Kyocera v. ITC: The Limits of a Limited Exclusion Order

Kyocera Wireless Corp. v. International Trade Commission, 545 F.3d 1340 (Fed. Cir. 2008), decided October 14, 2008, rewired the remedial architecture of Section 337 investigations at the U.S. International Trade Commission (ITC). Writing for the panel, Judge Rader held that a limited exclusion order (LEO) cannot bar the importation of downstream products made by companies that were never named as respondents in the investigation. The decision curtailed a practice the ITC had used to give complainants sweeping border relief and forced patent owners to make hard, early choices about whom to sue.

At a glance

• Case: Kyocera Wireless Corp. v. International Trade Commission, 545 F.3d 1340 (Fed. Cir. 2008), No. 2007-1493
• Decided: October 14, 2008; opinion by Judge Rader, joined by Judges Bryson and Linn
• Holding: Under 19 U.S.C. § 1337(d)(2), a limited exclusion order may reach only the products of parties named as respondents and found in violation; it cannot exclude downstream products of unnamed third parties
• Disposition: Affirmed in part, vacated and remanded in part. The court affirmed the ITC’s claim construction and validity determinations, but vacated and remanded both the induced-infringement liability finding and the exclusion order
• Status: Final; remains the governing authority on LEO scope

Section 337 and the two kinds of exclusion order

Section 337 of the Tariff Act of 1930, codified at 19 U.S.C. § 1337, makes it unlawful to import articles that infringe a valid United States patent. Unlike a district court, the ITC does not award damages. Its principal remedy is an exclusion order directing U.S. Customs to bar the offending goods at the border. That in rem, border-focused remedy is what makes the ITC attractive to patentees, and it is why the scope of an exclusion order is so consequential.

The statute recognizes two forms of exclusion order. A limited exclusion order, authorized by § 1337(d), is directed at the goods of the named respondents. A general exclusion order (GEO) bars all infringing goods regardless of source, but the ITC may issue one only under § 1337(d)(2) upon a heightened showing: that a GEO is necessary to prevent circumvention of a limited order, or that there is a pattern of violation and it is difficult to identify the source of infringing products. The GEO’s higher bar reflects its extraordinary breadth. It can shut out even companies that had no notice of the investigation.

The facts: chips, handsets, and unnamed manufacturers

Broadcom Corporation owned U.S. Patent No. 6,714,983, directed to power-saving features in mobile devices. Broadcom filed a Section 337 complaint naming a single respondent, Qualcomm Incorporated, and alleged that Qualcomm’s baseband processor chips infringed. Qualcomm did not itself import finished consumer products in the ordinary case. Its chips were sold to handset makers, incorporated into phones abroad, and then imported into the United States.

The ITC found a violation and issued a limited exclusion order that reached not just Qualcomm’s chips but “handheld wireless devices” containing those chips, no matter who manufactured the devices. In practice, that swept in phones made by Kyocera, LG, Samsung, and other manufacturers who were never respondents, never litigated the case, and had no opportunity to defend. Those downstream manufacturers challenged the order’s reach on appeal.

The court’s reasoning

The Federal Circuit held that the statutory text controls, and the text ties a limited exclusion order to persons found to have violated Section 337. Section 1337(d)(2) draws a deliberate contrast: a limited order addresses the articles of “persons determined by the Commission to be violating” the statute, while a general order, available only on the heightened showing, is what Congress provided for reaching goods regardless of source. To let a limited order exclude downstream products of unnamed parties would collapse that statutory distinction and let complainants obtain the practical breadth of a general order without meeting the general order’s requirements.

The panel treated this as a pure question of statutory text. Because “the Act speaks unambiguously to the precise question at issue in this case,” the court said, “the Chevron inquiry is at an end,” and it had only to “give effect to the unambiguously expressed intent of Congress.” It rejected the argument that exclusion orders are purely in rem instruments indifferent to who imports the goods, reasoning that § 1337(d)(2) “incorporates the in personam element.” It distinguished Hyundai Electronics Industries Co. v. United States ITC, 899 F.2d 1204 (Fed. Cir. 1990), where the only downstream products swept in belonged to Hyundai itself, the sole adjudged violator. And it pointed to its own precedent that limited orders “only apply to the specific parties before the Commission in the investigation,” Fuji Photo Film Co. v. ITC, 474 F.3d 1281, 1286 (Fed. Cir. 2007).

The court also noted that Broadcom was poorly placed to warn of drastic consequences: the Commission had found that Broadcom knew the identities of the handset makers and knew that almost all accused chips entered the country inside third-party handsets, yet chose neither to name those makers nor to seek a general exclusion order. Having made that strategic choice, the panel wrote, Broadcom did not “stand in the best position to attempt to blur the clear line drawn by the statute between LEOs and GEOs.” The court added that the order would be ultra vires in any event, because the ITC had found only induced infringement and Qualcomm does not manufacture the finished handsets. It vacated the exclusion order and remanded so the Commission could reconsider its enforcement options.

Although the opinion itself never mentions the ITC’s longstanding “EPROMs” practice, drawn from Certain Erasable Programmable Read-Only Memories, which had allowed downstream exclusion under a multifactor balancing test, the statutory holding is what displaced that practice as a route to reaching non-respondents’ goods.

What the decision changed

Kyocera forced a structural change in Section 337 practice. Before it, a complainant could name a single upstream component supplier and obtain an order that functionally excluded every downstream product incorporating the component. After it, that shortcut was gone. To reach downstream products, a complainant must either name the downstream producers and distributors as respondents (accepting the litigation cost and complexity of a multi-respondent case) or pursue a general exclusion order and build the record its heightened standard demands.

The practical consequences were immediate. Complaints grew longer respondent lists. Component-focused cases had to grapple with how to capture the finished goods that actually cross the border. And the general exclusion order, once relatively rare, became a more frequently sought remedy in cases involving widely distributed downstream products with hard-to-trace sources. Scholarship in the wake of the decision, including analysis in the Santa Clara High Technology Law Journal, mapped how complainants recalibrated their strategies to preserve downstream reach within the constraints Kyocera imposed.

Open questions

Kyocera clarified the outer limit of a limited exclusion order but left contested ground at the margins. It did not fully resolve how the ITC should treat a named respondent whose own imported articles are components later assembled downstream, where the line between the respondent’s article and a third party’s product blurs. It left the precise evidentiary contours of the general exclusion order standard to case-by-case development, and complainants still litigate how strong the “pattern of violation” and “difficulty identifying the source” showings must be. And the decision predates the current volume of e-commerce imports from many small, hard-to-identify sellers, a fact pattern that puts pressure on the named-respondent model and periodically revives arguments for broader relief.

Implications for inventors and businesses

• Name the right respondents early. Complainants who want to stop finished products at the border should name the downstream makers and importers, not only an upstream component supplier, or they risk an order that cannot reach the goods they care about.
• Consider a general exclusion order from the outset. Where downstream sources are numerous or hard to trace, building the record for a GEO from the start may be the only way to obtain comprehensive relief.
• Downstream manufacturers gained a real defense. A company incorporating a supplier’s component into finished goods is not automatically bound by an order in a case it never joined, which affects both risk assessment and indemnification negotiations with suppliers.
• Model the scope of relief before filing. The value of a Section 337 action depends on which products the eventual order will actually exclude, so scope analysis belongs in the pre-filing calculus.

Frequently asked questions

What is the difference between a limited and a general exclusion order? A limited exclusion order bars infringing goods from named respondents. A general exclusion order bars all infringing goods regardless of source, but the ITC may issue one only on a heightened showing, such as a pattern of violation and difficulty identifying the source of infringing products. Kyocera held that a limited order cannot reach downstream products of unnamed companies.

Why did the downstream handset makers matter in Kyocera? Broadcom named only Qualcomm as a respondent, but the exclusion order reached handsets made by other companies that incorporated Qualcomm chips. The Federal Circuit held the ITC could not exclude those unnamed manufacturers’ products through a limited exclusion order, because Section 337(d)(2) ties a limited order to persons found to have violated the statute.

How did complainants respond to Kyocera? They adapted by naming the downstream manufacturers and distributors as respondents where possible, or by seeking a general exclusion order and building the record needed to justify one. Kyocera made naming decisions a central part of Section 337 strategy.

Authorities and sources

• Kyocera Wireless Corp. v. International Trade Commission, 545 F.3d 1340 (Fed. Cir. 2008), No. 2007-1493 (Oct. 14, 2008). Slip opinion (PDF), U.S. Court of Appeals for the Federal Circuit.
• U.S. Court of Appeals for the Federal Circuit, case docket 2007-1493, Kyocera Wireless Corp. v. ITC.
• Morrison & Foerster, ITC Exclusion of Downstream Products: What Remains of EPROMs?.
• Finnegan, Limited Exclusion Orders at the ITC.
• Michael J. Lyons, Andrew J. Wu & Harry F. Doscher, Exclusion of Downstream Products After Kyocera: A Revised Framework for General Exclusion Orders, 25 Santa Clara High Tech. L.J. 821 (2009).
• 19 U.S.C. § 1337(d) (limited and general exclusion orders), Cornell Legal Information Institute.