By: Daniel Kazhdan, Ph.D. and David Maiorana – We previously noted that the Commission does not believe it is required to vacate a civil penalty order just because the litigants settle a case.  The Federal Circuit’s decision in DBN Holdings, Inc. v. ITC, No. 17-2128 (Fed. Cir. Nov. 27, 2018), adds nuance to this point.  On the one hand, the Court held that the ITC was required to consider whether to rescind a civil penalty for infringing a consent order on a now-invalidated patent.  On the other hand, the Court left open the possibility that the ITC could refuse to do so.

In an earlier ITC proceeding, the patentee, DBN Holdings, Inc., and the accused infringer, DeLorme Publishing Co., stipulated to a consent order in the ITC.  DeLorme then violated the consent order, and DBN moved for sanctions for civil contempt.  The Commission issued a civil penalty.  Concurrently, with DBN’s motion for sanctions, DeLorme brought a declaratory-judgment suit, challenging the validity of DBN’s patent.  Shortly after the ITC issued its sanctions, the district court invalidated the patents.  The Federal Circuit affirmed both decisions.  See DeLorme Publ’g Co. v. BriarTek, 622 Fed. App’x. 912 (Fed. Cir. 2015) (patent invalid); DeLorme Publ’g Co. v. ITC, 805 F.3d 1328 (Fed. Cir. 2015) (sanctions upheld).

DeLorme then asked the ITC to revisit its civil-contempt holding in view of the courts’ decision that the patent was invalid.  The ITC held that DeLorme’s challenge to the consent order was barred by “res judicata.”  In Tuesday’s non-precedential opinion, the Federal Circuit reversed.  At the threshold, it noted that res judicata does not apply to proceedings within the same case—as here.  The relevant doctrine is “law of the case,” but that, too, is inapplicable here, as no tribunal has decided whether to modify or rescind the contempt finding.

What to do now, however, is complicated.  The Federal Circuit explained that it is clear that a “compensatory civil award for violating a non-final injunction” will be set aside if the underlying patent is invalidated.  So if a patent holder sues in one district court and wins and another party invalidates the patent in another court, so long as both litigations are still pending, the judgment for patent damages in the first proceeding will be vacated.  But that may not be true for civil contempt proceedings, which are more “punitive.”  The Federal Circuit explained that civil-contempt penalties are more akin to criminal contempt proceedings where “the resulting penalties would not be set aside simply because the claim forming the basis of an injunction had been cancelled.”

The Federal Circuit “therefore reverse[d] the Commission’s res judicata determination and remand[ed] for the Commission to consider whether to rescind or modify the civil penalty in light of the final judgment of invalidity of the relevant claims of [DBN’s] patent.”

Takeaway

 This case serves as a reminder that terminating an investigation with a consent order can result in the rigid enforcement of its terms and leave the parties with little flexibility after the fact.  Respondents should be aware of the potential pitfalls associated with stipulating to consent orders.

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Dave Maiorana is a trial lawyer with a notable combination of significant experience as a USPTO examiner along with 20 years litigating complex intellectual property matters. He has represented clients as both plaintiffs and defendants around the country and in the ITC. Dave has experience in diverse technology areas, including teeth whitening, diapers, fem care products, self-inflating tires, oxygen concentrators, flash memory, and digital cameras.