Business Law Chapter 23 Homework Under These Circumstances Benun Argues That Presumption

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Chapter 23

International Law in a

Global Economy

Case 23.1

474 F.3d 1281, 82 U.S.P.Q.2d 1495

FUJI PHOTO FILM CO., LTD., Appellant,

INTERNATIONAL TRADE COMMISSION, Appellee.

and (2) whether the processes Jazz used to refurbish the cameras first sold in the United States constituted permissible repair or

impermissible reconstruction. Fuji challenges the order on the ground that the Commission erred in finding that certain of Jazz’s

lens–fitted film packages (“LFFPs” or “cameras”) were permissibly repaired. On appeal Benun, the principal consultant and later

Chief Operating Officer (“COO”) of Jazz, challenges the order insofar as it imposes civil penalties.

We conclude that Fuji lacked standing to bring this appeal. With respect to Benun’s appeal, we conclude that the Commission

and its licensees, Eastman Kodak Co. and Konica Corp., manufacture and sell LFFPs. The LFFP consists*1286 of a plastic shell

that is encased in a cardboard cover and equipped with a button-activated shutter, a lens, a viewfinder, a film advance mechanism,

and optional flash units and buttons. The LFFP is preloaded with both film and a film cartridge into which the exposed film winds.

The typical consumer of these inexpensive cameras brings the entire LFFP to a film processor to be developed and receives back

only the negatives and prints, but not the LFFP itself. During the period in question Jazz collected used LFFP shells originally

necessary to prevent a pattern of violation where it is difficult to identify the source of infringing products.

Id.

Exclusion orders are

directed solely to Customs.

Id.

Second, the Commission may issue a cease and desist order to a specific party barring importation and other activities, such as

sales and distribution of imported products that infringe. . If the Commission finds that a party covered by a cease and desist

order has violated the order, the Commission may impose civil penalties. .

modifying the film cartridge to be inserted; 4) resetting the film counter; 5) replacing the battery in flash LFFPs; 6)

winding new film out of a canister onto a spool or into a roll; 7) resealing the LFFP body using tape and/or glue; 8)

CHAPTER 23: INTERNATIONAL LAW IN A GLOBAL ECONOMY 393

applying a new cardboard cover.

*1287 On June 2, 1999, the Commission imposed a general exclusion order barring entry of cameras that infringed Fuji’s patents.

first concluded that the eight steps considered by the Commission constituted permissible repair and therefore reversed “[f]or those

respondents[ ] [whose] activities … were shown to be limited to those steps considered by the [Administrative Law Judge (“ALJ”)].”

See

. We held that the “record contain [ed] insufficient basis on which to reverse the Commission’s rulings” for “those respondents

who refused to provide discovery or access, or proffered incomplete or ‘bench’ evidence (a partial display created for litigation

purposes).”

Id.

Finally, we declined to rule on what processes beyond the eight considered by the Commission would constitute

appeal from Custom’s denial of entry of certain LFFPs. The Court of International Trade found some cameras

permissibly repaired but a lack of evidence to establish the repair defense for the rest, and we affirmed. .

*1288 III

The present litigation arises out of an enforcement proceeding instituted by the Commission on September 24, 2002, to investigate

Fuji’s allegation that Jazz, Benun, and Jazz’s then-president and Chief Executive Officer Anthony Cossentino violated the cease

For the 60% of LFFPs with exhausted patent rights the ALJ next considered the repair-reconstruction issue and held that this court

Jazz I

did not limit permissible repair to the eight steps. However, the ALJ concluded that Jazz had failed to prove its

permissible repair defense for the 15,957,730 LFFPs sold in 2001 and 2002 because it failed to offer credible evidence of its

processes. With respect to three categories of cameras with exhausted patent rights sold in 2003, the ALJ concluded that the

evidence was sufficient to render a decision on the repair issue. First, the ALJ concluded that 742,500 LFFPs refurbished using a

back; 4) disengaging the film advance disabling mechanism; 5) inserting the battery in the camera; 6) cleaning the

viewfinder and taking lens; 7) testing the flash; 8) resetting the film counter; 9) inserting the film cartridge and securing

the back closed; 10) applying black tape to areas where potential light leakage may occur; 11) inserting a “slider” to

allow film to be reloaded with its back cover closed; 12) inserting a small rod to prevent errant pictures from being taken

during refurbishing; 13) inserting a film winding shaft into the film roll chamber; 14) unwinding the film out of the film

Benun, as the more culpable of the two, jointly and severally liable for the entire $13 million penalty imposed on Jazz. In doing so,

he rejected Benun and Cossentino’s argument that they were not personally bound by the order and that the penalty violated their

due process rights.

On July 27, 2004, the Commission declined to review the ALJ’s violation determinations, but determined to review the ALJ’s

penalty determination. On review, the Commission accepted the ALJ’s penalty findings as to Jazz and Benun, but reduced

For a litigant to have standing under Article III of the Constitution, “a plaintiff must allege personal injury fairly traceable to the

defendant’s allegedly unlawful conduct and likely to be redressed by the requested relief.” . Because Article III standing is

jurisdictional, this court must consider the issue sua sponte even if not raised by the parties. . The party invoking federal

jurisdiction bears the burden of establishing the elements required for Article III standing. .

Fuji challenges the Commission’s underlying findings in its determination in a civil penalty proceeding. It is not clear that the

of Proposed Settlement of Controversy at 1,

In re Jazz Photo Corp.,

No. 03-26565 (Bankr.D.N.J. Feb. 9, 2006). Jazz is in the

process of being liquidated under Chapter 11 of the Bankruptcy Code. Since Jazz has not operated since early 2005, violations of

CHAPTER 23: INTERNATIONAL LAW IN A GLOBAL ECONOMY 395

the cease and desist order by it are neither ongoing nor will they continue in the future if undeterred. Likewise, there is no risk of

on-going or future violations of the cease and desist order by Benun. Even if he were to import or sell infringing cameras, he

at most this case could produce an interpretation of the

cease and desist

order directed only to Jazz (and Benun) which could

affect the interpretation of the

exclusion

order directed generally to all importers. Such a stare decisis effect alone does not confer

standing to appeal. If Fuji wants the general exclusion order clarified, its appropriate remedy is to seek modification or clarification

of the order by the Commission in a proceeding in which affected parties would have the opportunity to participate. If the ITC

refused to modify or *1291 clarify the order, Fuji might then have standing to appeal to this court. However, it may not seek an

See

(holding that a Commission finding that a patent did not cover certain products was appealable because it was

essentially a final determination not to exclude certain articles from entry); (concluding that Commission invalidity

findings can be appealed if they affect the scope of the exclusion order issued by the Commission).

We turn to Benun’s appeal. Benun first argues that the Commission lacked the authority to impose civil penalties on him because

it lacked the authority to issue a cease and desist order against him.

See

. According to Benun, only allows the imposition of

contempt.

Id.

at 376, . Benun contends that this rule is inapplicable in the context of administrative orders because there is no administrative

equivalent for , which binds corporate officers to injunctions issued to their corporations. However, in , the Federal Trade

Commission (“FTC”) brought an administrative complaint against two related corporations and three individuals who were the

managers and sole stockholders of the corporations and issued a cease and desist order against all of the respondents. The

legitimately issue a cease and desist order against him.

The ALJ found that “Benun was principally responsible for the selection of Jazz products, Jazz suppliers, Jazz’s

refurbishing factories, and the acquisition of empty camera shells.”

In re Certain Lens-Fitted Film Packages,

No. 337-TA–

406, 126-27 (Int’l Trade Comm’n Apr. 6, 2004). This is thus not a case where the Commission is trying to impose its

order on a corporate officer who had no role in the violation. Some courts have found such attempts improper.

See

; .

regulation is not sufficiently clear to warn a party about what is expected of it-an agency may not [impose] civil or criminal liability.”

. In other words, there must be adequate notice of what conduct is regulated by the order, *1293 whose conduct is regulated by

the order, and the parameters of any relevant affirmative defenses.

See

(holding that due process prevented the imposition of civil penalties when there was inadequate notice of what

declarations were required by Customs);

see also

7 Donald S. Chisum,

Chisum on Patents

§ 20.03[7][b][iii] (2005). Here

refurbishing most of the cameras in issue. The Commission found that “there is a lack of complete and credible information

verifying the LFFP refurbishing process at many of Jazz’s supplier factories” and therefore that Jazz had failed to prove permissible

repair for cameras made at these factories. J.A. at 85. The burden was on Benun, as the party seeking to invoke the affirmative

defense of repair, to provide “evidence to show that the activities performed in processing the used cameras constituted

398 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW

Finally, as to some of the cameras, the Commission found that the replacement of the full backs of the cameras involved

impermissible reconstruction. Benun contends that these cameras were permissibly repaired. “The application of the law of

repair and reconstruction to fact is … a legal determination, and is reviewed without deference.” .

First, contrary to Fuji’s assertion, our original decision in

Jazz I

did not limit the scope of permissible repair to the eight common

steps it considered; rather we did not reach the question of what other activities*1296 constituted permissible repair.

See

(“We

serve their function of enclosing the camera and keeping light out. The backs therefore were spent and could properly be

replaced. Although Fuji did not intend the LFFP to be refurbished, “the patentee’s unilateral intent, without more, does not bar

reuse of the patented article, or convert repair into reconstruction.” .

Benun’s factual premise that the backs had to be broken to repair the film is not contested by the Commission on appeal. This

court and other tribunals have repeatedly concluded that, in view of the continued utility of the shutter mechanism, lens, viewfinder,

patentee who designed a product so that the neck which connects a filtering cartridge to the base of the device had to be replaced

in order to replace the worn-out cartridge itself could not claim impermissible*1297 reconstruction from the replacement of the

neck. We concluded that “Everpure and Everpure alone made the business decision to sell disposable cartridges and to render its

filter irreplaceable without replacement of the entire cartridge.”

Id.

Likewise, in this case, it would appear that Jazz’s actions in

replacing the back covers, which must be broken in order to replace the spent film and film cartridge, does not justify a finding of

concluded “that the combination patent covers only the totality of the elements in the claim and that no element, separately viewed,

is within the grant” and “that there is no legally recognizable or protected ‘essential’ element, ‘gist’ or ‘heart’ of the invention in a

combination patent.”

Id.

at 344-45, . We see no material difference between the Commission’s test that focused on whether an

“integral” component has been replaced, and the tests previously rejected by the Supreme Court that focus on whether an

“essential” or “distinguishing” part, or part that is at the “gist” or “heart” of the invention, has been replaced.

See

(noting that the

5. A lens-fitted photographic film package having exposure effecting means and a taking lens comprising:

a light-tight film case which must be destroyed to open the same;

a film which is formed in a roll and contained in a film roll chamber of said light-tight film case;

a film container received in said light-tight film case into which said film, after exposure, is advanced frame by frame and

wound in a roll; and

Case 23.2

C.A.Fed.,2009.

U.S. v. Inn Foods, Inc.

560 F.3d 1338

FN1. Citations to 19 U.S.C. § 1592 are to the 1988 version unless otherwise noted.

BACKGROUND

This is the second time this case has come before us. We previously held that the statute of limitations did not

preclude the government’s suit against Inn Foods.

United States v. Inn Foods, Inc.,

383 F.3d 1319, 1320

FN2. The parties agree that the true value of the frozen produce entered during the relevant period was

approximately $15.3 million, of which Inn Foods was the importer of record or consignee of $4.4 million and

SeaVeg of $10.9 million. After properly excludable costs, the dutiable value of the entries was approximately

$11.8 million. Inn Foods and SeaVeg, however, declared a value of only $8.3 million.

The undervaluation of the entries stemmed from a double-invoicing system agreed upon by Inn Foods, SeaVeg, and

the six Mexican growers. For each order of produce shipped, the Mexican growers would issue a “factura” or invoice

to Inn Foods or SeaVeg containing a specific invoice number and description of produce. The factura, however,

FN3. There is no contention that the use of provisional pricing itself is necessarily improper.

See

19 U.S.C. §§

1401(s), 1484(b) (2006) (discussing “reconciliation” process by which information not fully known at the time

of entry may be flagged and subsequently transmitted to Customs).

In 1988, United States Customs and Border Protection (“Customs”) began examining*1342 Inn Foods and SeaVeg

FN4. The subject entries span the 1982 and 1988 versions of 19 U.S.C. § 1592, which do not differ materially.

Section 1592(a)(1) (1988) provides in relevant part:

[N]o person, by fraud, gross negligence, or negligence-

(A) may enter … any merchandise into the commerce of the United States by means of-

(i) any document, written or oral statement, or act which is material and false, or

Foods corporate entity itself was involved … in the [SeaVeg] transactions that are at issue….”). Second, the court

determined that the appropriate civil monetary penalty under 19 U.S.C. § 1592(c)(1) was approximately $7.5 million,

and that the amount of unpaid duty owed to the government under 19 U.S.C. § 1592(d) was $624,602.55. Inn Foods,

515 F.Supp.2d at 1361-62. Finally, the court concluded that Inn Foods was liable for the entire amount, either as an

alter ego of SeaVeg or as an aider and abettor.

Id.

at 1357.

1353. Instead, Inn Foods primarily contends that the trade court erred in finding that Inn Foods acted with fraudulent

intent, as opposed to merely acting negligently. In this context, showing the requisite fraudulent intent required the

government to prove by clear and convincing evidence that Inn Foods “knowingly entered goods by means of a

material false statement.”

Hitachi,

172 F.3d at 1326 (internal quotation marks omitted);

see

19 U.S.C. § 1592(e)(2).

The record amply supports the trade court’s factual finding that the government established such intent.

FN5. Inn Foods does attempt to explain the undervaluation by arguing that “the ‘second invoice’ was, in fact,

a ‘Sales Memo’ showing the anticipated U.S. resale price, not the price paid or agreed to be paid for the

imported merchandise.” Def.-Appellant’s Br. 4. Inn Foods admits that its sales agreements with the Mexican

growers called for an initial payment of 70% of the estimated value of the produce. The record shows that the

0.50/lb

” but that “[m]y invoice [to SeaVeg] will read …

0.28/lb.

”

Inn Foods,

515 F.Supp.2d at 1354 n. 12 (emphases

added). Moreover, upon receipt of the undervalued factura, a SeaVeg manager (who reported to the principals of Inn

Foods) adjusted the prices to reflect the true and higher estimate.FN7 This higher amount was entered into Inn Foods’s

accounting system. Inn Foods then sent an order confirmation to the Mexican grower with the higher price, retaining a

copy of both the undervalued and true invoices for its files. Thus, “[o]ne invoice served to bring the produce into the

United States at a reduced cost and … the second to keep accurate accounting records.”

Inn Foods,

515 F.Supp.2d

at 1359. Inferring fraudulent intent from the knowing use of false invoices is hardly unique to the customs context. As

the First Circuit has noted in an analogous area, “[t]he use of false invoices is so paradigmatic of tax *1344 fraud that

FN6. The method of appraisement reported to Customs appears to have been transaction value (the amount

paid by the importer for the merchandise to be imported).

See

19 U.S.C. § 1401 a(b).

FN7. To be sure, the true invoice was an estimate and was subject to certain adjustments when the final

market price was determined, but the parties treated it as a reliable estimate of the value of the produce and

used it to make the initial 70% payment.

The existence of the double invoices was also concealed. One broker called the SeaVeg manager to verify that the

unusually low invoice prices for the subject entries were accurate. The company responded to this inquiry by stating

The evidence shows that Inn Foods’s customs brokers emphasized to the company the importance of accurately

reporting the actual value of entered merchandise; one broker, for example, explained to SeaVeg’s manager in detail

how Customs duties were determined. In addition, after each entry was made and duties paid, B & D would send a

broker bill to Inn Foods which included an itemization of costs, including a copy of the undervalued factura that had

been presented to Customs and the duties paid based on that factura. The Inn Foods/SeaVeg accounting supervisor

FN8. The Court of International Trade acknowledged the disclaimer but did not find that it merited detailed

discussion, noting that Inn Foods began use of the disclaimer “only … after they had been informed that

Customs had referred their case for investigation.”

Inn Foods,

515 F.Supp.2d at 1361 n. 18;