IP Law Daily Customs ordered to let machinery redesigned to avoid infringement enter U.S.
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Thursday, May 21, 2020

Customs ordered to let machinery redesigned to avoid infringement enter U.S.

By John W. Scanlan, J.D.

The U.S. Court of International Trade had jurisdiction over an importer’s claims because U.S. Customs’ Exclusion Orders and denial of the importer’s protests of its products’ exclusion constituted a reviewable determination that was subject to the court’s jurisdiction.

U.S. Customs and Border Protection has been ordered by the U.S. Court of International Trade to grant entry to the United States to six road-milling machines that had been redesigned to avoid infringing another company’s patent because they were not infringing. The court granted partial summary judgment and a permanent injunction to the importer. Because the government defendants declined to contest the importer’s assertion of noninfringement in their response to the importer’s motion for summary judgment, the government waived any argument that the products were infringing (Wirtgen America, Inc. v. U.S., May 18, 2020, Choe-Groves, J.).

Wirtgen Group manufactures road-milling machines that are used for road construction and maintenance. Wirtgen America ("Wirtgen") is the exclusive U.S. importer for these machines. Caterpillar, Inc. and Caterpillar Paving Products, Inc. (together, "Caterpillar") filed a patent infringement complaint with the International Trade Commission (ITC), alleging that Wirtgen’s inclusion of an extendable and retractable swing leg in these machines infringed one of its patents. ITC began an investigation and the matter went to an Administrative Law Judge. While these proceedings were underway, Wirtgen redesigned these machines to avoid the infringing part using prior art, but the ALJ refused to consider the new design on the grounds that it had not been implemented in any imported products and, therefore, was outside the scope of the ITC’s investigation. The ITC adopted the ALJ’s final initial determination that several Wirtgen series machines infringed this patent, issuing a Limited Exclusion Order (LEO) barring Wirtgen from importing infringing products as well as a cease-and-desist order. Wirtgen appealed this decision to the Federal Circuit, where it remains under review.

After Wirtgen met with U.S. Customs and Border Protection ("Customs") and submitted a memorandum to explain the difference between the original and redesigned machines, Customs allowed 10 redesigned machines entry into the country but detained six others. Wirtgen submitted certifications stating that these six machines were outside the scope of the LEO, but Customs issued three Exclusion Notices excluding them. These notices stated that Customs applies the LEO to all products that infringe the Caterpillar patent and that Wirtgen failed to meet its burden of showing that these six redesigned machines were noninfringing, citing the ALJ’s ruling that the redesigned products were not ripe for an infringement determination. The Patent Trial and Appeal Board subsequently issued a final written decision to Wirtgen finding that all claims of Caterpillar’s patent were unpatentable as obvious under prior art.

Wirtgen filed two protests asserting that the redesigned machines were not infringing, but Customs denied them and stated that the agency did not believe its exclusion decisions were subject to review by the U.S. Court of International Trade because the ITC was the only agency that could make infringement decisions. Wirtgen filed suit against Customs and other government defendants claiming that Customs’ application of the LEO to the redesigned machines was arbitrary and capricious, but the district court dismissed it for lack of subject matter jurisdiction. Wirtgen appealed the matter to the District of Columbia Circuit, which denied expedited review. The ITC began a modification proceeding for the LEO that is still ongoing. Wirtgen then filed the present proceeding and moved for partial summary judgment. The government stated that it would not contest Wirtgen’s assertion of noninfringement but argued that the redesigned machines fell within the scope of the LEO and defended Customs’ rejection of Wirtgen’s certifications. The government also moved to dismiss, arguing that the U.S. Court of International Trade lacked subject matter jurisdiction over the case.

Jurisdiction. The court had jurisdiction over the claims because Customs’ exclusion of the redesigned machines and denial of Wirtgen’s protests of their exclusion under the LEO constituted a reviewable determination that was subject to the court’s jurisdiction. Customs has the authority to enforce exclusion orders, but subject to the limitations of the language of the ITC’s order. This order provided for the exclusion of Wirtgen road construction machines that infringed the relevant claim of Caterpillar’s patent, but did not provide for the exclusion of the redesigned machines; therefore, the decision to exclude the redesigned machines was made by Customs. Despite the government’s argument that it would be improper for the agency to conduct a substantive patent analysis to determine whether products proposed for entry are within the scope of an exclusion order because this analysis is within the sole jurisdiction of the ITC, the court found that Customs Directive No. 2310-006A provides procedures for customs officers making these decisions, showing that the agency plays an active role in this process.

Customs’ decision to exclude the redesigned machines had the effect of determining that these machines fell within the scope of the LEO and was more than the exercise of a mere "ministerial" function to enforce the LEO. Although the government argued that this exclusion was not subject matter subject to protest because Wirtgen’s complaint had challenged the LEO’s scope, the court found that Customs’ Exclusion Orders served as a de facto denial of Wirtgen’s protests and the company’s complaint had challenged that denial. The court instructed that Customs cannot limit the court’s jurisdiction by arguing that it did not make an exclusion determination or deny Wirtgen’s protests.

Infringement. Customs’ exclusion of the redesigned machines was improper because the machines were not infringing, the court said. The government stated in its opposition to the summary judgment motion that it was not contesting infringement but leaving this determination to the ITC. The government’s refusal to contest the issue constituted a waiver of any argument of infringement, the court said. As a result, it was undisputed that the machines did not infringe the relevant claim of the Caterpillar patent.

Remedies. The court issued a permanent injunction directing Customs to release the six detained machines for entry into the country. The balance of hardships favored equitable relief because Wirtgen showed that it had sustained irreparable injury, whereas the government had not shown that it would sustain any hardship from release of the machines. Wirtgen was unable to realize revenue and profits from sales of the machines and had sustained loss of goodwill and market share from customers who shopped elsewhere after being unable to obtain its machines. Damage to business relationships and loss of future sales from loyal customers could not be repaired by money damages alone. Although the government argued that the public interest favored protecting intellectual property rights and domestic industries by excluding the six redesigned machines, the court observed that the redesigned machines undisputedly were non-infringing and that Customs already had allowed 10 redesigned machines to enter the United States.

This case is No. 1:20-cv-00027-JCG.

Attorneys: Daniel E. Yonan (Sterne, Kessler, Goldstein & Fox PLLC) for Wirtgen America, Inc. Edward F. Kenny, U.S. Department of Justice, for the United States.

Companies: Wirtgen America, Inc.

MainStory: TopStory Patent GCNNews

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