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Section 337 Investigations

A Primer on the Forum of Choice for Aggressive Patent Enforcers

Article Date: Thursday, March 07, 2013

Written By: S. Benjamin Pleune and Linda Chung

In intellectual property circles, it is hard to miss that Section 337 investigations before the International Trade Commission (ITC or Commission) have become increasingly popular for enforcement of intellectual property rights. Indeed, there were four times as many Section 337 investigations instituted in 2011 as there were in 2000.

While many aspects of Section 337 investigations are similar, if not identical, to patent cases in Federal District Courts, certain aspects that are unique to the ITC are responsible for its status as a favored jurisdiction for aggressive IP enforcers, including its speed and the potential for excluding competitor s products from the United States market Other unique aspects can be exploited by targets of Section 337 investigations, for example, participation of the Office of Unfair Importation Investigations (OUII) and the Domestic Industry re­quirement

This article is the first in a series that will describe unique aspects of Section 337 investigations, as well as explore hotly contested is­sues with which the ITC and its practitioners are currently grappling. First, the present article will provide a brief introduction to the Com­mission and a description of similarities between Section 337 inves­tigations and Federal District Court litigation. The focus will then turn to key differences, including the timing of Section 337 investiga­tions, the Domestic Industry Requirement, the OUII, and the avail­able remedies at the ITC. Subsequent articles will explore unsettled issues and challenges that the ITC is currently facing, including (1) the evolving requirements for establishing Domestic Industry; (2) the availability of exclusion orders for patents declared essential to Stan­dard Setting Organizations (SSOs); and (3) the role of Public Policy in shaping remedies at the ITC.

The ITC- .4 Brief History
The ITC was created as the Tariff Commission under the Revenue Act of 1916. During a time of protectionist trade policies, the ITC was authorized to investigate "conditions, causes, and effects relating to competition of foreign industries with those of the United States." Revenue Act of 1916, Pub. L. No. 64-217. Section 337 was later cre­ated under the Tariff Act of 1922 and the Tariff Act of 1930. It gave the President the authority to grant relief for unfair methods of competi­tion and unfair acts of importation (i.e., patent infringement), which would "destroy or substantially injure an industry, efficiently and economically operated, in the United States, or to prevent the estab­lishment of such industry..." Tariff Act of 1930, Pub. L. No. 71-361. Although the ITC provided the President with its factual findings and recommendations, the President had sole discretion as to whether to impose a ban on importation.

The Trade Act of 1974 made widespread changes to Section 337 investigations. It provided the ITC authority to investigate and pro­vide relief previously left to the sole discretion of the President This relief includes not only exclusion of importation, but also cease and desist orders that prohibit the marketing, selling, and distributing of infringing products already imported into the U.S. The President re­tained a veto power over the relief imposed by the ITC if "such relief is not in the national economic interest of the United States." Trade Act of 1974, Pub. L. No. 93-618. The Trade Act of 1974 also made procedures more uniform and introduced the forums strict time limitations, making Section 337 investigations more efficient and predictable.

As the U.S. started shifting production overseas in the 1970s and 1980s, fewer U.S. industries were capable of bringing Section 337 in­vestigations. Because there was no "domestic production" of prod­ucts covered by the relevant IP in many U.S. industries, the Domestic Industry requirement could not be established and thus, a Section 337 investigation could not be brought. The 1988 Amendments to the Trade Act, however, broadened the standard for Domestic Industry to include non-manufacturing industries. Omnibus Trade and Com­petitiveness Act of 1988, Pub. L. No. 100-418. Since the 1988 Amend­ments and the broadened meaning of Domestic Industry, there has been a sharp increase in Section 337 filings.

Comparison to Federal District Court Utigation
Although there are significant differences, enforcement of IP rights in the ITC is similar to IP litigation in Federal District Courts in many ways. Procedures in the ITC, generally provided in 19 C.F.R. Part 210, are similar to the Federal Rules of Civil Procedure. As in district court, the case starts with a complaint alleging infringement of an IP right. However, at the ITC, the complaint must be instituted before the investigation starts, i.e., the complaint must be accepted by the Commission. 19 C.F.R. § 210.3. In response, the respondent can assert most of the defenses that can be asserted in district court, including non-infringement, patent invalidity and unenforceability.

The discovery process in the ITC involves similar tools as in dis­trict courts, such as interrogatories, requests for production, requests for admission, depositions, and expert reports. After discovery, the trial is before an Administrative Law Judge (ALJ), instead of before a district court judge or a jury. After the trial, the parties submit briefs, and the ALJ issues an initial determination, much like an opinion issued by a district court judge. The Commission reviews the initial determination and can then adopt, modify, or reject it in its final de­termination. The final determination is then reviewed by the Presi­dent, who has the option of vetoing the Commission's determination based on public policy concerns. Like Federal District Court cases, Section 337 investigations are appealable to the U.S. Court of Appeals for the Federal Circuit. Thus, the ITC substantively applies the same patent law as Federal District Courts.

However, despite the many similarities between the ITC and Fed­eral District Court practice, there are also key differences. Certain ones of those differences are critical to patent owners interested in placing significant pressure on competitors and potential infringers. Others are arguably party neutral, but must be understood by any party seeking to prevail at the ITC. The important differences ad­dressed in this article are: (i) the speed of Section 337 investigations; (ii) the domestic industry requirement; (iii) participation of the OUII Staff; and (iv) the remedies available at the ITC.

The Speed of 337 Investigations
Section 337 investigations are statutorily required to be concluded at the 'earliest practicable time" after institution. 19 U.S.C. § 1337(b) (1). From the filing of the complaint, the Commission will determine whether to institute a Section 337 investigation within 30 calendar days. Within 45 days of institution, the ALJ sets a target date, which is when the Commission must issue its final determination. 19 U.S.C. § 1337(b)(1). The target date is typically set 12-16 months after institu­tion and cannot be set more than 16 months from the date of institu­tion unless approved by the Commission. 19 C.F.R. § 210.51(a). The ALJ must file the initial determination at least three months before the target date "if the target date is 15 months or less from the date of institution," and at least four months before the target date oth­erwise. 19 C.F.R. § 210.42(a)(l)(i). Thus, the time from the filing of the complaint to trial is approximately nine months, regardless of the complexity of the case (i.e., the number of patents or respondents). In contrast, the time to trial in a district court patent infringement case is typically from three to five years.

The speed of Section 337 investigations has made the ITC an at­tractive forum for patent holders intent on achieving quick resolution of their patent disputes. The swiftness is also advantageous to a pre­pared complainant given the short time schedule for the respondent to prepare its defense of a complex case. A well-prepared complainant that completes its own document collection and witness preparation before filing a complaint can place enormous pressure on a respon­dent that may only have a matter of months to satisfy its discovery obligations with respect to multiple asserted patents.

Domestic Industry
As discussed above. Section 337 investigations were implemented to protect U.S. interests from unfair competition abroad. Thus, the addition of a domestic industry requirement ensures Section 337 is used "on behalf of an industry in the U.S." H.R. Rep. No. 100-40, at 156-7.

To establish domestic industry-, the complainant must establish both an "economic prong" and a "technical prong." The economic prong is satisfied by showing that, with respect to the articles protect­ed by IP, there is "significant investment in plant or equipment," "sig­nificant employment of labor or capital," or "substantial investment in its exploitation, including engineering, research and development, or licensing" in the U.S. 19 U.S.C. § 1337(a)(3). Thus, the economic prong is applied on a case-by-case basis by determining whether the circumstances constitute significant or substantial industry in the United States.

The technical prong is satisfied by demonstrating that industry in the U.S. "relating to the articles protected" by the IP "exists or is in the process of being established." 19 U.S.C. § 1337(a)(2). In other words, the complainant must show that it practices the relevant IP. For example, in patent infringement cases, the complainant must show that it engages in activities covered by one or more claims of the asserted patent. However, where industry is based solely on licensing activity, the ITC has held that "only the economic prong needs to be proven." See Certain Short-Wavelength Light Emitting Diodes, Laser Diodes and Prods. Containing Same, Inv. No. 337-TA-640 (June 18, 2008) (Order). Thus, the domestic industry requirement has been interpreted as being established by both traditional manufacturing and licensing activity in the U.S. Although recent case law has placed additional limitations on the type of licensing activity that is permit­ted, this option remains open, and provides the opportunity for Non-Practicing Entities (NPEs, sometimes referred to colloquially as "pat­ent trolls") to pursue claims at the ITC.

Whether relying on the manufacture of products or the licensing of asserted patents, it is critical for a potential complainant to un­derstand that the requirements for Domestic Industry are complex and evolving, and that they must be carefully evaluated before pur­suing claims at the ITC. As for respondents, the Domestic Industry-requirement provides an additional challenge to the traditional pat­ent defenses, and ultimately another avenue for defeating claims of infringement.

The Office of Unfair Importation Investigations Staff'
In addition to the complainant(s) and respondent(s), a Section 337 investigation essentially includes a third-party that takes posi­tions on procedural issues, such as discovery motions, as well as the ultimate issues of infringement, validity and other defenses raised by respondents - an investigative attorney (the "Staff") from the Office of Unfair Import Investigations. Because the requirements of a com­plaint in the ITC are different than a typical notice pleading permit­ted in district court (sec 19 C.F.R. §§ 210.4, 210.8, 210.12.), it is often advisable to involve the Staff in reviewing draft complaints before fil­ing. After institution of the investigation, the role and extent of par­ticipation ol the investigative attorney varies by investigation.

Traditionally, an investigative attorney was assigned to each Sec­tion 337 investigation as a third party that represented the public in­terest and participated fully in almost all aspects of the investigation. The Staff took an active role in discovery, motions practice, and the trial, by providing a neutral view of the merits. During discover)', the moderated disputes often leading to informal resolution. After initial determination by the ALJ, the Staff also participated in the re­view by the Commission and the release of the Commissions final determination. Thus, under the traditional model, it is important for complainants and respondents to involve the Staff in all aspects of the investigation so that the Staff is aware of issues important to the client.

However, due to the increase in case load and complexity of Sec­tion 337 investigations, the Commission recently reduced the role of the Staff in some cases. Supplement to the ITC's Strategic Human Capital Plan 2009-2013 Regarding Certain Offices, No. CO76-JJ-001 (USITC Jan. 18, 2011). According to the Human Capital Plan, the Staff will continue to review draft complaints prior to filing and ad­vise the Commission on whether to institute investigations. However, once an investigation is instituted, the Staff may participate fully as in the traditional model, in a selective manner, or not at all. In those investigations that the Staff participates in selectively, the Staff places the highest priority on issues unique to Section 337, such as the do­mestic industry requirement, the public interest, and the appropriate remedy and bonding. The Commission is presently evaluating the effectiveness of these new approaches and may provide additional guidance to the OUII. For now, the effect of reduced Staff participa­tion remains to be seen.

The Remedy
The ITC's authority to grant exclusion orders and cease and desist orders is one of the primary reasons the ITC is favored by aggressive IP enforcers. If the ITC finds that there is a Section 337 violation, the ITC may grant an exclusion order, barring entry of infringing products into the U.S. The exclusion order, which is enforced by the U.S. Customs and Border Protection ("Customs"), can be general or limited. Limited exclusion orders are limited to excluding infringing articles imported by the respondents named in the investigation. 19 U.S.C. § 1337(d)(2); see also Kyocera Wireless Corp. v. Int'l Trade Comm’n, 545 F.3d 1340, 1358 (Fed. Cir. 2008). In contrast, general exclusion orders exclude infringing articles regardless of the source or importer of the articles. Thus, a general exclusion order applies to all importers of the infringing article even though the importer was not a party to the investigation. In addition to or instead of an exclu­sion order, the ITC can issue a cease and desist order. 19 U.S.C. § 1337(0- A cease and desist order "targets domestic respondents with an existing U.S. inventory of infringing products" in order to prohibit the further marketing, sale, or distribution of infringing products al­ready in the U.S." Id.

With most articles being manufactured abroad, the combination of an exclusion order and a cease and desist order is effectively equiv­alent to an injunction granted in Federal District Court. Despite the similarity in remedy, the standard of proof is different in each of the forums. In Federal District Court, the Supreme Courts decision in eBay Inc. v. MercExchange, LLC has made it more difficult for pat­ent holders to enjoin infringers. 547 U.S. 388 (2006). In contrast, the ITC is not bound to apply the eBay four-factor test. See Spansion v. IntT Trade Comm’n, 629 R3d 1331 (Fed. Cir. 2010). The ITC "shall" grant an exclusion order if there is a Section 337 violation, unless public policy dictates otherwise. 19 U.S.C. § 1337(d)(1). As a result, patent holders can achieve an injunction-equivalent remedy in the ITC even when they are not entitled in Federal District Court under eBay. It should be no surprise that the threat of an exclusion order is strong leverage in licensing or other negotiations with an infringing party.

Given the advantages that can be achieved through the speed and severe potential remedies, any patent holder should give die ITC due consideration when weighing their enforcement options. Similarly, industry players would be well advised to familiarize themselves with this forum to make sure they are well-prepared to defend against ac­tions seeking to exclude their products from the U.S. market. •

Ben Pleutte is a partner and Linda Chant/ is an associate in the Intellectual Property Litigation Group of Alston & Bird. Mr. Pleune has extensive experience in 337 Investigations before the International Trade Commission, with substantive involvement in the 530, 613, 686, 701, 704, 710 and, most recently, the 800 Inves­tigation that is scheduled for hearing in February 2013. Chang is currently before the ITC in the 857 Investigation.

Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.