Section 337 Investigations Before the International Trade Commission

Managing Intellectual Property | August.02.2011

I.  ITC BACKGROUND

What is the ITC?
The International Trade Commission (ITC) is an independent, bi-partisan, quasi-judicial agency of the US government, located in Washington, DC. It is led by six Commissioners, each nominated by the President and confirmed by the Senate, with each serving a 9-year term. No more than three Commissioners may be from the same political party.

What does the ITC do?
The ITC has broad powers to investigate unfair methods of competition and unfair acts in the importation of goods affecting a domestic industry, including dumped or subsidized imports and tariff actions. This article focuses on one area of ITC activity, “Section 337 investigations” and, in particular, allegations of patent infringement, which are the most common of such investigations.
What is a Section 337 investigation?
Under Section 337 of the Tariff Act of 1930, codified at 19 U.S.C. § 1337, the ITC adjudicates disputes involving the import of goods that allegedly infringe intellectual property rights. While more than 90% such investigations involve patent infringement, they can also address copyright infringement, trademark and trade dress infringement, misappropriation of trade secrets, violation of antitrust laws, false advertising and false designation of origin. Section 337 investigations are adjudicated by Administrative Law Judges (ALJs), who are appointed by the Commission under 5 U.S.C. § 3105.

Why has the number of Section 337 investigations increased so dramatically in the past decade?
The number of 337 Investigations has increased sharply in recent years, from 11 in 1996, 19 in 2003, to a record 51 new investigations in 2010. One likely factor is the increase in high-tech products manufactured abroad and imported into the US. Further, the ITC’s in rem jurisdiction over imported goods allows jurisdiction over foreign companies in the absence of personal jurisdiction or when a foreign company has few assets in the US. Other attractions of 337 Investigations include the speed of proceedings and the relative ease of obtaining injunctive relief. 

Approximately how long does a Section 337 investigation take?
Generally, ITC investigations move much more quickly than district court litigation.  An investigation into an infringement allegation is typically completed within 12 to 16 months, with a series of target deadlines keeping the proceedings on track.
 
II.  WHY FILE AN ITC COMPLAINT?

What remedies are available from the ITC through a 337 investigation?
The ITC may issue several forms of injunctive relief, such as general or limited exclusion orders banning products from entering the US. A limited exclusion order prevents the importation of a respondent’s infringing products. Under a general exclusion order, a remedy available only through the ITC, the exclusion also applies to products by non-parties, regardless of the goods’ source, manufacturer or importer, thus allowing a complainant to avoid duplicative litigation against numerous infringers. See Kyocera Wireless Corp. v. Int’l Trade Comm’n, 545 F.3d 1340 (Fed. Cir. 2008). The ITC may also issue cease-and-desist orders directing a respondent to cease specified actions, especially applicable in cases where a “commercially significant” inventory of infringing goods is already present in the US.

How do remedies available from the ITC differ from those available from a federal court?
The main difference between remedies available through the ITC and federal court is that the ITC does not grant monetary damages, only various forms of injunctive relief, although it may also award costs and attorneys fees.

Does the availability of injunctive relief differ between the two forums?
A substantial difference between district court and the ITC is the standard for granting injunctive relief. Under 35 U.S.C. § 283, district courts “may” grant injunctions when patent rights are violated, but need not do so. In eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), the US Supreme Court eliminated the presumption that a permanent injunction will be granted against an infringer and so district courts no longer do so as a matter of course.
 
But, the ITC is not bound by the eBay standard. Spansion v. Int'l Trade Comm'n, 629 F.3d 1331 (Fed. Cir. 2010).  Rather, under Section 337, if the ITC finds a violation, it “shall direct that the articles concerned . . . be excluded from entry into the United States,” unless it decides not to issue the injunction based on public interest reasons.  19 U.S.C. § 1337(d) (emphasis added). This lower standard for obtaining injunctive relief can make the ITC a more appealing forum.
 
Can one seek both injunctive relief at the ITC and monetary damages?
Yes, in fact more than 65% of complainants initiate an ITC investigation while also filing a counterpart suit in district court, thereby attempting to pursue monetary damages and utilize the advantages available at the ITC.
 
However, under 28 U.S.C. § 1659, at the request of an ITC respondent, a district court “shall stay, until the determination of the Commission becomes final, proceedings in the civil action with respect to any claim that involves the same issues involved in the proceeding before the Commission.” So, while a parallel suit for monetary damages may be useful, it will likely be stayed until after the ITC investigation concludes.
 
How do jurisdictional requirements differ between district court litigation and ITC investigations?
A Section 337 complaint must satisfy two requirements. First, it must address infringing imports. If the good is manufactured in the US, without any infringing imported components, the ITC does not have jurisdiction. This importation requirement is often uncontested and the parties may stipulate to it.
 
Second, a complainant must show that a domestic industry exists for the patented invention. A complainant can satisfy the domestic industry requirement by showing that it has made significant US investments related to articles covered by the asserted patent, or that it has made substantial investments to exploit the patent, which may be satisfied by licensing activities or attempts. The inclusion of licensing activity may help non-practicing entities satisfy the domestic industry requirement.
Another jurisdictional difference is that the ITC cannot invalidate a patent and so its findings do not have preclusive effect on subsequent district court litigation, although appellate review at the Court of Appeals for the Federal Circuit may generate an opinion on which basis issue and claim preclusion may apply.
 
III.  WHAT SHOULD I DO IF I AM NAMED AS A RESPONDENT IN AN ITC INVESTIGATION?

What are the first steps I should take as a named respondent?
The accelerated proceedings and scope of remedies available at the ITC make being named as a respondent in a 337 Investigation a serious matter. Typically, the investigation starts about 30 days after the complaint is filed. This time is critical for preparing a successful defense.
 
First, a potential respondent should retain competent counsel with ITC experience. ITC investigations move too aggressively for one to “learn on the fly.” Thus, your attorneys must understand the ITC, its requirements, and how to maximize the chances of victory.
 
During the month preceding the Investigation, you and your attorneys should closely review the complaint and accompanying claim charts and exhibits. Because ITC complaints require more detail than district court complaints, this may provide insight into how the patentee is interpreting the patents. You should retain an expert and begin to search for prior art that might invalidate the asserted claims. Further, you should prepare for the expedited discovery that will soon begin. Specifically, you should prepare discovery to serve on the Complainant and begin to collect and review for production the types of documents relevant to the Investigation. If the complaint names multiple respondents, you may wish to coordinate with other respondents, consider entering into a joint defense agreement, and possibly have different defendants focus on different defenses or aspects of the Investigation. Once the Investigation has begun, you should serve discovery and expect to receive discovery from the complainants. You should also consider staying any parallel district court action.
 
If named as a respondent, can I file counterclaims?
Yes, but in practice it is difficult to pursue counterclaims concurrently. Counterclaims made in an ITC Investigation must be removed to district court. That district court action may then be stayed pending the outcome of the Section 337 Investigation.
 
Alternately, a respondent may file a complaint instituting an ITC investigation asserting the respondent’s patents and ask the ALJ, under his discretion, to consolidate the actions. However, the complexity of drafting an adequate Section 337 complaint, combined with the speed of proceedings will likely result in the two investigations’ timelines being far enough apart to make consolidation impractical. But even where consolidation is not possible, strategic reasons may exist for filing an affirmative investigation. For example, the Initial Determination in the second investigation would likely be released before the earlier investigation’s Final Determination, which could bolster the Respondent’s settlement position in both investigations.
 
Another option is to request that the Patent and Trademark Office (PTO) reexamine the asserted claims, as a stay of the ITC investigation may be sought pending completion of the reexamination. The analysis for such a stay differs from the district court equivalent. See Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing Same, Inv. No. 337-TA-605, Comm’n Op. (May 27, 2008). However, it is unlikely that the ALJ will stay an investigation if the reexaminations are not filed until after the ITC complaint, especially as a Section 337 investigation generally proceeds more quickly than PTO office actions. 
 
What should I do if I receive a third-party subpoena from the ITC?
A good first step is to consult counsel with ITC experience as many potentially important differences exist between an ITC subpoena and a subpoena from a state or federal court. For example, the ITC has nationwide subpoena power. Further, unlike federal courts, which are located in districts across the country, the ITC only holds proceedings in Washington DC. As a result, an in-person appearance will require potentially time-consuming travel. However, you may not need to appear in person. For example, recently in Certain Electronic Devices with Image Processing Systems, Components Thereof, and Associated Software, Inv. No. 337-TA-724, a key witness appeared by video conference.
 
IV.  ITC PROCEEDINGS & SCHEDULE

What role do OUII staff attorneys play in an investigation?
A Section 337 investigation is not a private litigation between two parties – it is a government “investigation.” A staff attorney from the Office of Unfair Import Investigations (OUII) representing the public interest participates as a formal party to the action. Although the OUII is employed by the ITC, it does not speak for the ALJ or the Commission during the Investigation. Instead, the OUII will advocate for its view of the public interest, which need not align with any party’s position. The ALJ will consider OUII’s views but need not defer to OUII. Still, it is generally preferable to work with OUII and to seek to convince them of the merits of your position.
 
What are the stages an ITC investigation?
Prefiling Consultation
Before filing a complaint, a prospective complainant customarily consults with OUII staff attorneys as to the complaint’s merits and conformity with ITC rules. A Section 337 complaint must state sufficient facts to show importation, infringement, and a domestic industry. OUII consultation during the “pre-filing” stage helps ensure the complaint is well-developed, allowing the Commission to act expeditiously from the start of the investigation.
 
Such consultation is confidential. Neither the ITC nor the OUII will inform potential respondents of the possibility of an investigation. During this period, the complainant can decide whether to file a formal complaint – thus beginning a public investigation – or proceed in another venue.
 
During this period, a potential complainant should prepare for the forthcoming investigation by retaining experts and consultants, reviewing public information, preparing discovery requests, and beginning to gather and process documents for production.
 
Post-filing Review
Once filed, the Section 337 complaint becomes public and potential respondents will almost certainly learn of it. The Investigation, however, does not start immediately.  Instead, the complaint is reviewed for a 30-day period, as staff attorneys evaluate its procedural compliance and its merits. The OUII may request clarification and supplementation of the complaint and the complainant may supplement or amend it. The Commission then determines whether to commence an investigation. In most cases, it does so, especially if the complainants worked with OUII before filing to ensure the complaint is in order.
 
During this period, a complainant should begin preparing discovery requests because they can be served immediately upon institution of the investigation, identify third-party witnesses, retain experts, gather documents likely to be requested, and complete the domestic industry portion of the case as much as possible, to focus efforts on proving respondent’s liability. 
 
Post-institution
Once the ITC institutes an investigation it publishes a Notice of Investigation in the Federal Register, serves the complaint upon the respondents, and assigns an Administrative Law Judge (ALJ). Under 19 U.S.C. § 1337(b)(1), the investigation must be completed by “the earliest practicable time.” Within 45 days of instituting the investigation, a target date will be set for the completion of the investigation within about 16 months.
 
Discovery
Discovery in an ITC investigation begins immediately after the investigation is instituted and employs many of the same mechanisms provided by the Federal Rules of Civil Procedure, such as interrogatories, requests for production, subpoenas, requests for admission, and depositions. The main difference is the speed at which discovery proceeds. While the ALJ has discretion to determine time frames and applicable number limits, and will issue applicable ground rules, discovery responses are typically due 10 days after service of the request.  
 
Hearings & Post-Trial Briefing
The investigation proceeds pursuant to the Administrative Procedure Act. There are many similarities between the rules governing the ITC Investigation (19 C.F.R. §§ 210.1 et seq.) and district court litigation. Typically, an evidentiary hearing will last five to 10 days, with the length depending on factors including how many patents are at issue, the number of claims, and number of respondents. 
 
The rules by which the trial-type hearing is conducted are similar to the Federal Rules of Civil Procedure and Federal Rules of Evidence. A respondent has recourse to some of the same basic defenses as a defendant in district court litigation – invalidity, unenforceability, and noninfringement – with some important exceptions. For instance, the ITC does not considerthe defenses set forth in 35 U.S.C. § 271(g) but will investigate matters covered by the 35 U.S.C. § 271(e)(1) “safe harbor” provision. See Amgen, Inc. v. Int’l Trade Comm’n, 519 F.3d 1343 (Fed. Cir. 2008). 
 
Despite overall similarities in the rules, significant differences exist. For example, the ITC’s relaxed evidentiary rules can allow the admission of evidence such as hearsay that would not be admissible in court.
 
How do I protect confidential business information in an ITC investigation?
Public versions of the complaint and other filings are available on the ITC’s website. To prevent the publication of confidential business information, such as facts concerning the domestic industry or details of license terms, a complainant may file a confidential version of the complaint under seal with the court, with a public version sufficient to give notice of the nature of the proceeding appearing in the Federal Register.
 
Shortly after the investigation begins, the ALJ issues a protective order detailing who has the right to view various classes of documents and how documents should be marked to receive protection. Generally, the only persons allowed to view confidential business information are outside counsel, independent experts, and ITC Staff Attorneys. Any confidential business information should be carefully marked. Additional protections that the parties may wish to request – such as a prosecution ban or additional protection for electronic source code – can be negotiated or sought by motion.
 
How does claim construction work in an ITC investigation?
Although the ITC has not historically conducted claim construction hearings, some ALJs have started to do so. Because the ALJ’s construction is a recommendation to the Commission that may be finalized, revised, or rejected after the hearing, some risk of uncertainty exists as to the reliability or durability of the ALJ’s claim construction. See Certain Mobile Telephones and Wireless Communication Devices Featuring Digital Cameras, and Components Thereof (Inv. No. 337-TA-703). More commonly, the parties will argue for their respective claim constructions at the trial.
 
V.  WHAT HAPPENS AFTER THE DECISION?
 
Who decides the outcome of the Investigation?
Initial Determination & Commission Review
About four months before the target date, the ALJ issues an Initial Determination (ID), which is certified to the Commission. The ID is typically a voluminous decision setting forth the ALJ’s reasoning and conclusion on issues raised during the hearing. The parties may petition for review of some or all of the ID and the Commission may also decide on its own motion to review it. 19 C.F.R. §§ 210.43(a), 210.46. The decision whether to review the ID occurs within 60 days of its issuance. The Commission’s review may lead it to adopt, modify or reverse the ID. 19 C.F.R. § 210.43(d)(1). If the Commission declines to review the ID, it becomes the Final Determination. Otherwise, the Commission can review any issue in the Investigation and affirm or reverse the ALJ’s decision or remand it for further consideration.
 
Presidential Review
The Commission transmits its Final Determination to the President.  During the following 60 days, the President may “disapprove” the decision “for policy reasons.”  19 U.S.C. § 1337(g) and (j). Presidential disapproval is rare and has occurred only 6 times. See Welded Stainless Steel Pipe and Tube, Inv. No. 337-TA-29, 43 Fed. Reg. 17 (1978). If the President does not disapprove, the Final Determination becomes effective 60 days after issuance. Presidential disapproval voids the ITC’s determination and is not appealable to any court.
 
Appellate Review
Under Section 1337(c), parties may appeal the Final Determination to the Court of Appeals of the Federal Circuit within 60 days of its issuance.
How are ITC injunctive remedies enforced?
ITC exclusion orders are enforced by Customs. Customs’ interpretation of the scope of the ITC’s exclusion order can directly affect what goods are excluded or seized. So, your counsel should present your understanding of the ITC’s order to Customs.
 
By Bas de Blank and Alex Feerst

This article was originally published in Managing Intellectual Property in August 2011.