Uncharted Waters: ITC Administrative Law Judge Recommends $37 Million Penalty For Prohibited Fish-Finder Sales
In an enforcement proceeding stemming from the International Trade Commission’s December 2015 decision in Certain Marine Sonar Imaging Devices, Inv. No. 337-TA-921, ALJ David Shaw has found that the ITC’s cease and desist order was violated by continued infringing sales of imported products and has recommended that respondent Garmin be assessed a civil penalty of $37 million. The May 25th decision (made public on June 5th) is subject to review by the Commission, but if adopted would be the largest penalty ever imposed by the ITC for violation of a cease and desist order. Yet, according to the ALJ, the penalty was less than the ITC Staff had recommended and less than half of the potential penalty that could have been imposed under law.
By way of background, in June 2014, Navico Inc. (Oklahoma) and Navico Holding AS (Norway) filed a complaint under Section 337 (19 USC 1337) alleging patent infringement by Garmin International, Inc. and other related entities of certain Navico patents relating to marine sonar imaging (“fish-finder”) devices. On December 1, 2015, the ITC issued its final determination finding that the Garmin respondents had violated Section 337 based on the importation and sale of products that infringed claims of two of those patents. On the same date, the Commission issued a limited exclusion order barring the Garmin products from entry into the U.S. and cease and desist orders prohibiting the further sale of infringing products within the U.S. The Commission may issue such orders in lieu of or in addition to an exclusion order where it has been shown that there exists commercially significant inventory in the U.S. The statute permits the Commission to impose penalties of “not more than the greater of $100,000 or twice the domestic value of the articles entered or sold” in the event an order is violated.
In October 2016, at Navico’s request, the Commission instituted an enforcement proceeding to determine whether infringing products were being sold in violation of the cease and desist orders. After discovery and a hearing, the presiding administrative law judge rejected Garmin’s arguments that the products in question were redesigned and did not infringe the patents and concluded that products had been sold in violation of the orders. In reaching his conclusion, Judge Shaw noted that
respondents did not seek an advisory opinion or clarification from the Commission for their “tilted” design products. There is no evidence that respondents obtained legal advice before importing and selling the “tilted” design products. The evidence shows that the decisions to import and sell the “tilted” design products were made by technical and management personnel without any evidence of advice from legal counsel.
This, he determined,
leans toward a finding of bad faith on the part of the respondents because, although they did not engage in the most egregious forms of behavior possible (e.g., complete and total disregard of the remedial orders), neither did they take reasonable and energetic steps to avoid violations of the C&D Orders.
In analyzing the appropriate penalty amount, the ALJ considered, among other things, how Garmin benefited from the violation. According to the ALJ, “by engaging in violating activity, respondents were able to preserve their share in the domestic market, thereby avoiding the long term effects from even a temporary exclusion from the market place.” The ALJ agreed with the ITC Staff that
the penalty should not be any less than the respondents’ margin from sales in violation of [the orders] . . . because otherwise respondents will have profited from violating the Commission’s Orders. However, that amount may not be sufficient to serve as a deterrent to future violations. The size and profitability of this market segment strongly suggest that a rational economic actor may well be willing to forgo any profits for a time simply to preserve its share of the domestic market.
The ITC’s decision in the underlying investigation is on appeal to the Federal Circuit (argument was heard on January 10, 2017). As reported in previous blogs (here and here), however, the ITC refused to stay its remedial orders pending appeal even though it appeared that those orders raised significant questions concerning the ITC’s enforcement authority. Now, with the ALJ’s recommendation of the largest-ever penalty for violating a cease and desist order, the ITC is presented with a potentially ground-breaking decision concerning the nature and scope of its enforcement powers. As the ALJ noted, with revenues from the infringing sales “greatly exceed[ing] the alternative maximum penalty of $100,000 per day . . . the Commission’s consideration of penalties in most prior enforcement proceedings is of limited relevance.” It remains to be seen how the ITC will navigate these uncharted waters.