Jazz Photo Corp. v. U.S.

• Decision Date: 17 November 2004
• Docket Number: Slip Op. 04-146.,Court No. 04-00494.
• Citation: 353 F.Supp.2d 1327
• Parties: JAZZ PHOTO CORPORATION, Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

353 F.Supp.2d 1327

JAZZ PHOTO CORPORATION, Plaintiff, v. UNITED STATES, Defendant.

Slip Op. 04-146.

Court No. 04-00494.

United States Court of International Trade.

November 17, 2004.

COPYRIGHT MATERIAL OMITTED

Neville Peterson LLP, New York, NY, (John M. Peterson, George W. Thompson, Curtis W. Knauss, Maria E. Celis and Catherine Chess Chen) for plaintiff.

Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, Patricia M. McCarthy, Assistant Director, Stefan Shaibani and David S. Silverbrand, Trial Attorneys, Commercial Litigation Branch, Civil Division, United States Department of Justice; Beth Brotman and Paul Pizzeck, United States Customs and Border Protection, Department of Homeland Security, for defendant, of counsel.

Stroock & Stroock & Lavan LLP, New York, NY (Matthew W. Siegal and Lawrence Rosenthal) and Adduci, Mastriani & Schaumberg, L.L.P. (Harvey Fox and Will E. Leonard) for amicus curiae, Fuji Photo Film Co., Ltd.

OPINION

STANCEU, Judge.

Plaintiff Jazz Photo Corporation ("Jazz") is an importer of "lens-fitted film packages" ("LFFPs"), more commonly known as "disposable cameras," "single use cameras," or "one-time use cameras." In this case, Jazz contests the denial by U.S. Customs and Border Protection ("Customs") of its administrative protest, in which it challenged decisions made by Customs on September 24 and 26, 2004, to exclude from entry two shipments of Jazz's LFFPs that were entered at the Port of Los Angeles/Long Beach on August 26 and 27, 2004, respectively. Customs acted on its conclusion that Jazz had failed to prove its imported cameras were outside the scope of a general exclusion order issued in 1999 by the U.S. International Trade Commission ("ITC") under Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337 (2000) ("Section 337"). See In the Matter of Certain Lens-Fitted Film Packages, USITC Inv. No. 337-TA-406, Pub. No. 3219 (1999). The ITC's general exclusion order applies to LFFPs produced and imported by 26 parties, including Jazz, who participated as respondents in Section 337 proceedings initiated by Fuji Photo Film Co., Ltd. ("Fuji"), the holder of various patents used in manufacturing LFFPs.¹ In those proceedings and an enforcement proceeding conducted earlier this year, the ITC determined that disposable cameras imported by Jazz infringed patents held by Fuji.

All of the Jazz cameras at issue are "reloaded" cameras (also known as "refurbished" cameras), i.e., the cameras initially were manufactured by Fuji or one of its licensees (Kodak, Concord, or Konica) and, after being used by consumers and collected following photo processing, were fitted with new film and, in some instances, new flash batteries. Jazz obtained the reloaded cameras from Polytech Enterprise Limited ("Polytech"), which processed the subject cameras at its facility in China. That processing, the nature of which is one of the issues in contention in this case, consisted of various operations which, in addition to film and battery replacement, were required to produce a functional and marketable camera. The processing included repair to the camera case to exclude light following the film reloading operation, repackaging, and relabeling under Jazz's trademark. Also at issue in this case are the circumstances under which spent disposable cameras, known in the trade as "shells," were collected for use in Polytech's reloading operations.

Under Section 337, Customs is charged with enforcing the ITC's general exclusion order with respect to imported disposable cameras offered for admission into the United States. To demonstrate that the cameras in the two entries at bar are entitled to admission under the ITC's general exclusion order, Jazz must establish that the shells used by Polytech to produce the reloaded cameras resulted from disposable cameras that had undergone a patent-exhausting "first sale" in the United States. To be "patent-exhausting," the sale in the United States must be made under the authority of Fuji or one of its licensees. Jazz also must demonstrate that the processing Polytech performed to reload the cameras was a "permissible repair" of the original camera as opposed to a "prohibited reconstruction." Both of these requirements stem from the decision of the U.S. Court of Appeals for the Federal Circuit in Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094 (Fed.Cir.2001), cert. denied, 536 U.S. 950, 122 S.Ct. 2644, 153 L.Ed.2d 823 (2002). There, the Court of Appeals, in reviewing the underlying general exclusion order, reversed the ITC's judgment of patent infringement regarding LFFPs for which the patent rights were exhausted by first sale in the United States, and that were permissibly repaired. Id. at 1110.

The court exercises jurisdiction over this matter pursuant to 28 U.S.C. § 1581(a) (2000). The court set an expedited trial schedule with the consent of both parties.² At a four-day bench trial held October 12-14 and October 18, 2004, plaintiff produced evidence establishing permissible repair for all of the cameras in the two entries. Plaintiff produced evidence sufficient to establish "first sale" for only some of the subject cameras, as identified further in this opinion. Defendant United States presented no case in chief and instead relied principally on its cross-examination of the two witnesses called by Jazz at trial, and on its interpretation of the "first sale" requirement as addressed by the Court of Appeals for the Federal Circuit, to support its contention that Jazz failed to meet its burden of proof as to any camera offered for admission.

The court concludes, based on the record made in these proceedings, that only the aforementioned cameras for which plaintiff produced evidence sufficient to establish "first sale" in the United States qualify for admission, and only to the extent that the court has identified those specific cameras as capable of being segregated from the remaining cameras in the two shipments. The court concludes that those remaining cameras are required to be exported or otherwise disposed of according to applicable customs laws.

I. BACKGROUND

This litigation did not arise in isolation. Its roots are in other proceedings in which Fuji claimed that Jazz's business activities involving single use cameras infringed its patent rights.

In the 1999 Section 337 action mentioned above, Fuji charged that 27 respondents, including Jazz, were infringing fifteen of Fuji's patents. The ITC found infringement on the part of 26 respondents, including Jazz, and on June 2, 1999 issued its General Exclusion Order and Order to Cease and Desist ("Exclusion Order") that, inter alia, prohibited the importation into the United States of "Certain Lens-Fitted Film Packages." The Court of Appeals for the Federal Circuit stayed the Exclusion Order pending appeal. See Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d at 1098. The Court of Appeals affirmed the Commission's orders; however, it provided for one exception to the Exclusion Order, holding that "[t]he [ITC's] judgment of patent infringement is reversed with respect to LFFPs for which the patent right was exhausted by first sale in the United States, and that were permissibly repaired." Id. at 1110.

In addressing the questions of first sale and permissible repair, the Court of Appeals for the Federal Circuit stated the general rule that "patented articles when sold `become the private individual property of the purchasers, and are no longer specifically protected by the patent laws.'" Id. at 1102 (quoting Mitchell v. Hawley, 83 U.S. (16 Wall) 544, 548, 21 L.Ed. 322 (1872)). "The purchaser of a patented article has the rights of any owner of personal property, including the right to use it, repair it, modify it, discard it, or resell it, subject only to overriding conditions of the sale." Id. The Court then addressed two specific questions arising from the application of this general principle of patent law to the single use cameras imported by Jazz. First, it addressed what "repair" of a single use camera is permissible under the patent laws. Second, it defined what type of sale is "patent-exhausting," i.e., the Court resolved the issue of the type of sale needed for the purchaser to obtain the full scope of rights, including the right to repair as well as the right to use and resell, that will attach only when an article no longer has patent protection.

The Court of Appeals analyzed in detail the distinction patent law draws between "permissible repair" and "prohibited reconstruction." The Court specified that an eight-step process undertaken by Jazz would qualify for permissible repair, as follows: (1) removing the cardboard cover; (2) opening the body of the shell (usually by cutting at least one weld); (3) replacing the winding wheel or modifying the film cartridge to be inserted; (4) resetting the film counter; (5) replacing the battery in a camera equipped with a flash; (6) winding new film out of a cannister onto a spool or into a roll; (7) resealing the camera body using tape and/or glue; and (8) applying a new cardboard cover. Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d at 1101.

Regarding the "first sale" issue, the Court of Appeals for the Federal Circuit, settling a previously open question of patent law, held that

[t]o invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent. Our decision applies only to LFFPs for which the United States patent rights have been exhausted by first sale in the United States. Imported LFFPs of solely foreign provenance are not immunized from infringement of United States patents by the nature of their refurbishment.

Id. at 1105 (citation and parenthetical omitted).

While Jazz's appeal of the ITC Exclusion Order was pending, Fuji filed a second action with the ITC seeking "institution of a formal enforcement proceeding to enforce the exclusion and...