Enforcing Intellectual Property Rights at the
U.S. International Trade Commission

by
Peter B. Martine

    The U.S. International Trade Commission (the "ITC" or the "Commission") administers a trade law which enables U.S. industries to prevent unfair competition from imported goods. This trade law, Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337, offers intellectual property owners a quick and cost effective mechanism for enforcing their intellectual property rights. This article first examines the elements of a Section 337 violation, the remedies available under Section 337, the role of the Commission Investigative Attorney, and the timetable of events in a typical Section 337 investigation. The article then discusses the advantages of Section 337 investigations relative to district court litigation.

    The elements of a Section 337 violation include 1) an unfair act, e.g., patent infringement, 2) the importation of infringing articles into the United States, and 3) that the complaining party is a "domestic industry."

    The unfair act may be infringement of a U.S. patent, registered copyright, registered trademark, or registered mask work. The unfair act also may be common law trademark infringement, misappropriation of trade secrets, or other business-related tort, however, in these cases proof of injury is required to establish a violation. There is nothing unique in how the Commission determines whether infringement of an intellectual property right has occurred.

    The importation requirement may be satisfied by showing either that the infringing articles have been imported into the United States or that a sale of the infringing articles for importation into the United States has been made. In addition, one recent decision has intimated that the Commission has authority over "imminent" or "incipient" importation of infringing goods even without a "sale for importation." Thus, a complainant may be able to establish that the ITC has jurisdiction in a situation where a respondent has a supply of infringing articles overseas and is threatening to bring such articles into the United States. One twist concerning the importation requirement: goods made in the U.S. can satisfy the importation requirement if they are exported, e.g., for assembly into a final product, and then "re-imported" into the United States. Thus, U.S. industries can be found to be in violation of Section 337.

    The proof required to establish a domestic industry involves an "economic" prong and a "technical" prong. The economic prong can be satisfied by demonstrating that there exists in the United States with respect to the articles protected by the intellectual property right being asserted: significant investment in plant and equipment; significant employment of labor or capital; or substantial investment in its exploitation, including engineering, research and development, or licensing. The foregoing criteria was introduced in 1988 in amendments to Section 337 that were intended to broaden the scope of the domestic industry. Before the 1988 amendments, a complainant in a patent-based investigation had to satisfy the domestic industry requirement by showing that articles covered by the suit patent were manufactured in the United States. Following the 1988 amendments, a complainant who manufactures a patented article overseas may prove that a domestic industry exists by showing that the patented article is being exploited in the United States through substantial investment in non-manufacturing activities such as engineering, research and development, or licensing. To satisfy the technical prong, a complainant must be practicing the asserted intellectual property right. For example, in a patent-based Section 337 investigation, a complainant must prove that it is practicing at least one claim of the asserted patent.

    The two primary remedies available upon proof of a violation of Section 337 are exclusion orders and cease and desist orders. Monetary damages are not available under Section 337.

    Exclusion orders prevent goods from entering the United States. There are three types of exclusion orders: limited exclusion orders; general exclusion orders; and temporary exclusion orders. Each of these exclusion orders is enforced by the U.S. Customs Service at the various ports of entry into the United States.

    Limited exclusion orders are directed toward goods originating from specific persons who were parties to the Section 337 investigation. General exclusion orders are directed toward goods pertaining to an unfair act, e.g., patent infringement, irrespective of whether the source of those goods was a party to the Section 337 investigation. To illustrate the difference between limited and general exclusion orders, if a limited exclusion order directed toward microchips from respondent FastChip Inc. were to be issued, then the U.S. Customs Service would physically bar from entry all imported microchips from FastChip Inc. but would permit entry of imported microchips from UltraFastChip Co., which was not a party to the Section 337 investigation. On the other hand, if a general exclusion order directed toward microchips were to be issued, then the U.S. Customs Service would physically bar from entry all imported microchips, irrespective of whether the microchips originated from FastChip Inc., UltraFastChip Co., or some other source. To obtain a general exclusion order, a complainant must show 1) that business conditions, e.g., ease of market entry, product demand, etc., indicate that foreign manufacturers other than those named as parties will import the infringing goods, and 2) that there is a widespread pattern of unauthorized use of the infringing goods.

    A temporary exclusion order ("TEO") blocks the entry of goods into the United States except under bond during the pendency of a Section 337 investigation. The Commission will issue a TEO if it determines there is reason to believe a violation of Section 337 exists. To obtain a TEO, a complainant must file a detailed motion for temporary relief with his or her complaint. If the Commission accepts the motion for temporary relief, then a final decision on such relief must be rendered within 90 days of the date the investigation is instituted. The standards for obtaining temporary relief are akin to the standards for obtaining a preliminary injunction in district court.

    Cease and desist orders prohibit specific activities within the United States, typically the sale of infringing goods which have been imported before the issuance of any exclusion order. The Commission may issue an exclusion order, a cease and desist order, or both if circumstances indicate that both remedies are needed to stop the unfair act or unfair practice. If a respondent imports or sells goods in violation of a cease and desist order, then the Commission may bring a civil action seeking a civil penalty of not more than the greater of $100,000 or twice the domestic value of the goods imported or sold for each day such goods are imported or sold in violation of the cease and desist order.

    Although an exclusion order or a cease and desist order is usually granted when a violation of Section 337 is established, the Commission may refuse to issue such relief on the basis of so-called public interest factors. These factors include the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States, and the effect of any relief on U.S. consumers.

    One of the more unique aspects of Section 337 practice is that investigations usually include at least three parties: the complainant, the respondent (or respondents), and the Commission Investigative Attorney, who is sometimes referred to as the "staff attorney." The staff attorney, who works in the ITC's Office of Unfair Import Investigations ("OUII") serves as an independent trial attorney whose function it is to protect the public interest by ensuring that all issues are fully explored and that a complete factual and legal record is developed. The staff attorney is active in discovery, especially in collecting information concerning the public interest factors the Commission considers in deciding to grant relief, and may present witnesses at the hearing before the Administrative Law Judge.

    The filing of a complaint requesting institution of a Section 337 investigation triggers a 30-day period during which the complaint is reviewed to ensure that it complies with the Commission's rules and a determination is made concerning whether to institute an investigation. The Commission almost always institutes an investigation when it receives a Section 337 complaint. If the Commission determines to institute an investigation, then a Notice of Investigation is published in the Federal Register. The date of publication of the Notice of Investigation constitutes the start of the Section 337 investigation.

    Once instituted, the Section 337 investigation is assigned to an Administrative Law Judge ("ALJ") who conducts a hearing and issues an initial determination concerning whether a violation of Section 337 exists. Within 45 days after the investigation is instituted, the ALJ establishes a target date for the completion of the investigation, which usually is 11-15 months from the date of publication of the Notice of Investigation. In most investigations, the target date is set at 12 months. If an investigation is designated as being "more complicated," then the target date may be extended up to 18 months from the date of publication of the Notice of Investigation.

    In a Section 337 investigation in which the target date is set at 12 months, the ALJ will usually schedule the hearing 6-7 months after the initiation of the investigation. The close of discovery is normally about one month before the hearing. Thus, the discovery period is limited to just 5 or 6 months. The month between the close of discovery and the start of the hearing is dedicated to the preparation of prehearing briefs and exhibits. After the hearing, the parties are typically given 2-4 weeks to prepare posthearing briefs and detailed findings of fact and conclusions of law. The ALJ then reviews the evidence presented at the hearing and the parties' submissions and prepares an initial determination ("ID") concerning whether there is a violation of Section 337 for submission to the Commission. The ALJ's ID must be submitted to the Commission within 9 months after the initiation of the investigation.

    The Commission uses the final 3 months before the 12-month deadline for completing the investigation to review the ID. The parties may submit petitions for review of the ID to the Commission. The Commission may either adopt the ID as its own determination or decide to review the ID. If the Commission reviews the ID, then it may request additional briefs from the parties on specific issues. The Commission's determination concerning a violation of Section 337 should be completed by the target date. If the Commission finds a violation of Section 337, then its determination is forwarded to the President for review. The President has 60 days within which to veto the Commission's determination for policy reasons. It should be noted, however, that a presidential veto is extremely rare. If the President takes no action within this 60-day review period, then the Commission's determination becomes final. Any exclusion order issued by the Commission is effective during the Presidential review period, with the exception that infringing goods may be imported under bond.

    The Commission's final determination may be appealed to the U.S. Court of Appeals for the Federal Circuit. Any appeal must be filed within 60 days of the date on which the Commission's determination becomes final.

    Section 337 investigations proceed at a rapid pace, with most investigations being completed within a 12-month deadline. In contrast, with the exception of a few jurisdictions with so-called "rocket dockets," it is not uncommon for intellectual property litigation in district courts to last for 3-5 years before resolution.

    The relative speed of Section 337 investigations has several beneficial side effects. One significant side effect is the settlement potential the filing of a Section 337 complaint brings to a complainant. The market impact of the potential of an exclusion order, coupled with the speed at which a Section 337 proceeding progresses, places tremendous pressures on respondents. To avoid these pressures, many respondents opt to settle the controversy up front rather than formulate a defense. For example, Oak Technology, Inc. ("Oak") recently filed a complaint accusing a number of companies, including United Microelectronics Corp. ("UMC"), of violating Section 337 by importing or selling CD-ROM drive components that infringe Oak's patents. Just 10 days after the filing of the complaint, a press release was issued announcing that UMC, a company with a reputation for vigorously defending itself from allegations of patent infringement, had settled its dispute with Oak.

    Another significant side effect of the relative speed of Section 337 investigations is lower legal fees. According to in-house counsel for several major corporations who frequently use Section 337 to enforce their intellectual property rights, the legal fees generated during a Section 337 investigation are lower than those generated over the course of a corresponding district court litigation.

    A further advantage of Section 337 practice is that it obviates the need to bring multiple lawsuits in different jurisdictions throughout the United States to stop unfair practices by a number of importers and distributors. In a Section 337 investigation, foreign manufacturers of the accused goods as well as domestic importers and sellers of such goods can be properly named as respondents.

    A Section 337 investigation before the ITC is a powerful vehicle for enforcing intellectual property rights. In a patent-based investigation, a successful complainant can obtain an exclusion order which prevents infringing goods from being imported into the United States, normally within 12 months of the date on which the investigation is instituted. Alternatively, a complainant may obtain prompt resolution of its dispute with respondents through settlement. Accordingly, intellectual property owners facing competition from infringing imported goods should consider using Section 337 to enforce their intellectual property rights.

Copyright, Martine Penilla & Gencarella, LLP 1999