Julius Melnitzer, Law Times
(Recap)
The U.S. Court of Appeals for the Federal Circuit will be hearing an appeal from the International Trade Commission that could well shape the intellectual property enforcement strategies of many Canadian and foreign companies.
The appeal revolves around an “exclusion order” the commission granted to Ottawa-based Standard Innovation Corp., a manufacturer of sexual wellness products, against the Lelo group of companies after Standard Innovation alleged infringement of a game-changing patent regarding a sexual stimulation device for women. The order banned the importation, sale and marketing of Lelo’s infringing products into the United States.
Brad White, of Osler, Hoskin & Harcourt LLP’s Ottawa office and global co-ordinating intellectual property litigation counsel for Standard Innovation, believes the case highlights a unique opportunity for Canadian businesses, especially smaller ones, to protect their market space without protracted court battles.
“Canadian companies with an international footprint requiring a timely resolution to IP disputes should explore resorting to the [commission],” says White, who teamed up with Gary Hnath of Mayer Brown LLP’s Washington office and Robert Lord’s intellectual property litigation team from Osha Liang LLP in a collaborative cross-border approach that had the trade commission complaint at its core but was supplemented by lawsuits in U.S. and Canadian federal courts.
“It would have been easy to go the traditional route of a lawsuit alone,” says White.
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Standard Innovation filed its initial pleading in late fall of 2011 and after the requisite internal review, the commission accepted the brief for investigation at the beginning of 2012. The hearing was set for September 2012.
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“What’s unique about the [trade commission] forum is that it’s a three-party affair,” says White.
“Not only are the complainant and the infringer represented but so is the commission through a staff attorney who is responsible for the interests of the American public.”
In January 2013, approximately three months after the hearing, the presiding administrative law judge found that infringement had occurred and made an exclusion order banning the importation, sale and marketing of the infringing products.
He refused, however, to make a general exclusion order on the grounds that Standard Innovation’s products didn’t have sufficient U.S. domestic content to justify such an order, something that would have banned not only the respondent’s infringing products but all infringing products.
“General exclusion orders are granted in under five per cent of cases, and in these cases the protected product has had at least 20 per cent domestic content,” says White.
Standard Innovation’s products, however, had domestic content of only five per cent. But that didn’t deter its legal team, whose members laid an evidentiary groundwork for a qualitative approach to domestic content before the administrative judge.
“We asked the administrative judge to look at the criticality of the components without which our device would not have functioned as patented – what we called the ‘secret sauce’ – and which were in fact manufactured in the U.S.” says White.
On review and following written submissions in April 2013, the commission reversed the administrative judge’s conclusion regarding domestic content and, in a decision released in July 2013, granted a general exclusion order. The commission ruled that the reality of the marketplace meant small companies would inevitably seek to manufacture at the lower costs available abroad and found that the production of the crucial components in the United States was in this case sufficient to satisfy the domestic content requirement.
Standard Innovation also commenced a separate action seeking damages before the Federal District Court in Texas. “While the [trade commission] decision is not binding, it will be persuasive in [Standard Innovation’s] efforts to recover damages,” says White.
Despite the efficacy of the proceedings and the client’s success, White cautions that the costs weren’t necessarily less than Standard Innovation would have experienced in an infringement suit.
“The [commission] route is faster, which was crucial in this case, but despite the truncated nature of the proceedings, it required the same expenditure of time, effort, and money as a full infringement action,” he says.
Still, it’s not over yet. Lelo appealed the commission’s final ruling and brought a motion to stay the exclusion orders pending the outcome of the appeal. Standard Innovation successfully opposed the motion and the orders remain in force.
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