U.S. ITC FINES NINESTAR $ 11,000,000.00+ FOR EPSON LAWSUIT

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U.S. ITC FINES NINESTAR $ 11,000,000.00+ FOR EPSON LAWSUIT 
Ninestar’s Appeal Opens, Epson Asks ITC to Broaden Exclusion Order
On February 11, the U.S. Court of Appeals for the Federal Circuit heard oral arguments in Ninestar Technology’s appeal of the U.S. International Trade Commission’s (ITC) $11 million-plus fine. The commission levied the fine after it found Ninestar and its U.S. distributor Town Sky had not complied with certain ITC orders. Ninestar questions the commission’s legal authority to impose a punitive fine. In a related matter, Epson has requested that the ITC broaden the general exclusion order (GEO) it issued in 2007 to include additional products Ninestar has recently attempted to import into the United States.

Ninestar’s journey to the appeals court began years ago. In 2006, Epson filed suit against some 24 third-party supplies vendors in federal court and with the ITC, alleging widespread violations of the OEM’s intellectual property. Ninestar along with a group of affiliates and distributors denied violating the patents and challenged Epson claims with the ITC. After conducting a so-called 337 investigation, the ITC granted Epson a GEO in 2007 barring the importation of Epson compatibles into the United States. After determining that the companies had violated the GEO in 2009, the commission imposed fines of over S20 million against Ninestar and Town Sky along with additional fines of more than $10 million against other companies including Mipo International and Ribon Tree. The total fine against Ninestar and Town Sky was later reduced to $11.1 million, and Ninestar has been fighting the fines ever since.
Oral Arguments

Ninestar’s attorney, Edward O’Connor of the Eclipse Group, told Judges Richard Linn, Pauline Newman, and Alvin Schall of  the U.S. Court of Appeals that it was “improper” for the ITC to levy fines. While it is within the purview of  the commission to issue orders and seize items barred from importation, Mr. O’Connor insists the commission must rely on the federal courts to conduct a trial if it seeks punitive actions and fines. He went on to say that if the Ninestar case was held in federal court, the size of the fine involved would require a jury trial.

Mr. O’Connor cited various examples of governmental agencies using the federal courts to penalize a company rather than the agency itself levying fines. “When the SEC went after Goldman Sachs, they didn’t go after them in an ‘SEC court,’” he explains, “they did it in federal district court in New York.” Mr. O’Connor says the same is true with the Internal Revenue Service. He says that like the ITC, it is within the rights of the IRS to seek penalties, but when it does so the matter must be heard in a federal district court.

Mr. O’Connor acknowledges that if they are convicted of breaking the law in federal court,  his clients could face even larger fines than the penalty sought by the ITC. He maintains, however, that Epson and the ITC would face larger legal hurdles to prove their cases in federal court.  According to Mr. O’Connor, “You have substantial protections in a [federal] district court that you don’t have before the commission.” Because the fines are what he considers “criminal sanctions,” the government would have to prove its case beyond a reasonable doubt in a federal court. “You don’t have that before the commission,” says Mr. O’Connor, “It’s just basically have substantial evidence.”

An attorney for the ITC dismissed Mr. O’Connor’s argument that the commission cannot assess civil penalties. While some agencies must go to federal court, the ITC asserts it is well established that the commission does have the right to impose fines. The ITC, its lawyer said, did everything properly and used the appropriate criteria to assess the fines fairly. Not surprisingly, Epson’s attorney Harold Barza agreed with the views of the ITC attorney. Mr. Barza characterizes the Ninestar matter as a “paradigm case for the imposition of a significant penalty” but suggested the large fine was warranted by Ninestar’s action after the ITC ordered the company to stop importing Epson compatibles. Mr. Barza detailed for the three judges how Ninestar was seen to repeatedly ignore or circumvent the ITC ‘s orders, which ultimately led the commission imposing an unusually steep fine.

The matter is now before the appellate court. According to data provided by the court, the median disposition time is about 9.5 months. Epson America assistant general counsel Alfred Andersen is confident of the outcome and says, “Once affirmed, we expect the ITC to move to collect the penalties.”
GEO Modification

On February 3, Epson America attorneys filed briefs with the ITC requesting the commission to modify its GEO and its cease and desist order regarding Epson compatible cartridges and refilled tanks. In addition to the tanks and other products banned previously, Epson is requesting the commission to broaden the products barred from importation to include “components” that can be assembled into a working ink tank for use in an Epson inkjet machine.

The request comes following an incident in May 2009. According to Epson’s brief, Ninestar attempted to import some 8,000 so-called R-series ink tanks into the Port of Los Angeles. Ninestar asserted that the cartridges can be imported because they are based on a new, two-piece design that does not infringe Epson’s intellectual property. U.S. Customs and Border Protection (CBP) denied entry citing the GEO. Ninestar filed a protest challenging the action of the CBP, arguing that the two-part design made the importation of Ninestar’s R-series Epson compatibles legal.

After reviewing Ninestar’s claims, Charles Steuart, an intellectual-property expert for CBP, wrote a 26-page report, finding that when the two parts of Ninestar’s R-series cartridges are joined together, the resulting ink tank did in fact infringe Epson’s patents.  Officials at the Port of L.A. were instructed in November 2009 to deny importation of Ninestar’s R-series products. It is not clear from the document if the products in question were actually seized at the port, but Mr. Steuart’s report indicated that were “amenable to seizure and forfeiture.”

According to Mr. Andersen, since the incident at the Port of L.A., Ninestar has petitioned the ITC to exclude R-series cartridges from the GEO, which is what led to Epson’s request to have the order broadened. “Epson believes that this is very well-trodden ground that will not result in any exceptions to the General Exclusion Order,” says Mr. Andersen. He says that Epson is opposing Ninestar’s request because earlier in the case a two piece-cartridge of “similar design” was determined to be infringing. Epson is requesting the GEO be broadened, Mr. Andersen says, “so it is more clear that the exclusion order cannot be avoided by importing infringing components separately.”

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February 16, 2011 at 11:55 AM