Beware NPEs - ITC says no to exclusion order for an NPE who obtained ongoing royalties in district court

On August 1, 2012, in Certain Video Displays and Products Using and Containing Same, Inv. No. 337-TA-828, Order No. 9, ITC ALJ Essex held that an ongoing royalty awarded in the EDTX precluded an NPE, Mondis Technology Ltd., from obtaining an exclusion order from the ITC. The EDTX had awarded post-verdict (or ongoing royalties) to Mondis against respondents Chimei Innolux Corp. and Innolux Corp. ("CMI"). CMI argued in the ITC that the ongoing royalties constituted a license. Mondis argued to the contrary, but Judge Essex rejected Mondis' arguments.

Judge Essex found that by taking ongoing royalties Mondis had surrendered the right to exclude, which is the essence of a license. Key points that supported the decision:

• The accused products/infringement allegations in the ITC were "co-extensive" with the district court's judgment. This distinguished the ITC case between Paice and Toyota, where Paice sought an exclusion order on vehicles not included in the district court's ongoing royalties order.
• Mondis had not sought an injunction at the district court. The only post-verdict relief was ongoing royalties.
• Deeming post-verdict royalties "ongoing royalties" rather than a "compulsory license" does not make the remedy of ongoing royalties any less of a license.

An important lesson for NPEs surrounds the sequencing of district court and ITC actions. If an NPE can gain jurisdiction in the ITC, it may wish to proceed there first and obtain an exclusion order. Then it may wish to proceed in district court and obtain damages for the products that entered the U.S. prior to the exclusion order, foregoing ongoing royalties and opting instead for the previously awarded exclusion order. Here, however, Mondis proceeded in the reverse order. It obtained its award from the district court, and then pursued an exclusion order on the same products in the ITC.

With the Mondis decision on the books in the ITC, NPEs should be careful in how they sequence their cases and the relief that they seek. If they prefer an exclusion order, accepting ongoing royalties without attempting to get an injunction in district court will likely lead to the same outcome that Mondis suffered no exclusion order.