Context: One of the U.S. government agencies that may see itself affected very strongly by the Supreme Court’s recent Loper Bright decision (which did away with the decades-old Chevron doctrine that used to give government agencies a significant level of deference as they interpret their governing statutes) is the United States Patent & Trademark Office (USPTO) (June 30, 2024 ip fray article). But observers have also, rightly, viewed the U.S. International Trade Commission (USITC or just ITC), a trade agency with quasi-judicial powers, as a target of new challenges to its rulemaking.
What’s new: Within less than a month of the Loper Bright ruling, Apple is already fielding that new standard in its Federal Circuit appeal of the ITC’s Apple Watch import ban over a pulse oxymetry feature. On Friday (July 19, 2024), Apple filed its reply brief to the ITC’s and patentee Masimo’s responsive briefs, and Loper Bright featuers prominently. Apple’s appeal has multiple prongs, and the ITC’s rulemaking comes into play with respect to the agency’s reference to its own application of Section 337’s domestic industry requirement, which is the part Apple has briefed most extensively in both its opening brief (April 6, 2024 ip fray article) and now its reply brief on appeal.
Direct impact: The Federal Circuit does not need Loper Bright to decide this appeal in Apple’s favor, as its own recent Zircon ruling also suggested a rather restrictive approach to the domestic industry requirement, as noted in the wider ramifications paragraph of a May 8, 2024 ip fray article. The effect may be more psychological and political as the references to Loper Bright reminds the Federal Circuit how how important it is for the judiciary to rein in an agency’s overreach when it comes to the scope of its rights and responsibilities. In commercial terms, Masimo’s import ban has been a failure as Apple Watch sales do not appear to suffer from the temporary disablement of the pulse oximetry feature. As explained in a March 12, 2024 ip fray article, there is every indication that Apple can just activate the feature later by means of a software update for any U.S. customers who bought an Apple Watch during the period in which the ITC’s limited exclusion order was in force, a successful appeal provided.
Wider ramifications: The overreach in the Apple Watch case is particularly troubling as Masimo went to the ITC on the basis of drawings and argued partly on the basis of prototypes. The ITC’s job is to protect a domestic industry that actually exists, not to serve as a patent injunction court for other purposes. Apple and other companies are lobbying U.S. lawmakers about this issue.
Here’s Apple’s reply brief:
The filing describes the ITC’s domestic industry finding as “rel[ying] on
cobbling together fragmentary, speculative developmental evidence for items not
identified in the Complaint and calling it a domestic industry.”
The original idea behind ITC exclusion orders (U.S. import bans) over patent infringement allegations (which are the most common but formally not the only basis for Section 337 complaints) was that if one company makes a product in the U.S. and another imports a foreign-made product into the U.S. that infringes the rights of the domestic U.S. competitor, customs officers should seize any imports. But with access to injunctive relief in U.S. federal court having become fairly difficult since the Supreme Court’s 2006 eBay decision, more and more patent holders try to get from the ITC what they can’t get in district court: decisive leverage in the form of a product ban. And the ITC appears to be more than willing to expand its statutory powers in order to meet that “demand” for certain types of quasi-judicial orders.
Masimo had no domestic industry by any reasonable definition when it filed its ITC complaint. Everything was made up: the patents themselves, which Masimo derived from older applications (more than a decade old) but designed to read on the Apple Watch to the domestic industry claim, which was based on future product plans. And even when Masimo finally launched a product, it arguably (which is one of Apple’s points on appeal) didn’t even practice the asserted patents in the way the original material purported to show, but in any event, Masimo never sold a meaningful quantity. They obviously couldn’t compete with the Apples and Samsung of the world because pulse oximetry is a “killer application” for medical devices (Masimo’s own business), not for smartwatches, where it may indeed save lives in some situations but isn’t a driver of demand.
As ip fray noted in its above-mentioned commentary on the Federal Circuit’s Zircon ruling, the issues are different and that’s why in Zircon the Federal Circuit actually had to defend the ITC. In that case, the ITC was reasonably restrictive. But somehow the Masimo case has become an emotional thing. The ITC is normally much more receptive to reason. What Zircon and Masimo have in common is that the complainant’s ability to satisfy the domestic industry requirement is the (single most important) issue.
Instead of discussing Apple’s multiple grounds of appeal again, let’s leave it at the following passage, which is so important because it connects the Apple Watch case to the Supreme Court’s late-June Loper Bright decision:
The Commission’s brief goes further still, appearing to take the remarkable
position (at 25-27) that the only rules limiting its behavior are its own (inapposite) procedural regulations—and not the plain language of its governing statute as interpreted by an Article III court. The Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, 144 S.Ct. 2244 (2024), makes clear that the Commission’s position is wrong. Judicial review of an agency’s statutory interpretation is perhaps most important—and “abdication in favor of the agency is least appropriate”—when considering “the scope of an agency’s own power.” Id. at 2266 (emphasis in original).