Spansion v. ITC: Why eBay Does Not Reach Section 337 Remedies

Spansion, Inc. v. International Trade Commission, 629 F.3d 1331 (Fed. Cir. 2010), decided December 21, 2010, settled a question that reshaped where patent owners choose to enforce their rights. Writing for the panel, Judge Linn held that the Supreme Court’s four-factor test for injunctions in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), does not govern remedies at the U.S. International Trade Commission (ITC). Under Section 337, once the ITC finds a violation, it must issue an exclusion order unless the statutory public-interest factors dictate otherwise. The decision explains, in structural terms, why the ITC became the forum of choice for patentees who could no longer count on a district-court injunction.

At a glance

• Case: Spansion, Inc. v. International Trade Commission, 629 F.3d 1331 (Fed. Cir. 2010), Nos. 2009-1460, -1461, -1462, -1465, on appeal from ITC Investigation No. 337-TA-605
• Decided: December 21, 2010; opinion by Judge Linn, joined by Judges Lourie and Friedman
• Holding: eBay’s equitable four-factor test does not apply to ITC remedy determinations under Section 337; on finding a violation the ITC must issue an exclusion order unless the enumerated public-interest factors weigh against it
• Status: Final; remains the controlling authority on the eBay/Section 337 divide

The eBay problem the case answered

For decades, a patentee who prevailed on infringement in district court could expect a permanent injunction almost as a matter of course. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), ended that presumption. The Supreme Court held that injunctive relief under the Patent Act, 35 U.S.C. § 283, requires the traditional four-factor equity analysis: irreparable harm, inadequacy of legal remedies, the balance of hardships, and the public interest. In practice, eBay made injunctions substantially harder to obtain, particularly for patentees who do not themselves make products (non-practicing entities), because they often cannot show irreparable harm from continued infringement when money damages would suffice.

That development created an obvious question. The ITC, acting under Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, also issues what is functionally injunctive relief: exclusion orders that bar infringing imports at the border, and cease-and-desist orders. If eBay’s equitable test governed the ITC too, the Commission’s remedies would become as contingent as district-court injunctions, and the ITC’s distinctive appeal would evaporate. Spansion is the case that answered whether eBay reaches that far. It does not.

The facts and posture

Tessera, Inc. filed a Section 337 complaint on April 17, 2007 alleging that semiconductor chip-packaging technology imported by Spansion, Freescale, ATI, Qualcomm, STMicroelectronics, and Motorola infringed U.S. Patent No. 5,852,326 and U.S. Patent No. 6,433,419. In its May 20, 2009 final determination the Commission found direct infringement of the ‘326 patent and contributory infringement of the ‘419 patent, and it issued both limited exclusion and cease-and-desist orders. The respondents appealed on several grounds, including a challenge to the remedy. Spansion’s argument was that Section 337’s “public welfare” language is so broad and inclusive that Congress must have intended it to carry the equitable principles reflected in eBay, so the Commission should have weighed equitable considerations such as the PTO’s rejection of some asserted claims in reexamination and the fact that Tessera is a licensor that does not practice the invention and could be made whole by damages.

The court’s statutory reasoning

The Federal Circuit rejected the argument on what it called the different statutory underpinnings of the two schemes. Section 283 authorizes courts to grant injunctions “in accordance with the principles of equity … on such terms as the court deems reasonable,” the language eBay construed. Section 337 contains no such equitable command. Instead, it provides that upon finding a violation the Commission “shall direct” that the offending articles be excluded from entry, unless, after considering the enumerated public-interest factors, it finds that they should not be excluded.

The court read the legislative history the same way. In the Tariff Act of 1930 Congress eliminated the monetary remedy for intellectual-property import violations, leaving an injunction as the only relief available under Section 337. Then, in the Omnibus Trade and Competitiveness Act of 1988, Congress removed the requirement of proof of injury to the domestic industry, which the panel read as making a showing of irreparable harm unnecessary in cases of infringement by importation. Together, those moves indicate that Congress intended injunctive relief to be the normal remedy for a Section 337 violation. The panel added that the difference between exclusion orders and Patent Act injunctions follows “the long-standing principle that importation is treated differently than domestic activity,” a phrase it drew from the Commission’s own Baseband Processor Chips determination. The court therefore held that eBay does not apply to Commission remedy determinations under Section 337, and it affirmed the Commission across the board.

The real check: the public-interest factors

The court did not hold that ITC relief is unconditional. Section 337 supplies its own limiting principle. Before issuing or enforcing an exclusion order, the Commission must consider the effect of the remedy on the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers. These public-interest factors, not the eBay equities, are the safety valve.

The practical point, which the panel itself made, is that the public-interest factors rarely defeat an exclusion order. As of Spansion, the Commission had found the public interest to outweigh the need for relief in only three investigations, all decided before the 1988 amendments: automatic crankpin grinders for energy-efficient automobiles (1979), inclined-field acceleration tubes used in basic scientific research (1980), and fluidized supporting apparatus, a form of hospital equipment (1984). In each, domestic supply by the patentee and its licensees was inadequate, so exclusion would have deprived the public of products needed for an important health or welfare purpose. For the ordinary patent dispute, a finding of violation leads to an exclusion order. That near-automatic quality is exactly what eBay removed from district-court practice and what Spansion confirmed the ITC retains.

What it changed

Spansion did not so much announce a new rule as ratify a structural advantage, and in doing so it accelerated the ITC’s transformation into a premier patent-enforcement venue. A patentee, including a non-practicing entity that could not obtain a district-court injunction after eBay, could go to the ITC and obtain exclusionary relief on a violation, subject only to the domestic-industry requirement and the public-interest factors. The decision is a standard citation in any discussion of forum selection in patent litigation and helps explain the sustained volume of Section 337 filings in the years that followed.

Open questions

Spansion fixed the doctrinal boundary but left its practical edges to develop. It did not define how demanding the public-interest analysis should be, and the ITC’s occasional public-interest denials continue to shape expectations about when the safety valve engages. The decision also intersects, unresolved, with the treatment of standard essential patents at the ITC, where later policy statements and cases have debated whether the public interest should limit exclusion orders on patents subject to FRAND commitments. And because the ITC’s leverage flows from exclusion, Spansion sharpens rather than answers the broader policy debate about whether import-based injunctive relief should be as freely available as the statute makes it.

Implications for inventors and businesses

• The ITC is a genuine alternative to district-court injunctions. Patentees who fear that eBay forecloses an injunction should evaluate a Section 337 action, where exclusion follows a violation absent contrary public-interest findings.
• Respondents must litigate the public interest, not the eBay equities. The way to resist an exclusion order is to build a public-interest record on health, competition, domestic production, and consumers, because the equitable arguments that work in district court do not apply.
• Factor in the domestic-industry requirement. The ITC’s remedial advantage comes with a gatekeeping cost: the complainant must prove a domestic industry, which non-practicing entities can find challenging.
• Model the whole enforcement portfolio. Sophisticated patentees often file parallel ITC and district-court actions, using the ITC’s exclusion leverage alongside a damages case, a strategy Spansion helps make attractive.

Frequently asked questions

Why doesn’t eBay apply at the ITC? eBay interpreted the Patent Act’s provision for injunctions in district court, which speaks in equitable terms. Section 337 is a different statute with different language: on finding a violation the ITC shall issue an exclusion order unless public-interest factors counsel otherwise. The Federal Circuit held eBay’s four-factor equitable test does not govern that separate statutory remedy.

What are the Section 337 public-interest factors? Before issuing or enforcing an exclusion order, the ITC must consider the effect on public health and welfare, competitive conditions in the U.S. economy, U.S. production of competitive articles, and U.S. consumers. These factors, not the eBay equities, are the check on ITC relief, and they rarely defeat an order.

Does Spansion make the ITC more attractive than district court? For many patentees, yes. After eBay made district-court injunctions harder to obtain, especially for non-practicing entities, the near-automatic exclusion order the ITC issues on a violation became a powerful alternative, subject only to the public-interest factors and the ITC’s domestic-industry requirement.

Authorities and sources

• Spansion, Inc. v. International Trade Commission, 629 F.3d 1331 (Fed. Cir. 2010), Nos. 2009-1460, -1461, -1462, -1465 (Dec. 21, 2010). Slip opinion (PDF), U.S. Court of Appeals for the Federal Circuit.
• U.S. Court of Appeals for the Federal Circuit, opinion listing for 2009-1460, Spansion, Inc. v. ITC.
• 19 U.S.C. § 1337, Unfair practices in import trade, and 35 U.S.C. § 283, Injunction (Cornell LII).
• Orrick, Section 337 Investigations Before the International Trade Commission.
• IPWatchdog, Obtaining Injunctions Under eBay Versus at the International Trade Commission.
• eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006); 19 U.S.C. § 1337(d) and (f); 35 U.S.C. § 283.