Strategic Advice for Defending an Investigation in the U.S. ITC from a Position of Strength

November.08.2018

如何应对美国国际贸易委员会调查 

The U.S.-China trade relationship is at an especially unique moment following the countries’ imposition of tariffs on hundreds of billions of dollars of each other’s goods. The United States wields another powerful weapon in this continuing trade conflict with China: the ability of the U.S. International Trade Commission (“ITC”) to bar importation into the United States of Chinese and other foreign made goods that infringe valid U.S. intellectual property. The ITC is an executive agency under the President, so its role may be of increasing importance in trade matters with China because of President Trump’s protectionist stances. With stakes this high, Chinese companies sued in the ITC must act quickly to retain experienced counsel and begin preparations to mount a strong defense.

Overview of the ITC

The U.S. government created the ITC to protect companies with substantial U.S. operations from unfair foreign competition. If the ITC finds that a company is violating section 337 (19 U.S.C. § 1337), it can issue an exclusion order that prevents the importation of the infringing goods into the United States. The ITC may also enter a cease and desist order to stop the sale of infringing goods already in the U.S.

Strategies for Successful Defense of an ITC Investigation

Litigation in the ITC is fast and highly technical and requires a specialized knowledge of the forum. Respondents are at a significant disadvantage at the beginning of an investigation because the complainant has had months to prepare its case. When faced with an ITC complaint, respondents should immediately retain skilled counsel and begin to consider the following strategies:

1. Consider a Public Interest Submission

When the Commission finds a violation, it is required to enter an exclusion order unless it finds that exclusion would harm the public or consumers in the U.S. Proposed respondents can submit a brief to the Commission before an investigation begins that explains why an exclusion would harm public health or U.S. consumers and asks that the Commission instruct the judge to take evidence regarding the public interest. Such an instruction can benefit respondents who are looking for ways to turn the tables on a complainant.

However, not all goods subject to a potential exclusion order will implicate public interest concerns. Most often the Commission will direct findings on public interest when the investigation involves products that implicate public health and safety issues, such as medical devices, where there may be significant competitive consequences from an exclusion order (for example, smartphones), or where one or more asserted patents are standard essential. Unless a strong showing can be made that the respondent or its products fall into one of these categories, then it may not be worth the investment to submit a public interest statement.

2. Consider a 100-Day Request

The ITC recently formalized a 100-day early disposition proceeding to enable ALJs to resolve any case-dispositive issues within the first 100 days after institution. The issues appropriate for determination under a 100-day proceeding are limited, but may include questions regarding domestic industry, standing and patent eligibility. The 100-day program can pose a significant obstacle to a complainant seeking efficient resolution of its claims; therefore, respondents should look carefully for potentially case dispositive issues.

3. Hold an Early Meeting with the Office of Unfair Import Investigations

An office of the ITC called the Office of Unfair Import Investigation (“OUII”) will often participate in the investigation. OUII acts as another party, submitting briefing and recommendations to the ALJ on all issues, including discovery disputes, claim construction, infringement and validity. Because OUII’s opinion may carry great weight with the ALJ, it is critical for respondents’ counsel to meet early and communicate frequently with OUII to share their clients’ views of the investigation and to develop a strong working relationship. Therefore, it also is important to select outside counsel who works well with OUII.

4. Prepare for Fact and Expert Discovery

Fact discovery moves extremely quickly and is usually completed within 5-6 months after the investigation starts. Responses to discovery requests typically are due in 10 calendar days and discovery disputes also are resolved on short time frames.

It’s prudent to begin defensive discovery efforts immediately after a complaint is filed, even before being served with specific discovery requests. Respondents should work to identify witnesses and collect key documents regarding the following topics relating to the accused products (i) technical functionality; (ii) manufacture and production; (iii) importation; and (iv) prior art. Effective counsel can also limit the scope of discovery to reduce the burden and expense on foreign companies.

5. Retain Experts

Respondents also should identify and assess potential experts immediately. A savvy complainant will have already started contacting its chosen experts by the time an investigation begins, so Respondents have to act quickly. Since expert testimony can be quite persuasive with ALJs and experts can be instrumental in identifying prior art and developing defenses, it is important to select the most knowledgeable and credible expert available.

6. Seek an Early Claim Construction Hearing

Some, but not all, ALJs hold a separate claim construction hearing (called a “Markman” hearing). An ALJ is more likely to hold a Markman hearing if the parties can persuade the ALJ that the construction of certain terms may be dispositive. Early in the investigation, Respondents should identify the strongest non-infringement and invalidity defenses available and in turn identify the claim terms that would need to be construed to lead to a finding of non-infringement or invalidity. A favorable early construction of a term may enable a Respondent to file a motion for summary determination that ends the investigation or at least focuses it significantly. There are also, however, possible drawbacks to conducting an early Markman hearing, which should be considered and discussed with counsel based on the individual investigation.

7. Identify and File Strategic Motions for Summary Determination

Motions for summary determination can be expensive to draft, so Respondents should work closely with counsel to file such motions strategically where they have a high likelihood of success. ALJs typically are hesitant to grant summary determination on technical issues but have been more open to granting them on non-technical issues, such as importation and the economic prong of domestic industry. Because there is variation by individual ALJ regarding summary determination tendencies, the chances of success on different types of motions for summary determination should be assessed once an ALJ is assigned. Once again, it is critical to retain counsel who is experienced in the ITC and knowledgeable about each ALJ.

8. Litigate a Design-Around to be Implemented in Future Products

Designing around the asserted claims of the patents-in-suit is often the best defense to a Section 337 investigation because the redesigned product may be imported regardless of an exclusion order. However, there are strategic considerations as to whether and when to disclose a design-around product. Ideally, a respondent would obtain a finding of non-infringement by the ALJ (affirmed by the Commission) relating to the redesigned product. To inject the redesigned product into the investigation and obtain this finding, respondent and its engineers first must quickly develop a commercially-viable redesigned product; produce evidence regarding the redesigned product during fact discovery; and import a finished version of the redesigned product into the United States before the close of the evidentiary record.  For this chain of events to be feasible, a respondent should immediately begin working with its outside counsel, in-house counsel, and engineers and other development team members to discuss possible design changes that would avoid infringement. Whether or not successful, it bears noting that any development work that is intended to avoid infringement of the asserted claims should be done in consultation with outside counsel to protect the design efforts from discovery.

9. Consider Filing an Offensive Action

To apply pressure and create more balanced positions between respondent and complainant, a respondent should consider filing offensive litigation against the complainant in U.S. district court, especially in a fast-moving district, or filing a petition for inter partes review challenging validity of the asserted patents before the U.S. Patent and Trademark Office. It also may be possible to file an offensive ITC investigation, if a respondent can demonstrate that it has a domestic industry and that the complainant imports infringing products.

As discussed, a respondent in an ITC investigation faces many obstacles while also facing the potentially dire consequence of having its products banned from the United States. The strategies outlined here can level the playing field between the parties and help a respondent wield strength in an investigation. Doing so, requires respondents to act fast after a complaint is filed to retain skilled counsel and begin preparing to defend itself in the investigation.