less harmful than traditional combustion cigarettes. In both forums, the patent owner successfully showed patent infringement. But the relief granted was quite different.

In the District Court, Injunction Denied

District courts generally resolve successful patent infringement cases by first assessing patent damages for past infringement and then deciding whether to enjoin future sales of the accused products or allow sales subject to an ongoing royalty. The injunction/royalty decision is governed by equity using the four-factor test outlined in the Supreme Court’s eBay v. MercExchange decision. Under eBay, the patent holder must show (1) an irreparable injury; (2) no legal remedy (i.e., damages) can compensate for that injury; (3) an equitable remedy is warranted after balancing the hardship between the parties; and (4) an injunction would not disserve the public interest. The court will deny an injunction if the patent owner fails to meet any of the four equitable factors.

Philip Morris successfully asserted its patents in the Eastern District of Virginia. But the court denied an injunction, in part, because “the permanent injunction sought by Philip Morris would remove a popular and widely used combustible-alternative from the United States market, which could pose a risk of reversion to combustible cigarettes and consequently harm public health.” The mere possibility of harm to public health was sufficient to deny the injunction.

Before the ITC, Exclusion Granted

The ITC resolves successful patent infringement cases by deciding whether to exclude the accused products from import or to allow importation. The exclusion decision is governed by the statutory public-interest factors. The ITC must consider the effect of an exclusion order on (1) public health and welfare; (2) competitive conditions in the U.S. economy; (3) the production of like or directly competitive articles in the United States; and (4) U.S. consumers before excluding imports.

RJ Reynolds successfully asserted its patents at the ITC. The ITC, which the Federal Circuit has now affirmed, granted an exclusion order despite similar evidence regarding removing combustible alternatives from the e-cigarette market. At the ITC, the public interest favored exclusion despite the Commission’s recognition that “there may be some benefits to [Philip’s e-cigarrette] users who switch.” In the ITC’s view, it may exclude a product even where, as here, the “product is regulated by the FDA and there may be some benefit for certain individuals.”

Experienced ITC observers will not be surprised by the different outcomes. Despite the overlap between eBay and public interest factors, the ITC rarely finds that an exclusion order does not serve the public interest. As Reynolds reminded the Federal Circuit, the ITC “has determined that the public interest outweighed the need for injunctive relief in protecting intellectual property rights in only three prior investigations.” This lack of restraint is one reason why non-practicing entities (NPEs) are flocking to the ITC. NPEs, particularly patent assertion entities, find getting any injunction under eBay extremely difficult. That’s not the case at the ITC.

Perhaps it is time for Congress to step in and align the two exclusionary remedies for patent infringement. It need not codify eBay to do so. Instead, it need only provide that the exclusion remedy at the ITC is subject to the “principles of equity” required of the district court under the injunction statute.