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How To Start From Behind And Finish
Ahead:
Practical Considerations For Respondents In
Section 337 Investigations
By Alice A. Kipel, Steptoe & Johnson LLP, Washington, DC1
© 2014. Alice A. Kipel. All Rights Reserved.
1
Alice A. Kipel is a partner in the Washington, D.C. office of the law firm of
Steptoe & Johnson LLP. The views expressed herein are her personal opinions and do not
necessarily reflect the views of Steptoe & Johnson LLP or its clients. Ms. Kipel wishes to
acknowledge the assistance of Jamie B. Beaber (formerly an associate and now a partner at
Steptoe & Johnson LLP) in helping to prepare this paper.
How To Start From Behind And Finish
Ahead:
Practical Considerations For Respondents In Section 337 Investigations
By Alice A. Kipel, Steptoe & Johnson LLP, Washington, DC
____________________________________________________________________________________________________________________________________________________________
I.
Preface
This paper assumes a basic familiarity with Section 337 of the Tariff Act of 1930, as
amended (19 U.S.C. § 1337). Nevertheless, a short overview of the statute will aid in reading
this paper.
Section 337 allows the owner of a federally registered patent, trademark, copyright, mask
work or boat hull design to file a complaint with the United States International Trade
Commission (“ITC” of “Commission”), against one or more defendants (known as
“respondents”) who are importing, selling for importation, and/or selling after importation, goods
that infringe the owner’s intellectual property (“IP”) rights. 2 Patent infringement is the most
common type of unfair act alleged by plaintiffs (known as “complainants”) in Section 337
cases.3 The infringement can be by virtue of direct infringement or contributory or induced
infringement. Furthermore, in the trademark context, for example, the violation can be caused
by counterfeit4 or “gray market”5 goods. A Section 337 complaint can be filed if an industry
exists in the United States, related to the protected goods or IP right (or if such an industry is in
the process of being established).
Section 337 also prohibits other types of unfair acts and unfair competition in the
importation of articles into the United States, the threat or effect of which is to destroy or
substantially injure an industry in the United States, prevent the establishment of an industry, or
restrain or monopolize trade or commerce in the United States. 19 U.S.C. § 1337(a)(1)(A).
Other unfair acts and unfair competition claims are often pleaded by a complainant in
conjunction with its infringement claims, although the other unfair acts can also form the sole
basis for a complaint. Unfair acts for which Section 337 can provide relief include: common
law trademark infringement, unfair competition, failure to mark country of origin, false
2
The ITC is an independent federal agency located in Washington, D.C.
Since 1975, the ITC has instituted more than 850 Section 337 investigations, with
over 90 percent of those investigations alleging patent infringement as the unfair act.
4
Indeed, a Section 337 action can cover both the counterfeiting of registered
trademarks and patents. See Institution of an Investigation Under Section 337 on Telephone
Base Housings, and Related Packaging and Printed Materials, USITC GC-H-235 (August 17,
1984). Likewise, counterfeiting can involve copyrights. See Certain Coin-Operated Audiovisual
Games and Components Thereof (viz Rally-X and Pac Man), ITC Inv. No. 337-TA-105, Notice
of Institution of Investigation, 46 Fed. Reg. 34,436-37 (July 1, 1981).
5
Gray market goods are otherwise known as parallel imports.
3
advertising, false labeling, false marking, false designation of sponsorship, false representation
of source, false designation of origin, passing off, product disparagement, trade dress
misappropriation, trade secret misappropriation, trade libel, and trademark dilution. Some type
of injury must be shown to prevail with respect to such claims, but is presumed as to claims
involving infringement of federally registered patents, trademarks, copyrights, mask works and
boat hull designs.
Depending on the circumstances involved, a party faced with infringement of its IP rights
can benefit from filing a complaint in the ITC instead of, or in addition to, federal district court. 6
Based on the complaint, the ITC determines whether to institute an investigation. Assuming the
Commission votes affirmatively to institute an investigation, the agency then conducts an
investigation under the Administrative Procedure Act, to determine whether there exists a
violation of Section 337 and, if so, what remedy should be issued. The most powerful remedy is
an exclusion order against the offending goods, prohibiting them from entering the United States,
discussed in more detail in part V.
Section 337 proceedings at the ITC have two key advantages: (1) proceedings are
typically completed in a shorter timeframe than those in federal district court, resulting in a
quicker resolution of a party’s complaint, and (2) the Commission’s in rem jurisdiction
empowers it to regulate the goods implicated in the infringement or unfair act.7 The ITC’s in
rem and nationwide jurisdiction also allow a complainant to safeguard its rights without
separately litigating each instance of infringement, thereby reducing costs and tending to provide
a swifter resolution to a party’s complaint. The main drawback to Section 337 proceedings is
that the ITC cannot provide monetary damages to a complainant.
II.
Introduction
A respondent starts with a disadvantage in a Section 337 case. The complainant usually
has spent months preparing to file its very detailed complaint. Unlike in federal district court,
where notice pleading is sufficient, to file a Section 337 complaint, a complainant must do a lot
of work up front. For example, it must include claim charts with the complaint.8 Indeed, the
complainant must essentially provide enough information so that, if a respondent is found to be
in default, the facts pleaded in the complaint would be sufficient to support a motion for
6
It is not uncommon for a complainant to file parallel actions before the ITC and in
federal district court. Typically, the district court case will be stayed until the ITC proceeding is
completed. See 28 U.S.C. § 1659(a). To stay the district court proceeding, a respondent must
request such a stay within 30 days after the district court action is filed, or within 30 days after
the Notice of Investigation for the Section 337 case is published in the Federal Register,
whichever is longer. Furthermore, the record before the ITC can be used in connection with the
district court case. See 28 U.S.C. § 1659(b).
7
This includes goods made abroad pursuant to a method patented in the United
States, as discussed, infra.
8
See 19 C.F.R. § 210.12(a)(9)(vii).
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summary determination in the complainant’s favor.9 Thus, in preparing the pleading, the
complainant’s counsel necessarily has learned the patent(s) well, has become knowledgeable
about the client’s operations, has reviewed and analyzed the allegedly infringing devices, and has
studied the respondents’ businesses. In addition, the complainant normally has met with an ITC
Staff attorney from the Office of Unfair Import Investigations (“OUII”). The OUII examines the
complaint to determine whether it is in compliance with the Commission’s Rules of Practice and
Procedure (“Rules”). Those Rules, codified at 19 C.F.R. Part 210, largely parallel the Federal
Rules of Civil Procedure (“FRCP”).10 And while OUII provides input into the institution
process, it is the Commission (i.e., the six Commissioners) that decides whether an investigation
should be instituted based on the complaint. Institution usually occurs within 30 days after the
complaint is filed, and notice of the decision is published in the Federal Register (19 C.F.R.
§ 210.10); decisions not to institute an investigation are rare.11 Service of the complaint
normally is performed by the Commission.12
In October of 2011, the ITC amended its Rules to require early submissions on public
interest issues, with the intent that such submissions will aid the Commission in determining
whether it should instruct the ALJ to take evidence on public interest issues. See 19 C.F.R. §§
210.8(b) & (c), discussed in more detail infra.
After institution of the investigation, an Administrative Law Judge (“ALJ”) is assigned to
preside over the proceeding.13 The ALJ renders an Initial Determination (“ID”) as to whether the
complained of practices violate Section 337. The Commission also assigns an investigative
9
See 19 C.F.R. § 210.16(c) (“After a respondent has been found in default by the
Commission, . . . [t]he facts alleged in the complaint will be presumed to be true with respect to
the defaulting respondent.”); see also Certain Electrical Connectors and Products Containing
Same, Inv. No. 337-TA-374, USITC Pub. No. 2981, 1996 ITC LEXIS 547 at * 23-24 (July
1996).
10
The ITC also has rules of general applicability, which are codified at 19 C.F.R.
Part 201, and which generally apply to Section 337 proceedings.
11
The most recent decision not to institute an investigation occurred in December
2012, with respect to Docket No. 337-2919, concerning Hydroxyprogesterone Caproate and
Products Containing Same. That complaint involved a unique set of facts. Respondents faced
with novel complaints are well advised to review the facts thoroughly and act early to raise
special concerns.
12
See 19 C.F.R. § 210.11. Service of documents is slightly different when a
complaint is accompanied by a motion for temporary relief. In those instances, the Commission
requires the party filing the complaint and motion to serve an advance copy on the proposed
respondents and the embassy for any country in which a named respondent is located. See 19
C.F.R. § 210.54.
13
Currently, there are six ALJs who handle Section 337 proceedings.
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attorney from the OUII to the case.14 The investigative attorney represents the public interest
and is a full party to the proceeding.
The ITC’s Rules govern things such as motions practice and discovery. However, these
Rules are normally further supplemented by each ALJ’s own Ground Rules.
A formal evidentiary hearing on the merits of the case is held by the ALJ. A complainant
must therefore present a case proving infringement (and other requisite elements), as it would in
district court. All parties are able to cross-examine witnesses, object to evidence, and present
argument at the hearing. Respondents are permitted to raise all legal and equitable defenses.
During the hearing, an evidentiary record is created. Usually within several months of the
hearing, the ALJ issues an ID which includes legal conclusions and detailed findings of fact.
Thereafter, upon petition or its own initiative, the Commission can review the ALJ’s ID, adopt it,
modify it, or reverse it. If the Commission takes no action or decides not to review the ALJ’s ID,
it becomes the final decision of the Commission.
An action brought under Section 337 will most likely conclude in a shorter time period
than one brought in federal district court. Section 337 investigations are to be concluded at “the
earliest practicable time.” Within 45 days of the commencement of an investigation, the ALJ
sets a target date by which the Commission’s final determination will be made. See 19 U.S.C.
§ 1337(b)(1); see also 19 C.F.R. § 210.51(a). Historically, the Commission attempts to complete
the majority of investigations in 12 to 16 months; more complex cases can take longer. The
Commission has expressed its opinion that the length of Section 337 investigations is an
important policy matter and has, on more than one occasion, vacated target dates which it
deemed excessive.
Given the short time-frame for Section 337 investigations, the savvy complainant
normally prepares its initial discovery requests, either before the complaint has been filed or in
the 30-day period between filing and formal institution of the investigation.15 The complainant’s
first discovery requests are thus often ready to be served on the day after the Notice of
Investigation is published. With a 10-day response time,16 a respondent is understandably
14
In the past, an attorney from the OUII was assigned to every case; currently, OUII
attorneys are being assigned only to some cases and are also participating in some cases only as
to some aspects of the case (e.g., domestic industry).
15
See 19 C.F.R. §§ 210.10(a)(1) and (2) (“The Commission shall determine whether
the complaint is properly filed and whether an investigation should be instituted on the basis of
the complaint. That determination shall be made within 30 days after the complaint is filed.”
Where exceptional circumstances exist which preclude the Commission from adhering to the 30day deadline, the Commission’s determination must be forthcoming as soon as practicable
thereafter.).
16
Under the Commission Rules, the ALJ assigned to an investigation has the
authority to establish the timing for discovery requests, responses, etc. See, e.g., 19 C.F.R.
§§ 210.29(b)(2), 210.30(b)(2), and 210.31(b). An ALJ will normally set such deadlines in his
Ground Rules, which are issued by order during the early stages of an investigation. A 10-day
response time is typical.
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overwhelmed. And while extensions of discovery response times are not unusual, there is
obviously no time to waste. Moreover, in essentially that same period (20 days from service),
the respondent must prepare its response to the complaint.17 Failure to respond can eventually
lead to a finding of default.18
III.
Some Immediate First Steps
Fortunately, most respondents learn of the existence of a complaint prior to institution of
an investigation. Therefore, during the 30-day pre-institution window, they can begin to plan.
Seven immediate considerations come to mind.
First, of course, respondents must hire counsel. Hiring seasoned ITC counsel can give a
respondent an advantage that it otherwise does not have. Moreover, it is important to keep in
mind that, normally, only outside counsel can have access to the complainant’s confidential
information, which is handled via a protective order issued by the ALJ. Most Section 337
complaints contain at least some confidential information -- therefore, until a respondent hires
outside counsel who is able to sign on to the protective order, the respondent is not even aware of
all of the details of the allegations made against it.
Second, respondents need to determine whether early settlement is an option. It is not
unusual for a Section 337 case to settle during the pre-institution 30-day window. Settlements in
the early phase of a case, before a lot of money is spent on discovery, are also not unusual.
Third, a respondent should quickly determine whether it wants to file a public interest
statement, and if so, what to say in such a statement. The ITC Rules now require a complainant
to file a statement addressing specific public interest issues at the same time the complaint is
filed. See 19 C.F.R. § 210.8(b). Upon filing of the complaint, the Commission issues a notice
inviting comments on public interest issues from the public and from the proposed respondents.
Such comments are required to be filed within eight (8) calendar days of the notice. See 19
C.F.R. § 210.8(c). Hence, a respondent must decide to act immediately if it wishes to meet this
deadline. While there will be additional opportunities to address public interest issues later in the
case, to the extent such issues are important in a particular investigation, it is advisable for a
respondent to file early comments so that the Commission will direct the ALJ to take evidence
on the public interest.
Fourth, a respondent should evaluate whether a joint defense agreement or cost-sharing
arrangement with other respondents is possible or beneficial. And even if not, as discussed
below, a respondent still needs to consider how it will coordinate with other respondents, since
17
See 19 C.F.R. § 210.13(a).
See 19 C.F.R. § 210.16(a)(1) (“A party shall be found in default if it fails to
respond to the complaint and Notice of Investigation in the manner prescribed in § 210.13 or
§ 210.59(c), or otherwise fails to answer the complaint and Notice, and fails to show cause why
it should not be found in default.”). In addition, failure to respond to a specific fact alleged in the
complaint and Notice of Investigation may result in the allegation being deemed admitted. See
19 C.F.R. § 210.13(b).
18
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some degree of coordination will normally be required by the ALJ. This may not be an easy
task, since the other respondents may be competitors.
Fifth, a respondent needs to evaluate the strengths and weaknesses of its case and the
complainant’s case. This seems like an obvious step. However, in a Section 337 case, such an
early evaluation will allow the respondent to focus its efforts, since the time limits of a typical
Section 337 case do not normally permit every possible defense to be pursued.
Sixth, a respondent needs to begin to prepare its own discovery requests to serve on the
complainant.19 A respondent being aggressive at the outset can come as a surprise to a
complainant. Despite research, it is often difficult for a complainant to accurately evaluate its
opponents in advance. Therefore, a complainant may be expecting a shell-shocked respondent to
act reactively rather than pro-actively. Showing a complainant early on that a respondent means
business can change the tone of an investigation.
Seventh, as mentioned above, during the pre-institution phase, a respondent should also
begin preparing its response to the complaint, since the time to do so post-institution is rather
short. In this regard, careful consideration should be given to counterclaims and affirmative
defenses. While a respondent can raise counterclaims in response to a Section 337 complaint,20
they must be filed in a separate document and a respondent must immediately remove the
counterclaims to a federal district court.21 Under such circumstances, the strategic decisions as
to the merits of raising a counterclaim cannot be made overnight. Affirmative defenses should
normally be pleaded in the response to the complaint, although the ITC is usually fairly liberal in
allowing respondents to amend their pleadings as to affirmative defenses.22 However, a word of
caution -- a respondent should not plead every possible defense if it does not intend to make a
showing as to each and every defense. If there is an ultimate finding that a respondent did not
succeed in proving an affirmative defense, that finding might be used against the respondent in a
19
Discovery “may be served upon any party after the date of publication in the
Federal Register of the Notice of Investigation.” See 19 C.F.R. § 210.29(b) (interrogatories);
19 C.F.R. § 210.30(b) (requests for production of documents and things and entry upon land).
20
The most recent comprehensive amendments to Section 337, contained in the
Uruguay Round Agreements Act enacted in 1994, permit respondents to raise counterclaims in
response to a Section 337 action. See 19 U.S.C. § 1337(c). Counterclaims may be raised at any
time after institution of the investigation, but not later than 10 business days before the
commencement of the hearing. See 19 C.F.R. § 210.14(e). Any such counterclaims, however,
will not be adjudicated by the Commission. Counterclaims must be filed in a separate document
and the respondent must immediately remove the counterclaims to a federal district court. See
19 U.S.C. § 1337(c).
21
See 19 C.F.R. § 210.14(e).
22
See Certain Bearings and Packaging Thereof, Order No. 20: Order Granting
Motion to Amend Response to Include Two Affirmative Defenses, Inv. No. 337-TA-469, 2002
ITC LEXIS 388 at *2 (July 22, 2002) (“[T]he Commission favors allowing respondents to
amend their responses to the complaint in Section 337 investigations.”).
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district court proceeding.23 As a general proposition, most of the defenses available in federal
district court are available in a Section 337 case, with two major exceptions. First, historically,
laches usually has not been available as a defense in a Section 337 case.24 Second, the safe
harbor defenses of 35 U.S.C. § 271(g) are not available in a Section 337 case. 25 However, a
respondent does have additional avenues of defense in a Section 337 case which are not available
in a district court case; specifically, since a complainant must show importation and the existence
of a domestic industry, a respondent might be able to use these requirements defensively.
Furthermore, 19 C.F.R. §§ 210.4(c), 210.12(h) and 210.16(b)(2) can be used as defenses for
abuse of process and breach of the duty of candor owed to the Commission. Pursuant thereto,
the Commission on at least one occasion has found the complaint filed by a complainant to be
meritless. (A more detailed discussion of defenses is set forth, infra, in part VII.)
Eighth, and perhaps most importantly, a respondent needs to appoint a litigation
coordinator within the company who will interact with outside counsel. The company’s
management must give “authority” to that coordinator, and that authority needs to be made clear
to anyone in the company who might become involved in the case. Outside counsel must be able
to have a contact point through whom they know they can get requests handled quickly. This is
especially important if there is a large time difference between the respondent’s location and the
United States. Identifying that contact person is key, and then putting in place a mechanism for
that person to act is a necessary corollary.
IV.
Other Critical Considerations
A respondent is well advised to evaluate the following questions: a) what will an
exclusion order mean for its business, and b) how can it operate in the United States in the face
of an exclusion order. The answers to these questions can dictate how many resources to devote
to defense of the Section 337 case, and what type of settlement might be workable. For example,
if the U.S. market is not that critical, a respondent might choose not to participate in the case, or
simply to enter into an agreement not to import, without admitting any liability. Perhaps it can
23
See Baltimore Luggage Co. v. Samsonite Corp., 24 U.S.P.Q.2d 1851; 1992 U.S.
App. LEXIS 27493 at * 11-12 (4th Cir. 1992) (Fourth Circuit finding no error with district
court’s determination that the “ITC’s findings adverse to Baltimore on its affirmative defenses”
were res judicata in district court proceeding).
24
See Certain Personal Watercraft and Components Thereof, Order No. 54: Initial
Determination Granting Complainants’ Motion For Preclusion of Respondents’ Affirmative
Defense of Laches To A Determination of Violation Under Section 337, Inv. No. 337-TA-452,
2001 ITC LEXIS 635 at * 2-3 (Sept. 19, 2001). This refers to laches in the traditional sense, in
terms of delay in bringing suit. However, to assert prosecution laches vis-à-vis a patent owner is
a viable defense at the ITC. (See further discussion of laches, infra.)
25
See Certain Abrasive Products Made Using a Process for Powder Preforms, and
Products Containing Same, Commission Opinion Affirming Order No. 40, Inv. No. 337-TA-449,
USITC Pub. No. 3530, 2002 ITC LEXIS 480 at * 17-18 (Aug. 1, 2002) (“We agree with the
ALJ’s conclusion that the defenses to infringement contained in 35 U.S.C. § 271(g) do not apply
to investigations conducted pursuant to Section 337 of the Tariff Act of 1930.”), aff’d Kinik Co.
v. U.S. Int’l Trade Comm’n, 362 F.3d 1359, 1363 (Fed. Cir. 2004).
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source the goods from another supplier that is either licensed or makes a non-infringing product.
If a design-around product (i.e., a product which is clearly non-infringing) is feasible, then
perhaps resources are best spent on bringing the design-around product to market (another
possibility is to make the design-around product part of the case to try to achieve a finding of
non-infringement on at least one product acceptable to the market). These are just some of the
types of issues that should be explored in the analysis. A respondent should never lose sight of
the fact that a Section 337 case is not about damages -- it is usually about having one’s product
excluded from the U.S. market.
One of the best ways that respondents can turn the tables on a complainant is by working
cooperatively in an effective manner. Even with multiple counsel and absent a joint defense
agreement, respondents can coordinate. For example, strategically timed and non-repetitive
discovery requests can work to respondents’ advantage. Such requests can keep the complainant
scrambling rather than preparing its case. Remember, there are usually one complainant and
numerous respondents. While ALJs may require respondents to coordinate, they will do so
within due process bounds -- the ALJs understand that each respondent likely has different noninfringement defenses, etc. Cloned or repetitive discovery requests, on the other hand, do little
to give respondents an advantage. However, a respondent should be careful in any cooperative
arrangements to protect itself against the eventuality of another respondent that was responsible
for preparing a key part of the case (which was to be relied upon by others) entering into a
settlement agreement and thereby leaving a void in the case preparation.
Respondents also are well advised to contact the OUII Staff attorney early on to explain
deficiencies in the complainant’s case. The Staff, while neutral, can be an ally in its quest to
represent the public interest. For example, if a complainant has overstated its domestic industry
claim, or has omitted key details, drawing that to the Staff’s attention can be helpful. It might
cause OUII to issue some targeted discovery requests, or even to file an early motion for
summary determination.
Another consideration for a respondent is what type of target date is in its best interests.
The conventional thinking is that respondents usually prefer longer target dates, and
complainants, shorter ones. However, that is not always the case, whether it be for business or
other strategic reasons. It may be that a respondent who is reasonably comfortable with the
merits of its case may want to bring some pressure to bear on a complainant by suggesting an
early target date. In the same vein, with respect to the proposed procedural schedule, a
respondent should evaluate whether it should ask the ALJ to conduct a claim construction (aka
Markman) hearing, and if so, whether it makes sense to press for an early date for such a hearing.
A respondent should also decide whether it is worth it to fight the economic prong of the
domestic industry requirement.26 While some discovery is usually appropriate to test the
26
Under Section 337, in order for an owner of IP rights to have standing to bring an
action, an industry in the United States relating to the rights at issue must exist or be in the
process of being established. See 19 U.S.C. § 1337(a)(3). The economic prong of the domestic
industry requirement is generally established if there is, in the United States with respect to the
articles protected by the intellectual property right: (A) significant investment in plant and
(…continued)
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complainant’s domestic industry claim, often, the issue is not worth pursuing. True, a
respondent’s pursuing the issue can cost the complainant money, but it also costs the respondent
money and time. Moreover, the domestic industry requirement to a certain extent allows the
complainant to wrap itself in the American flag during the hearing and present evidence that
provides a nice gloss. Since the end result is likely a finding that the requirement is satisfied, a
respondent may not want to give a complainant that opening. (The one notable exception that
continues to be a “hot issue” in Section 337 litigation is in the situation of a licensing-based
domestic industry claimed by a non-practicing entity – the permissible outer limits of such an
industry are currently being explored.)
The technical prong of the domestic industry requirement is a totally different story,
however.27 A respondent is well advised to probe deeply and expend substantial effort testing
whether a complainant actually exploits the intellectual property right at issue. Merely because a
company owns a patent does not mean that it actually practices the claims of the patent.
Motions for summary determination are another tool available to respondents to help
streamline the case.28 If the circumstances warrant it, a respondent can benefit from a summary
determination that eliminates some of the complainant’s claims. Plus, responding to the motion
will occupy the complainant’s resources.
A respondent can also improve its position by thinking early and quickly about retaining
appropriate expert witnesses. In many industries, there are just not that many “good” experts. It
is never too early to start the interview, selection and retention process. Moreover, a true expert
in the field can be a tremendous asset in helping to prepare a case. Since outside experts
generally are permitted access to confidential information under the protective order, retaining a
knowledgeable outside expert can be one way to help outside lawyers less familiar with the
relevant technology to prepare the case.
A respondent also should address practical questions early on, some of which can have an
effect on the substance of its case. For example, will foreign witnesses be brought to the United
States for depositions or will the depositions need to occur abroad? A respondent may wish to
equipment; (B) significant employment of labor or capital; or (C) substantial investment in its
exploitation, including engineering, research and development, or licensing. See 19 U.S.C.
§§ 1337(a)(3)(A)-(C). See InterDigital Communications, LLC v. Int’l Trade Comm’n, Appeal
No. 2010-1093 (Fed. Cir. Jan. 10, 2013) (rehearing and rehearing en banc denied), for a detailed
discussion of these provisions and the legislative history related thereto.
27
Whereas the economic prong analyzes the level of domestic activity, the technical
prong analyzes whether the activities of the complainant truly relate to the intellectual property
rights at issue.
28
See 19 C.F.R. § 210.18(a) (“Any party may move with any necessary supporting
affidavits for a summary determination in his favor upon all or any part of the issues to be
determined in the investigation. Counsel or other representatives in support of the complaint
may so move at any time after 20 days following the date of service of the complaint and notice
of instituting the investigation. Any other party or a respondent may so move at any time after
the date of publication of the Notice of Investigation in the Federal Register.”).
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insist on the latter for the convenience of its witnesses, but keep in mind the rules of its country
on discovery issues, which may be quite burdensome. Another question to explore is whether
interpreters will be necessary -- it is usually much better to use witnesses who do not need
interpreters, assuming that there is a choice. However, it should be kept in mind that there is no
jury in a Section 337 case. Plus, the ALJs are accustomed to hearing foreign witnesses, through
interpreters and not. Furthermore, some judges require direct testimony via witness statements.
Carefully reviewing the hearing requirements of the ALJ assigned to the case can assist the
respondent in thinking ahead as to witness selection and responses to Rule 30(b)(6)-type
deposition notices. Also, as to documents, how much translation will be necessary should be
factored into strategic decisions. Another issue to consider is how documents will be transported
to the United States. Here, the question of production in electronic format comes into play -- in
current Section 337 investigations, production in electronic format is typical and a respondent
may very well want to push for an arrangement with such a requirement. Also, as to production
of electronic documents -- a respondent should think about the respective burden on it and the
complainant in trying to decide what type of agreement should be reached on this issue. A
respondent is also well advised to research the issue of privilege as it applies to various classes of
attorneys and legal personnel in the foreign country to ensure that its litigation strategies are not
inadvertently rendered discoverable because a person to whom privilege does not attach is
involved.29 Likewise, the privilege issue should be researched for production purposes. Finally,
a respondent should assess whether any “blocking” statutes apply and how such statutes and
other local laws may have an effect on its ability to comply (or readily comply) with discovery
requests.
Also, if there is a parallel district court case, a respondent has another decision to make,
namely, whether to stay the district court litigation pending completion of the ITC
investigation.30 Again, the conventional wisdom is that a respondent should seek a stay;
however, that is not always the case. Perhaps a respondent has its own set of patents that it
29
See Certain Wet Motor Circulating Pumps and Components Thereof, Inv. No.
337-TA-94, 1981 ITC LEXIS 12 at * 4 (May 18, 1981) (“Confidential correspondence between
[a party’s] counsel and foreign patent agents will not be considered to fall under the attorneyclient privilege unless privileged under the foreign law.”); see also Certain Diltiazem
Hydrochloride and Diltiazem Preparations, Inv. No. 337-TA-349, 1993 ITC LEXIS 768 at * 7
(Oct. 9, 1993) (same, citing In re Ampicillin Antitrust Litigation, 81 F.R.D. 377, 391 (D.D.C.
1978); Duplan Corp. v. Deering Millikin, Inc., 397 F. Supp. 1146, 1170-71 (D.S.C. 1974));
Certain Home Vacuum Packaging Products, Inv. No. 337-TA-496, USITC Pub. No. 3681, 2004
ITC LEXIS 332 (Mar. 2004) (“[T]he privilege law of the United States applie[s] to
communications with foreign attorneys if those communications ‘touch[] base with the United
States.’ VLT Corp. v. Unitrode Corp., 194 F.R.D. 8, 15 (D. Mass. 2000).” Id. “A document
‘touches base with the United States’ if it has more than an incidental connection to the United
States and the United States has ‘the most direct and compelling interest in the communication.’
VLT Corp., 194 F.R.D. at 16.” Id.).
30
See 28 U.S.C. § 1659. To stay the district court proceeding, a respondent must
request such a stay within 30 days after the district court action is filed, or within 30 days after
the Notice of Investigation is published in the Federal Register, whichever is longer.
- 10 -
wants to assert against the complainant. Keeping the pressure on the complainant may be a way
to achieve a favorable settlement of the ITC case.
Finally, a respondent should not forget that Section 337 is a U.S. international trade
statute and not simply a private remedy. Accordingly, public interest considerations do come
into play, both before the ITC and during presidential review of any remedy ordered by the
ITC.31 Hence, if there are public health or safety concerns that militate in favor of a respondent,
it should press those arguments. For example, will an exclusion order cause a short supply of a
product that has an impact on the public well-being? If so, a respondent should call upon
consumer/customer witnesses to testify about the shortage.
V.
Remedies
Normally, issues such as discovery and defenses are addressed before addressing the
question of remedy. However, critical to an understanding of Section 337 is the unique relief
which the statute affords. Indeed, after the Supreme Court’s decision in eBay, Inc. v.
MercExchange, LLC, 126 S. Ct. 1837 (2006), that relief may become even more unique.
The most powerful of the Commission’s remedies is its ability to issue a general
exclusion order.32 Exclusion orders are enforced by United States Customs and Border
Protection (“Customs” or “CBP”). The power of these orders arises from the in rem jurisdiction
of the Commission. General exclusion orders govern the infringing property and therefore are
not limited to certain individuals. Thus, the Commission has jurisdiction over the accused
products that are imported or sold in the United States after importation “whether or not the
foreign manufacturer has been explicitly identified as a respondent, or received actual notice of
the investigation.”33 General exclusion orders direct Customs to exclude all infringing articles
without regard to the source of the articles, a remedy that would not be possible in federal district
court without suing in multiple jurisdictions with all possible infringers as defendants. A general
exclusion order is granted when the following conditions are met: (A) such an order is necessary
to prevent circumvention of an order limited to products of certain named parties, or (B) there is
a pattern of violation of Section 337 and it is difficult to identify the source of the infringing
products. See 19 U.S.C. § 1337(d)(2).
The Commission can also issue a limited exclusion order. Limited exclusion orders
direct Customs to exclude only infringing articles that originate from a specific respondent in the
investigation. However, the breadth of the Commission’s authority in issuing limited exclusion
31
See Negar Katirai, Public Interest Considerations and Presidential Review in
Section 337 Cases: The Wrong Place at the Wrong Time, ITC TRIAL LAWYERS ASSOCIATION
337 REPORTER, Summer 2004, at 103. Notably, the Commission has recently started to focus
more attention on public interest considerations and has begun a practice of seeking early
comments regarding whether/how an investigation may implicate public interest considerations.
32
See 19 U.S.C. § 1337(d).
33
Certain Single Handed Faucets, ITC Inv. No. 337-TA-167, Unreviewed Initial
Determination (November 1984) (citing Certain Window Shades and Components Thereof, Inv.
No. 337-TA-83 (1981)).
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orders has been circumscribed by the U.S. Court of Appeals for the Federal Circuit, in Kyocera
Wireless Corp. v. U.S. Int’l Trade Comm’n.34 At issue in Kyocera was the Commission’s
authority to issue a limited exclusion order covering the downstream products of non-parties; the
Federal Circuit held that the Commission did not have such authority in the context of a limited
exclusion order. However, the opinion contains some additional and more general language
about the scope of the Commission’s statutory authority that may be viewed as also applicable in
cases not involving downstream products. Thus, until the Commission has ample opportunities
to interpret the Kyocera decision, and there is time for those decisions to make their way through
the appeal process, there will likely still be some uncertainty as to the permissible scope of
limited exclusion orders.
Exclusion orders are common remedies in counterfeiting cases. In the case of Certain
Single Handed Faucets, complainant Masco filed a complaint alleging various acts of unfair
competition, as well as trademark infringement, based in part on the respondents’ offering for
sale counterfeit copies of its Delta faucet.35 In addressing the question of remedy, the ID noted
that the “exclusion order is the most effective means of ensuring that articles that infringe a valid
trademark do not find their way into United States Commerce.”36 Thus, in such cases,
“exclusion orders generally are preferred to cease and desist orders.”37
Noteworthy in today’s commercial environment is the Commission’s practice in cases
involving sales over the internet. Sales into the United States over the internet are deemed
sufficient by the Commission to establish a violation of Section 337 if the articles so sold enter
the United States. Indeed, the existence of widespread sales over the internet can be a factor
leading to issuance of a general exclusion order. For example, Pfizer successfully brought a
Section 337 case against infringing imports of its patented sildenafil (“Viagra”), naming more
than 10 respondents located in countries all over the world -- Belize, Nicaragua, Syria, Israel,
India, China and the United Kingdom. The sales on which the complaint was based were
internet sales. Most of the respondents defaulted. Nevertheless, in February 2004, the ITC
issued a general exclusion order, excluding infringing imports from all sources -- i.e., from
named respondents and also from other companies located anywhere in the world. See Certain
Sildenafil or Any Pharmaceutically Acceptable Salt Thereof, Such as Sildenafil Citrate, and
Products Containing Same, Notice of Commission Decision Not to Review an Initial
Determination Terminating Investigation as to One Respondent on the Basis of a Settlement
Agreement; Notice of Issuance of General Exclusion Order; Termination of the Investigation, 69
Fed. Reg. 7497 (Feb. 17, 2004).
The Sildenafil case thus highlights the powerfulness of default judgments at the ITC.
The Commission Rules spell out the procedures and consequences with respect to default. See
19 C.F.R. § 210.16. A respondent can be found in default for a variety of reasons. For example,
failure to respond to the complaint and Notice of Investigation can eventually lead to a finding of
34
545 F.3d 1340 (Fed. Cir. 2008).
Certain Single Handed Faucets, ITC Inv. No. 337-TA-167, Unreviewed Initial
Determination (November 1984).
36
Id.
37
Id.
35
- 12 -
default.38 A finding of default, in turn, can lead to a substantive finding of a violation of Section
337, and issuance of a remedy, including even a general exclusion order, as in the Sildenafil
case.
An exclusion order remains in effect as long as the intellectual property right remains in
effect or until the Commission determines that the conditions that led to the exclusion no longer
exist. See 19 U.S.C. § 1337(k)(1). The Commission also can order the seizure and forfeiture of
subsequent shipments of items that were previously denied entry pursuant to an exclusion order.
See 19 U.S.C. § 1337(i).
The Commission also can enter a cease and desist order and often does this in
conjunction with an exclusion order. A cease and desist order directs a respondent to cease and
desist from the alleged unfair acts, including the selling of infringing imported articles from
inventories stockpiled in the United States. Such an order can also direct the respondent to cease
infringing conduct, to cease certain marketing practices, and/or to cease certain types of anticompetitive conduct. Interestingly, in an infringement action brought under Section 337,
infringement can be determined at the time of importation or at the time of sale. Therefore, a
party cannot circumvent an order of the Commission by legally importing an item under the
jurisdiction of Customs and then affixing a counterfeit label to it once the item is ready for sale
in the United States.39 The Commission itself is responsible for the enforcement of cease and
desist orders and has the power to impose civil penalties against parties who violate an order. 40
38
See Certain Tadalafil or Any Salt or Solvate Thereof and Products Containing
Same, ITC Inv. No. 337-TA-539, 71 Fed. Reg. 1452 (Jan. 9, 2006) (issuing general exclusion
order for nine respondents who were found to be in default for failure to respond to the
complaint and Notice of Investigation); see also Certain Foam Masking Tape, ITC Inv. No. 337TA-528, Notice of Issuance of General Exclusion Order and Termination of Investigation, 70
Fed. Reg. 66,849 (Nov. 3, 2005) (issuing general exclusion order for one respondent who was
found to be in default for failure to respond to the amended complaint and Notice of
Investigation).
39
Certain Agricultural Tractors Under 50 Power Take-Off Horsepower, ITC Inv.
No. 337-TA-380, Enforcement Proceeding (July 28, 1999) (holding application of counterfeit
labels onto tractors prior to sale violated cease and desist order and brought tractors under
Commission’s jurisdiction despite the fact that tractors did not infringe complainant’s trademark
at time of importation). It should be noted that the Agricultural Tractors case involved gray
market imports.
40
19 U.S.C. § 1337(f)(2). The Commission utilizes a six-part test to determine first
whether to assess civil penalties and second, the amount of penalties that should be assessed:
“(1) the good or bad faith of the respondent; (2) the injury to the public; (3) the respondent’s
ability to pay; (4) the extent to which the respondent has benefited from its violations; (5) the
need to vindicate the authority of the Commission; and (6) the public interest.” Certain
Agricultural Tractors Under 50 Power Take-Off Horsepower, ITC Inv. No. 337-TA-380,
Enforcement Proceeding (July 28, 1999).
- 13 -
In Agricultural Tractors, such penalties totaled $2,320,000.41 Thus, even though monetary
damages in Section 337 proceedings are not awarded to the complainant, the threat of high civil
penalties can be used to deter respondents from subsequent infringements.
Commission decisions that find no violation of Section 337 are final when issued.
Decisions of the Commission that find a violation of Section 337 and issue a remedy are subject
to a 60-day period for presidential review prior to becoming final. During this period of
presidential review, the alleged infringing articles may enter the United States and actions
prohibited by a cease and desist order may continue, subject to the respondent’s posting of a
bond with Customs in an amount determined by the Commission. If the President does not
disapprove the Commission’s order at the conclusion of the 60-day period, a complainant can
seek to have previously posted bonds forfeited. The Commission’s decision then becomes final
either at the end of the 60-day period, or, if the President informs the Commission of his
approval earlier, on that date. Presidential disapproval has occurred in very few cases.
As noted supra, the remedies available to the Commission -- namely, the exclusion order
remedy and the cease and desist order remedy -- are specifically designed to effectively stop
unfair acts or methods of competition caused by imports. It is in this respect that the
international trade policy aspects of Section 337 are perhaps most noticeable. That is, Congress
has been and continues to be aware of the statute’s public interest components and its role as a
law designed to combat unfair competition by imports. This trade policy aspect of Section 337
distinguishes proceedings thereunder from district court cases. Thus, as discussed below, after
the Supreme Court’s eBay decision, injunctive relief via Section 337 may be more readily
available than permanent injunctive relief in federal district court.
In a Section 337 case based on a federal statutory IP right, absent a finding that such
relief is against the public interest, a complainant is entitled to injunctive relief if it establishes:
(1) an unfair act (e.g., infringement of a valid and enforceable U.S. patent, copyright, trademark,
mask work or boat hull design) related to articles imported into the United States (or sold for
importation, or sold after importation); and (2) that an industry in the United States relating to
the intellectual property at issue exists or is in the process of being established. Indeed, the
remedies available under Section 337, while in rem and quasi-international in scope,
conceptually resemble the permanent injunctive relief available through the federal district court
system. However, after the Supreme Court’s decision in eBay, patent owners may have an
additional incentive to pursue remedies under Section 337 in certain situations, as opposed to
traditional federal district court litigation.
In eBay, the Supreme Court reversed the Federal Circuit’s “general rule” that “a
permanent injunction will issue once infringement and validity have been adjudged.” 42 In the
opinion below, the Federal Circuit had stated “that injunctions should be denied only in the
41
Certain Agricultural Tractors Under 50 Power Take-Off Horsepower, ITC Inv.
No. 337-TA-380, Enforcement Proceeding (July 28, 1999) (including counterfeiting and other
violations).
42
126 S. Ct. 1837, 1841 (2006) (quoting eBay, Inc. v. MercExchange, LLC, 401
F.3d 1323, 1338 (Fed. Cir. 2005)).
- 14 -
‘unusual’ case, under ‘exceptional circumstances’ and ‘in rare instances . . . to protect the public
interest.’”43 The Supreme Court, rejecting the Federal Circuit’s “general rule,” found that the
“Court has long recognized, ‘a major departure from the long tradition of equity practice should
not be lightly implied.’”44 Accordingly, the Supreme Court held that the well-established
principle of equity, i.e., that a plaintiff seeking a permanent injunction must satisfy a four-factor
test before a court may grant such relief, applies with equal force to cases under the Patent Act.
As such, pursuant to the Supreme Court’s decision in eBay, a permanent injunction in a patent
case will issue only if a plaintiff demonstrates: “(1) that it has suffered an irreparable injury;
(2) that remedies available at law, such as monetary damages, are inadequate to compensate for
that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a
remedy in equity is warranted; and (4) that the public interest would not be disserved by a
permanent injunction.”45
In contrast to the four-factor test which the Supreme Court has now found to be
applicable to infringement cases brought pursuant to the Patent Act, Congress has expressly
noted that proof of injury in statutory-based Section 337 cases is not a prerequisite to remedial
relief. A 1987 Report of the House Committee on Ways and Means, discussing amendments to
Section 337 -- specifically, the elimination of the injury requirement in statutory-based cases -explained:
The owner of intellectual property has been granted a temporary statutory
right to exclude others from making, using, or selling the protected
property . . . . In return for temporary protection, the owner agrees to
make public the intellectual property in question. It is this tradeoff which
creates a public interest in the enforcement of protected intellectual
property rights. Any sale in the United States of an infringing product is a
sale that rightfully belongs only to the holder or licensee of that property.
The importation of any infringing merchandise derogates from the
statutory right, diminishes the value of the intellectual property, and thus
indirectly harms the public interest. Under such circumstances, the
Committee believes that requiring proof of injury, beyond that shown by
proof of the infringement of a valid intellectual property right, should not
be necessary.46
Consequently, in the absence of an additional amendment to Section 337, it appears that
the first prong of the four-factor test (irreparable injury) is inapplicable to statutory-based
Section 337 cases. Similarly, because the only remedies statutorily available to the Commission
are essentially ones in equity, it appears that the second and third prongs of the four-factor test
are also not applicable to Section 337 cases, since Congress has already determined that the only
remedy available should be equitable. (Application of the fourth prong (public interest) is indeed
required by Section 337.)
43
44
45
46
Id. at 1841 (quoting eBay, Inc. v. MercExchange, 401 F.3d at 1338–39).
Id. at 1839 (quoting Weinberger v. Romero-Barcelo, 456 U.S. 305, 320 (1982)).
Id. at 1839 (citations omitted).
H.R. REP. NO. 100-40, 100th Cong., at 156 (1987).
- 15 -
In short, potential complainants in patent-based Section 337 investigations (particularly
licensors) who may have difficulty establishing that there exists irreparable injury, that remedies
available at law are inadequate, or that the balance of hardships weighs in favor of a remedy in
equity, may benefit from permanent injunctive relief before the Commission, which may
otherwise be unavailable.
VI.
Discovery
Section 337 proceedings allow for discovery to take place prior to the evidentiary hearing
before the ALJ. While analogous to discovery under the FRCP, discovery under Section 337 is
not identical. For example, the Commission Rules to date have not embraced disclosure
provisions, and there has not been any decision made to adopt the new FRCP provisions
regarding electronic discovery (although it is common practice in Section 337 cases for counsel
to agree on the parameters of electronic discovery). Furthermore, discovery in Section 337 cases
has certain distinct advantages.
Unlike in district court, a subpoena in a Section 337 proceeding has nationwide power.
A party wishing to have a subpoena issued does so by application to the ALJ. If necessary,
enforcement of a subpoena can occur in federal court. Issuance of subpoenas is typical in order
to obtain discovery from third parties.
A second advantage to discovery in a Section 337 proceeding is the familiarity that the
Commission has with these types of cases. For example, because actions brought under Section
337 usually involve confidential business information, a protective order is normally issued by
the ALJ shortly after an investigation begins. Typically, these orders will preclude a party’s
in-house counsel (or any other in-house personnel) from having access to confidential
information produced by others during the investigation. The protective orders also cover
information produced by third parties pursuant to a subpoena. Absent a protective order, Section
337 practice still allows documents to be marked confidential and treated as such.47 And, while a
district court judge might be hesitant to grant a plaintiff’s entry onto a defendant’s land to inspect
its inventory for counterfeit materials, for example, “The Commission has routinely allowed such
inspections in Section 337 investigations.”48 This latter aspect is discussed in more detail below.
1.
Generally
The Commission’s Rules permit discovery of any matter, not privileged, that is relevant
to the following:
(1)
The claim or defense of the party seeking discovery or to the claim
or defense of any other party, including the existence, description, nature,
47
See 19 U.S.C. § 1337(n).
Certain Bearings and Packaging Thereof, Inv. No. 337-TA-469, Order No. 21
(July 24, 2002) (permitting entry onto alleged infringers’ property to identify gray market or
counterfeit bearings and packaging); see also 19 C.F.R. § 210.30(a)(2).
48
- 16 -
custody, condition, and location of any books, documents, or other tangible
things;
(2)
The identity and location of persons having knowledge of any
discoverable matter;
(3)
The appropriate remedy for a violation of section 337 of the Tariff
Act of 1930 (see § 210.42(a)(1)(ii)(A)); or
(4)
The appropriate bond for the respondents, under section 337(j)(3)
of the Tariff Act of 1930, during Presidential review of the remedial order (if any)
issued by the Commission (see § 210.42(a)(1)(ii)(B)).
It is not grounds for objection that the information sought will be inadmissible at
the hearing if the information sought appears reasonably calculated to lead to the
discovery of admissible evidence.
19 C.F.R. § 210.27(b).
Like discovery in other U.S. forums, such discovery is generally much broader than what
is permitted in other countries. Moreover, because Section 337 investigations proceed so
quickly, the Commission’s ALJs have traditionally been more reluctant to limit the scope of
discovery than their district court counterparts. As such, the reach of discovery in Section 337
cases is in fact quite broad.
The complainant in a Section 337 investigation may have discovery problems if a great
deal of the information needed to prove its case is located in foreign countries. This information
may be difficult to obtain, not only because of volume and distance, which electronic discovery
can often resolve,49 but also because some foreign governments do not make it easy for
discovery, as practiced in the United States, to take place. Nonetheless, the Commission has
given itself tremendous latitude in gaining access to information held by foreign companies.
Although the complainant and the Commission cannot force foreign companies to divulge
information or documents in the same way that they can force companies or persons located in
the United States to do so, the Commission can impose sanctions for failure to provide
information. Sanctions are similar to those set forth in Rule 37 of the FRCP. Such sanctions
may include finding that the information which the complainant should have obtained would be
unfavorable to the respondent’s position, or even finding the entire case in favor of the
complainant.
As stated supra, discovery in a Section 337 investigation “may be served upon any party
after the date of publication in the Federal Register of the Notice of Investigation.” See
19 C.F.R. § 210.29(b) (interrogatories); 19 C.F.R. § 210.30(b) (requests for production of
documents and things and entry upon land). For a foreign respondent, the discovery period can
49
The OUII and the ALJs at the Commission have generally recognized the benefits
that electronic discovery may provide, given the voluminous nature of the data that must be
analyzed and the relatively short time-frame of Commission investigations. See Certain
Integrated Repeaters and Products Containing Same, Inv. No. 337-TA-430, Order No. 8, 2000
ITC LEXIS 190, at *9-10 (June 27, 2000).
- 17 -
be extremely burdensome because of the short time limits and the difficulties of transporting
large numbers of documents or persons around the world, and coordinating with the U.S.
attorneys representing it to ensure that accurate information is compiled and presented to the
Commission. The prospect of disclosing confidential business information, even under
protective order, also has proven to be repugnant to many foreign respondents in these cases.
2.
Inspections of Respondents’ Foreign Facilities
The Commission’s Rules provide for entry upon land for the purpose of “inspecting and
measuring, surveying, photographing, testing, or sampling the property or any designated object
thereon, within the scope of § 210.27(b).” 19 C.F.R. § 210.30(a)(2). Rule 210.27(b) in turn
provides that a party may obtain discovery regarding any matter relevant to the claim or defense
of the party seeking discovery or the claim or defense of any other party. The ITC has routinely
allowed inspections of foreign facilities in Section 337 investigations where such inspections are
deemed necessary. Thus, especially in process patent cases, foreign facility inspections are quite
common in the course of a Section 337 investigation. See Certain Polyethylene Terephthalate
Yarn and Products Containing Same, Order No. 12 (Aug. 14, 2004), at 2 (process patent case,
facility inspection permitted in Korea); Certain Acesulfame Potassium and Blends and Products
Containing Same, ITC Inv. No. 337-TA-403, Order No. 4 (Feb. 6, 1998), at 3 (plant inspection in
China in process patent case); Certain Anisotropically Etched One Megabit and Greater DRAMs,
Components Thereof, and Products Containing Such DRAMs, ITC Inv. No. 337-TA-345, Order
No. 5 (March 24, 1993), at 1 (inspection and sampling at Korean facilities permitted in process
patent case); Certain Aramid Fiber Honeycomb, Unexpanded Block or Slice Precursors of Such
Aramid Fiber Honeycomb, and Carved or Contoured Blocks or Bonded Assemblies of Such
Aramid Fiber Honeycomb, ITC Inv. No. 337-TA-305, Order No. 15 (March 6, 1990), at 4
(process patent case, plant inspection in Luxembourg permitted). Accordingly, a respondent
must be prepared for this type of discovery. That said, the ALJs are prepared to carefully
evaluate arguments regarding the permissibility and/or consistency of such inspections under or
with local laws.
VII.
Defenses
Respondents raise many of the same defenses at the ITC as in federal district court. In IP
cases, respondents either try to show that they do not infringe or that the patent, trademark, or
copyright is invalid. In contract, antitrust, and other cases involving unfair competition,
respondents essentially try to establish that some element of the cause of action is not met. But
Section 337 cases do have some defenses that are unique. Respondents may “prove” that they
are not importing the goods in question, that there is no domestic industry in the relevant goods
or IP right, or that they are not injuring a domestic industry. However, not all of these defenses
can be asserted in every case.
A.
Defenses Specific To Section 337 Cases
1.
“No Importation” Defense
If a respondent can prove that there is no importation of the goods in question, the ITC
will not have jurisdiction over that respondent. But the ITC has been liberal in its interpretation
- 18 -
of what “importation” means. For example, if an overseas manufacturer does not import goods,
but knows its goods will be imported into the United States, it can satisfy the importation
requirement.50 Or if a company manufactures goods in the United States, ships them out of the
country, and then ships them back, it is importing.51 If a company downloads software via a
corporate intranet into the United States, it is importing.52 In Hardware Logic Emulation
Systems, a French company downloaded infringing software into the United States over the
French company’s own intranet system. The ITC issued a cease-and-desist order against the
French company. Hardware Logic, Inv. No. 337-TA-383, 1998 ITC LEXIS 64, Comm. Op. at
20 (Apr. 1, 1998). In short, if parties are bringing anything into the Customs territory of the
United States, they are importing.
2.
“No Domestic Industry” Defense
Another defense in any Section 337 case is that there is no domestic industry. This test
has two prongs -- an economic prong and a technical prong. To defeat the economic prong,
respondents must show that a complainant: (1) has no significant investment in U.S. plants and
equipment, (2) has no significant employment of U.S. labor and capital, and (3) has no
substantial investment in the exploitation of the article or IP right in the United States.
Respondents rarely succeed with this defense because the bar is very low for complainants. For
example, in one case, the complainant did not have a license to sell the goods, but another entity
did. The ALJ determined that since there was a licensee in the United States, there was a
domestic industry. Static Random Access Memories, Inv. No. 337-TA-341, Order No. 5 at 4,
1992 WL 811807 (Dec. 30, 1992). In a case involving in-line roller skates, or roller blades, the
complainant only had five quality assurance personnel in the United States, yet the ALJ found
that there was a domestic industry. In-Line Roller Skates, Inv. No. 337-TA-348, Order No. 21
at 3, 1993 WL 852393 (July 30, 1993). But the decision was reversed and remanded by the
Commission, and the case was terminated before the ALJ issued another opinion. In-Line Roller
Skates, Comm. Notice (Aug. 31, 1993); 1993 WL 852488, Initial Determination (Oct. 4, 1993).
50
Erasable Programmable Read-Only Memories, Inv. No. 337-TA-276, USITC
Pub. No. 2196 (May 1989) (EPROMs). In EPROMs, respondent Hyundai Electronics Industries
Co. argued that it did not import any goods into the United States, rather, it made the goods and
sold them to General Instruments, which imported them into the United States. The ALJ found
that a foreign manufacturer of infringing products can be found in violation of Section 337, even
though it did not own the goods when they entered the United States (Initial Determination at 37
(Nov. 16, 1988)); upheld by the Commission in Erasable Programmable Read-Only Memories,
Inv. No. 337-TA-276, USITC Pub. No. 2196, Comm. Op. at 3 (May 1989).
51
In Sputtered Carbon Coated Computer Disks, respondents performed the
infringing process in the United States to make disks. The disks were shipped overseas to make
disk drives, which were then shipped back into the United States (Inv. No. 337-TA-350, USITC
Pub. No. 2701, Comm. Op. at 2 (Nov. 3, 1993)). The ITC held that the statute provides
jurisdiction over any imported goods, regardless of the location where the goods were
manufactured. Sputtered Carbon Coated Disks, Comm. Op. at 4-5.
52
Hardware Logic Emulation Systems, Inv. No. 337-TA-383, 1997 WL 665006,
Initial Determination at 189 (July 31, 1997).
- 19 -
To defeat the technical prong, respondents must show that the domestic industry does not
utilize the IP right in question. See Microlithographic Machines, Inv. No. 337-TA-468, Initial
Determination at 63-64 (Apr. 1, 2003). For example, respondents may show that no U.S.
industry uses the claimed copyright or trademark53 or that no U.S. industry uses any claim of the
patent in question.54
3.
“No Economic Injury” Defense
Another defense available in a limited number of cases is that the imports do not cause
economic injury to a domestic industry. However, in the permanent relief stage of an
investigation, this defense is unavailable in statutory IP cases, such as patent cases or cases
involving federally registered copyrights, trademarks, mask works, or boat hull designs. See
19 U.S.C. § 1337(a)(1)(A)-(E); see also Universal Transmitters for Garage Door Openers,
Inv. No. 337-TA-497, Initial Determination at 16, 2003 WL 2281119 (Nov. 4, 2003) (reciting a
brief history of Congress’ decision to add a reference in Section 337 to boat hull designs). 55 In
these cases, the registered IP right creates a non-rebuttable presumption that the imports injure
the domestic industry.56
In cases where the defense is available, the economic injury must be substantial, or there
must be a threat of substantial injury. See 19 U.S.C. § 1337(a)(1)(A)(i)-(iii) (stating that the
importation must “destroy or substantially injure an industry,” “prevent the establishment of such
an industry” or “restrain or monopolize trade and commerce in the United States” or threaten to
do so). Conversely, respondents can prevail by showing that the domestic industry has suffered
little or no injury, and that it is not threatened with such injury.
For example, when Textron, a U.S. company that manufactured milling machines,
brought an action against a number of Asian companies, the ITC found that Textron had not
proven that the imports caused its injury. Milling Machines, Inv. No. 337-TA-133, Comm. Op.
at 45-46 (Feb. 6, 1984). The ITC looked at changes in the industry, changes in Textron’s
53
See Agricultural Tractors, Inv. No. 337-TA-380, Order 39 at 5, 1996 WL 965732
(Aug. 8, 1996) (holding that a domestic industry must be proven for each trademark in question).
54
See Microlithographic Machines Inv. No. 337-TA-468, Initial Determination at
63-64 (Apr. 1, 2003) (holding that where a domestic industry uses the claims in question, the
technical prong of the “domestic industry” requirement is satisfied); see also Video Graphic
Display Controllers, Inv. No. 337-TA-412, Initial Determination at 9 (May 19, 1999)
(complainant had announced its intention to discontinue use of the technology in question and
the ALJ found that it had failed to satisfy the technical prong of the “domestic industry”
requirement).
55
Injury – or lack thereof – is a relevant inquiry when temporary relief is sought,
regardless of the type of case.
56
The economic injury requirement used to extend to all cases; however, the
statutory amendments of 1988 eliminated the injury requirement for the permanent relief phase
of statutory IP cases.
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operations, and increased costs to Textron as factors that could explain Textron’s loss of revenue.
Id. But more often than not, the ITC finds substantial injury.57
B.
Defenses In Patent Cases
1.
Nearly All Defenses That Are Available In A Federal District
Court Are Also Available At The ITC
Generally, Section 337 patent cases raise the same defenses as in federal court. Section
1337(c) states that “[a]ll legal and equitable defenses may be presented in all cases.” 19 U.S.C.
§ 1337(c). In patent cases, respondents generally assert, “The patent is invalid. And even if it is
valid, my product does not infringe.” See, e.g., Certain Polyethylene Terephthalate Yarn and
Products Containing Same, Inv. No. 337-TA-457, USITC Pub. No. 3550, Comm. Op. at 3
(Oct. 2002) (complainant’s patent invalid; because complainant had not disclosed the particular
method used to obtain certain measurements, the patent was indefinite, id. at 16, 18-19; aff’d,
Honeywell Int’l, Inc. v. Int’l Trade Comm'n, 341 F.3d 1332, 1334 (Fed. Cir. 2003)). See also,
e.g., Ammonium Octamolybdate Isomers, Inv. No. 337-TA-477, Notice, 2003 ITC LEXIS 453
(Aug. 20, 2003) (patent invalid because it was sold in the United States over one year prior to
filing of the patent application); Automobile Taillight Lenses and Products Incorporating the
Same, Inv. No. 337-TA-502, Initial Determination, Order No. 8 at 30-35 (July 23, 2004)
(respondent did not infringe complainant’s patent); Microlithographic Machines and
Components Thereof, Inv. No. 337-TA-468, Initial Determination at 450-55, 2003 WL 1831891
(Jan. 29, 2003) (patent invalid as anticipated by previously published patents and prosecution
laches).
2.
But There Are Some Differences Between ITC And Federal
District Court Proceedings
Although ITC patent actions are similar to federal court actions, they are not identical.
Some differences include the treatment of counterclaims, a safe harbor defense and the laches
defense.
57
For examples of substantial injury, see Sneakers, Inv. No. 337-TA-118, Comm.
Op. at 23, 24, USITC Pub. No. 1366 (Mar. 1983) (Commission looked at declining sales and
profits, deteriorating cash flow, employee layoffs, and production cutbacks, as well as
respondents’ lower prices and high production capacity to establish injury to domestic industry);
see also Video Matrix Display System, Inv. No. 337-TA-75, Comm. Op. at 22-23, USITC Pub.
No. 1158 (June 1981) (Commission found that the purchase of one system was a significant
capital expenditure, so the loss of one sale was enough to establish injury to a domestic
industry); see also Electric Power Tools, Battery Cartridges & Battery Chargers, Inv. No. 337TA-284, USITC Pub. No. 2389, at 245-46 (June 1991).
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a.
Counterclaims
As discussed above, if respondents want to raise counterclaims at the ITC, they can do so,
but immediately when they introduce the counterclaims, they must have them removed to federal
court. 19 U.S.C. § 1337(c). The action before the ITC only deals with the initial claim.
b.
There Is No Safe Harbor Defense For Overseas Processes
If a foreign drug company uses a process to make a drug, and that process is patented by
a U.S. company, the foreign company is liable for infringement. But if it takes three steps to
make the drug, and the U.S. company only owns patents on the first two steps, the foreign
company may fit into an exception. In 1988, Congress added 35 U.S.C. §§ 271(g)(1) and (2) to
the U.S. Code. Paragraphs one and two grant a safe harbor defense to companies accused of
infringement if they use a patented process to make an intermediate item if it is “materially
changed” by subsequent steps or it becomes a trivial and non-essential component of another
product.
For example, generic drug companies successfully used the safe harbor defense in federal
court when Eli Lilly tried to enforce a patent on a process for making an antibiotic. See Eli Lilly
& Co. v. Am. Cyanamid Co., 82 F.3d 1568 (Fed. Cir. 1996). Eli Lilly was producing an
antibiotic called Cefaclor. Id. at 1570. Cefaclor is a member of a class of antibiotics, all of
which have a cephum nucleus. Id. Eli Lilly obtained a patent on one method of obtaining the
cephum nucleus. Id. A number of companies, including American Cyanamid, began selling
generic versions of Cefaclor that had been manufactured in Italy using Eli Lilly’s patented
process to make the cephum nucleus. Id. at 1570. Eli Lilly sued, but the Federal Circuit held
that the final product was likely a material change from the cephum nucleus, which had been
produced using a patented process. Id. at 1578. Since subsequent steps changed the items’
physical and chemical properties in a way that changed the usefulness of the product, American
Cyanamid likely did not infringe according to the safe harbor provision. Id.58
But this safe harbor defense is not available at the ITC. In Kinik Co. v. Int’l Trade
Comm’n, 362 F.3d 1359 (Fed. Cir. 2004), the Federal Circuit upheld the Commission’s ruling
that the safe harbor defense does not apply to Section 337 cases. In Kinik, 3M tried to prevent
Kinik Co. from importing articles with abrasive surfaces made with a patented process. Id. at
1363-64. Kinik argued that the articles were materially changed after the patented process, and
subject to the safe harbor. Id. at 1366. The ITC decided in favor of 3M, reasoning that the safe
harbor provision in 35 U.S.C. § 271(g)(1) expressly states that it would not deprive a patent
owner of any remedies available under Section 337.59 Since the safe harbor provision would
58
The opinion involved a preliminary injunction against American Cyanamid, so
the test was whether Eli Lilly was likely to succeed on the merits of its infringement claim. Eli
Lilly, 82 F.3d at 1569-70. The court held that American Cyanamid likely fit within the safe
harbor, so Eli Lilly was not likely to succeed on the merits. Id. at 1578.
59
Notably, Section 337 (via a provision formerly codified at 19 U.S.C. § 1337a)
afforded protection against goods made abroad via an infringing process long before the U.S.
patent laws did. A remedy for infringement was not available under the patent laws until 1988.
(…continued)
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deprive 3M of protection in a Section 337 action, the Commission held, and the Federal Circuit
agreed, that the safe harbor does not apply in Section 337 cases. Kinik, 362 F.3d at 1362.
c.
Laches
The defense of laches historically was usually not available at the ITC in Section 337
cases involving patents. This was because in patent cases before federal courts, laches was only
available as a defense when computing damages as to retrospective relief. See Methods of
Making Carbonated Candy Prods., Inv. No. 337-TA-292, USITC Pub. No. 2390, Initial
Determination at 116-77 (June 1991). Since the ITC only offers prospective, injunctive relief,
not damages, laches was generally unavailable.60 However, recent Federal Circuit precedent has
expanded the concept of laches. See Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259, 1273
(Fed. Cir. 1999). As such, for example, the defense of laches could perhaps be used successfully
in a Section 337 case in the context of pre-filing inventory. Hence, the viability of laches as a
defense at the ITC is limited.
C.
Trademark And Copyright Cases
Trademark and copyright cases under Section 337 also raise the same defenses as in
federal court litigation, albeit with the same caveats as to counterclaims and laches discussed
above. If the copyright or trademark is registered, the owner does not have to show injury to a
domestic industry. Otherwise, a respondent can use lack of injury as a defense. Also, the
defenses that there is no importation or no domestic industry apply to copyright and trademark
cases, as with other Section 337 cases.
D.
Other Types Of Unfair Competition
Any other type of unfair competition case at the ITC, such as misappropriation of trade
secrets, breach of contract, or an antitrust violation, has available the same defenses as in federal
court (again, though, with caveats as to counterclaims and laches). But complainants must also
show importation, domestic industry, and injury to the domestic industry. The absence of any of
these can be raised as a defense.
VIII. Conclusion
In sum, while a respondent begins with a distinct disadvantage in a Section 337 case, by
taking appropriate steps quickly, a respondent can significantly improve its position. Particularly
See Eli Lilly, 82 F.3d 1571-72 (before the Process Patent Amendments Act of 1988 “a patentee
holding a process patent could sue for infringement if others used the process in this country, but
had no cause of action if such persons used the patented process abroad to manufacture products,
and then imported, used, or sold the products in this country”).
60
But the defense of prosecution laches is still available. The difference is that
laches is when the complainant knows of the infringement and waits too long to seek relief;
prosecution laches is when the complainant waits too long to file a patent application.
Prosecution laches can render the patent unenforceable. See Data Storage Systems, Inv. No.
337-TA-471, Order No. 42 at 3 (Jan. 4, 2003).
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by coordinating their collective efforts, the respondents in a case can develop a comprehensive
counter-attack -- one which the complainant may not have anticipated and which may tax the
complainant’s resources. What a respondent cannot afford to do, however, is to “watch and
wait” -- most Section 337 cases proceed much too quickly for such a strategy to be effective.
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