On November 21, 2011, the ITC dismissed S3 Graphics' first complaint against Apple in its entirety, following a Commission review of an initial determination by an Administrative Law Judge (ALJ) who found some of Apple's Macintosh computers to infringe two of S3G's four patents-in-suit. Both parties disagreed with the ALJ: Apple wanted (and ultimately won) a dismissal while S3G, which is in the process of being acquired by HTC, wanted more leverage than the ALJ's initial determination, if affirmed, would have provided.
At the time of the ruling, the reasoning wasn't publicly known. The result, "no violation", could have had any number of reasons. More than a month later (on December 22, 2011), the ITC published a redacted version of its detailed (72-page) decision. I analyzed it in order to provide this summary.
The ITC investigation is over, but the ruling is nevertheless worth looking into. Even though Apple doesn't have to fear an ITC import ban over those patents anytime soon, the dispute between Apple and S3G isn't over. S3G might appeal the ITC's decision to the Federal Circuit, and the same patents are at issue in a federal lawsuit (in the Northern District of California) that is currently suspended for the duration of reexaminations of those patents by the USPTO (including all possible appeals of any non-final reexamination result). And beyond this particular dispute, the ITC seized this opportunity to provide some further clarification on the boundaries of its mandate in connection with products that are imported in a non-infringing form but used in infringing ways after they enter the United States. The related passages of that ruling will likely be cited in a number of future ITC investigations raising similar issues.
In order to keep things focused, I won't go into detail on the many reasons for which the Commission, the six-member decision-making body at the top of the ITC, affirmed those parts of the ALJ's initial determination that worked out in Apple's favor anyway. Basically, the Commission provided some clarifications that are basically corrections of what it considered legal errors on the ALJ's part, but on the bottom line it reached the same conclusions as far as the ALJ decided against S3G. This includes that the Commission also believes Apple has an implied license to the extent is uses NVIDIA chips, and like the ALJ, the Commission found several reasons (any one of which would have been sufficient on its own) for seeing no infringement by the iPhone, iPad and iPod.
I'll focus on why the Commission disagreed with the ALJ's position that some of Apple's Macintosh computers (depending on which graphics chips they contain) should have been banned due to the alleged infringement of claim 11 of the '987 patent and claims 4 and 16 of the '146 patent.
As I expected all along, AMD's claims that it -- not S3G -- is the rightful owner of the patents-in-suit and its demand that the investigation should therefore be terminated did not win the day. The Commission concluded that AMD's motion for an intervention was untimely and unnecessary since Apple was perfectly capable of representing AMD's interests in this respect. Those considerations outweighed the fact that AMD brought claims that, if proven, would have constituted a legitimate interest in the outcome of this matter. Besides AMD asking for the right to intervene, both AMD and Apple asked the ITC to terminate the investigation or to remand it to the ALJ for further examination (and delay). But the Commission determined that "S3G holds title to the asserted patents" and that Apple and AMD "fail to prove by a preponderance of the evidence that AMD owns the patents in question". There's still some federal litigation going on over this matter, and we'll see if anything comes out of it. The ITC has seen all of the evidence and is unconvinced.
The Commission overruled the ALJ with respect to the validity of claim 4 of the '146 patent. The Commission "agree[d] with Apple that the ALJ's findings with respect to anticipation of claim 4 appear to be the result of a mistake" and determined that the Hoffert prior art reference anticipated claim 4 or, alternatively, rendered it obvious. In this context, the Commission furthermore believes that S3G forfeited a seemingly important argument. But the Commission explains that the argument was wrong at any rate. If S3G appeals, it will face a dual hurdle with respect to the validity of this patent claim. It will have to prove the Commission wrong on the issue itself as well as on the question of whether S3G preserved its related record.
As far as the other two patent claims the ALJ deemed valid and infringed (claim 11 of the '987 patent and claims 16 of the '146 patent) are concerned, the Commission concluded that the Macintosh computers imported by Apple don't infringe any of those two patent claims at the time of importation. For example, one of those patent claims relates to a data format, and those computers don't contain any graphics stored in that format (or at least S3G didn't prove it) at the time of importation. Subsequently to importing those devices, Apple may infringe certain patent claims as an inevitable consequence of testing those devices, or sell apps that practice the relevant inventions. While those subsequent activities might be seen as a "nexus" between importation and infringement, the Commission clarified that Section 337 (the law governing the ITC's unfair import investigations) was amended in 1988 and clearly relates only to "articles that -- infringe" given U.S. patents.
In this particular case, S3G didn't convince the ITC that Apple's products, in the form in which they are imported, indirectly infringe the asserted patent claims. Without direct infringement occuring somewhere, there can be no indirect infringement further up the supply chain, and S3G wasn't able to prove direct infringement. The ITC was inclined to believe that Apple may very well infringe those patent claims in the United States, but the ITC's mandate is limited to keeping infringing products out of the U.S. market. It's not a broadbased IP enforcement competency of the kind that the federal courts have.
If Apple's testing or, worse than that, its sale of apps (which are not imported in the ITC's unsurprising opinion) through an online store could result in ITC import bans against its devices, that would have been a problematic precedent -- not only for Apple but also for many other device makers. The Commission has set the record straight on this. S3G went too far with its claims. But chances are that, sooner or later, someone else will also try to test or push the boundaries of the ITC's mandate.
Concerning its mandate, the ITC disagreed not only with S3G but also with Apple, which asked the ITC to find that it has no jurisdiction over S3G's complaint. In other words, Apple wanted the ITC to determine that there should never have been an investigation in the first place. In its decision, the Commission stressed that "[it], like the ALJ, find[s] that Apple's argument conflates an analysis of the Commission's jurisdiction with an analysis of whether S3G has met its burden to prove a violation of section 337". In other words, the fact that an infringement pattern doesn't meet the legal requirements for an ITC import ban doesn't mean that a complaint shouldn't be investigated by the ITC until its failure to meet those criteria is established. The Commission said that S3G had pled claims that could have justified an import ban if only they had been accurate. Therefore, there was a need for an investigation, and in this particular case, it was necessary to reach the stage at which it became clear that there's no indirect infringement at the time of importation.
The decision notes that this is a non-issue in most cases: "Although satisfaction of the importation requirement is seldom disputed in section 337 investigations, the present case is an exception." To the same effect, the Commission noted that "the current investigation presents an unusual circumstance in which a respondent's domestic infringement cannot support a violation of section 337".
If S3G's patents aren't invalidated as a result of reexamination, it may have a case against Apple in the Northern District of California. But reexaminations and the related appeals will probably take some more time -- possibly years -- before we find out. Meanwhile, S3G has a second ITC case going against Apple.
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