As shown by the recent announcement by the Trump Administration of a Section 232(b) national security review of steel imports, (a type of investigation that has not been used since 2001), there are a number of ways in which U.S. companies that believe they are being harmed by imports can seek protection. One important tool to consider is filing a Section 337 proceeding at the International Trade Commission (ITC), which has become increasingly popular to combat a wide variety of alleged unfair trade practices – often ranging far beyond the traditional claims of intellectual property and patent infringement.
As a result, the number of Section 337 filings have sharply increased over the past several years. With there being every expectation that Section 337 remedies will continue to become an increasingly important part of international trade actions, this client alert presents the “top ten questions” that companies potentially impacted by these remedies should consider.
Under Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, the ITC is authorized to issue an order to exclude articles from entry into the United States that have been found to violate U.S.-based intellectual property rights, or where the respondent has committed other unfair acts relating to imported products. The exclusion order is enforced by the U.S. Customs and Border Protection (CBP).
Most Section 337 investigations allege violations of intellectual property-based rights involving claims of patent, copyright or trademark infringement. In such cases, the complainant must establish that a valid and enforceable U.S. patent, copyright or trademark is being infringed by the importation into the U.S., the sale for importation, or the sale within the U.S. after importation of an accused article, and that a domestic industry1 exists or is in the process of being established.
Section 337 also provides remedies for other unfair acts, such as theft of trade secrets and Lanham Act violations. Recent investigations have also involved allegations of price-fixing, computer hacking, and customs circumvention. In these cases, the complainant is required to show that the respondent’s unfair practices threaten to destroy or substantially injure a domestic industry.
During the campaign, President Trump frequently promised to use U.S. trade laws to protect domestic industries from foreign competition. Section 337 is a powerful tool for U.S. industries to protect themselves against unfair foreign competition. The use of Section 337 investigations could be expanded to block imports of steel, aluminum, technology and other products using previously underutilized claims.
Because Section 337 cases are initiated by U.S. domestic industries, i.e., private parties, and not the U.S. government, it might be thought that the change of administration will have little effect on Section 337 practice. However, there are significant avenues where the chief executive can influence ITC practice.
First, the ITC is an administrative body in the executive branch. The Commission consists of six commissioners who are appointed by the president and confirmed by the Senate. Additionally, the Commissioners serve overlapping terms, with a new Commissioner appointed every 18 months. So, even though the Commission is split evenly between the Republic and Democrat parties, President Trump will have ability to appoint several new Commissioners, and those appointees are likely to conform to President Trump’s protectionist policies. Currently, there is one opening on the Commission, so President Trump has the immediate opportunity to appoint a new Commissioner.
Second, the President has the authority to vacate any exclusion order issued by the ITC, for any reason he deems appropriate. This Presidential “veto” has been used sparingly, and only once in the past several decades. That occurred when President Obama vacated an exclusion order against Apple, a U.S. company, which resulted from a complaint filed by Samsung, a Korean company. While Section 337 was enacted as a measure to protect domestic industries, it has increasingly been used by foreign companies that own intellectual property rights, such as U.S. patents. President Trump could use his veto power over exclusion orders in a similar way to favor domestic industries.
Third, there is the intangible aspect of how Commissioners might rule on cases where the President is openly pursuing protectionist policies. It is true that the Commission is established to be quasi-independent, with Commissioners being appointed to long terms that make it difficult to influence their decisions. Nonetheless, it is not uncommon for political actors to try to influence the Commission’s rulings, such as through the submission of testimony, in-person testimony, or even threats to cut funding for the Commission. Because the Commissioners are serving in an agency within the executive branch, it would not be unexpected to see their views come more in line with that of the new Administration, especially as additional Commissioners appointed by the new Administration come on board.
There are several ways in which Commission policy might change under President Trump.
There have been several attempts in the past few years in Congress to pass legislation amending Section 337. However, none of these have resulted in any amendments. These proposed changes have primarily been aimed at curbing investigations initiated by non-manufacturing entities (NMEs), also called non-practicing entities (NPEs), or more pejoratively, “patent trolls.” See, e.g., the proposed “Trade Protection Not Troll Protection Act,” H.R. 4829 (March 22, 2016). Many see the use of Section 337 by such entities as an anomaly, and not in the interests of domestic industries.
It is possible that as part of the new administration’s trade policies, there could be renewed efforts to amend Section 337. In addition to limiting the ability of NME’s to initiate 337 cases, other potential amendments might include provisions making it easier for domestic industries to obtain relief at the ITC. For example, Congress could make changes to the domestic industry provisions, or add specific types of claims subject to the ITC’s jurisdiction.
A current investigation, In re Certain Carbon Steel Products, 337-TA-1002, could have a significant impact on Section 337 proceedings. U.S. Steel filed a complaint seeking to exclude virtually all Chinese carbon and alloy steel products from entering into the United States. U.S. Steel’s complaint is based on alleged unfair acts of: (1) price-fixing; (2) theft of trade secrets based on allegations the Chinese government hacked into the computers of U.S. Steel; and (3) unfair competition under the Lanham Act based upon circumvention of existing antidumping and countervailing duty orders by falsely labeling the country of origin of the steel products. Each of these theories contains broader implications for the future enforcement of U.S. trade laws.
First, with respect to the price-fixing claim, the ITC has previously issued only one exclusion order based on an antitrust violation. That was in 1978, and was one of only four times the president has vetoed the ITC and vacated the exclusion order during the presidential review period. While Section 337 expressly provides for ITC jurisdiction over unfair acts that “restrain or monopolize trade or commerce in the United States,”2 this section has rarely been invoked in Section 337 complaints, perhaps because price-fixing claims are commonly brought by purchasers complaining of high prices, not by competitors complaining of low prices.
Perhaps most significantly for the future of Section 337, U.S. Steel has argued to the Commission that Section 337 is a trade statute, not an antitrust statute, and therefore it does not have to satisfy all of the requirements of a plaintiff bringing an antitrust claim in federal district court. Specifically, U.S. Steel has argued it is not required to show it has suffered an “antirust injury”; rather, the express language of Section 337 only requires an unfair act and an injury of the type specified in Section 337, which does not expressly include the requirement of an “antitrust injury.” As of the date of this writing, the case is pending before the ITC with a petition for review of the administrative law judge’s (ALJ) dismissal of U.S. Steel’s antitrust claim, which was based on the Chinese Respondents’ argument that U.S. Steel is required to plead an antitrust injury, which the complaint does not allege.
If the Commission reverses the dismissal of U.S. Steel’s antitrust claim, this will be a strong signal that the Commission will broadly assert jurisdiction over claims that assert any type of unfair act, even if the claim would not satisfy the pleading requirements required of plaintiffs asserting such claims in U.S. Courts. This could have a broad impact beyond antitrust claims and raises significant questions. For example, could a complainant file a 337 complaint alleging an unfair act of dumping, even though these are statutory antidumping remedies? Or, could claims alleging unfair acts under statutes that provide no private right of action nevertheless be available under Section 337? These are distinct possibilities if the ITC rules that U.S. Steel’s antitrust claim can go forward.
The price-fixing claim could also have broad implications for exporters from countries that have nonmarket economies, such as China, because prices are by definition not determined on the open market. If the ITC determines prices set by nonmarket economies are unfair acts for Section 337 purposes, this could be a powerful weapon for U.S. industries seeking to limit competition from countries with nonmarket economies. Notably, the remedy for an affirmative finding in a countervailing duty or anti-dumping case, (the usual method for competitors complaining about artificially low prices from foreign competitors), is a duty to be assessed on imports, whereas the remedy for a violation of Section 337 is an exclusion order barring entry of the articles from entry into the United States. Similarly, compared to price-fixing claims brought by private parties in district court that result in an award of damages, here the remedy would be an exclusion order. The use of Section 337 in these circumstances could be attractive to domestic industries, since Chinese companies increasingly are learning how to manage their margins and continue to participate in the U.S. market, even in the face of antidumping duty orders imposed on their products.
Second, while the theft of trade secrets claim was voluntarily dismissed by U.S. Steel, it is noteworthy in that the alleged unfair act was a trade secret theft based on computer hacking. It is likely that there will be more ITC investigations involving computer hacking as the alleged unfair act, as cybersecurity breaches are on the rise. This claim was also noteworthy because the alleged perpetrator of the computer hacking was the Chinese government. Allowing the ITC to consider and rule on allegations of unfair – even criminal – activity made against foreign governments brought by private parties may implicate international relations, bringing into play public interest issues and other concerns of the U.S. government. Claims of this nature are likely to persist, as allegations of cyber theft and hacking are becoming commonplace. With respect to claims alleging unfair acts where foreign governments are involved, there could be more extensive proceedings regarding the public interest factors specified in Section 337, and more intensive scrutiny by the executive branch during the presidential review period.
Third, the Lanham Act claim is unusual in that it is based on alleged violations of existing anti-dumping and countervailing duty orders issued by the Commerce Department, through claims that the Chinese companies had falsely designated the country of origin of the imported product. Anti-dumping and CVD circumvention has previously been the exclusive province of the Department of Commerce (DOC) and CBP, as reinforced in the recent 2016 changes to U.S. Customs law. An important aspect here, as noted above, is that the remedy under Section 337 is an exclusion order, whereas a circumvention proceeding before CBP and the DOC would result in a ruling that the importer owes the unpaid duties (and perhaps fines and penalties) on the imported goods. If the ITC determines such claims are within the scope of Section 337, this could be a powerful weapon for U.S. industries to enforce anti-dumping and countervailing duty orders.
The importance for U.S. trade remedies of this investigation could be enormous. Instead of applying to just one subset of steel products, as would be the case in an anti-dumping or countervailing duty case, the remedy here could bar from entry into the U.S. all carbon and alloy steel products from China. If successful, U.S. Steel will have accomplished – in a single proceeding – the elimination of competition from all Chinese carbon and alloy steel products from the U.S. market. Additionally, the ITC could rule it has jurisdiction over virtually any unfair act in the importation of goods, irrespective of statutory and other requirements for plaintiffs to pursue such claims in U.S. courts.
Yes. Most ITC investigations are based on allegations of patent infringement. However, Section 337 applies broadly to all “unfair acts” in the importation of goods that cause or threaten to cause injury to a domestic industry. Non-patent cases are on the rise at the ITC – only 4 cases in 2013 involved non-patent claims, compared to 20 cases alleging non-patent claims in 2016.3 A sample of these types of claims include:
In addition to the discussions elsewhere concerning trade remedies,5 or a civil suit in a U.S. court, you should consider whether you have a viable claim under Section 337. There are a number of reasons why filing a complaint under Section 337 could be a preferred course of action, including:
Yes. While Section 337 was initially enacted by Congress to protect domestic industries against unfair trade practices by foreign companies, any company that imports products can be named as a respondent. There are numerous investigations where a foreign company owns a U.S. patent, and is able to allege a domestic company imports components that infringe U.S. patents into the United States that are incorporated into downstream products. Similarly, U.S. companies with overseas operations could be the target of claims of other unfair acts in the importation of goods, such as using stolen trade secrets, or importing counterfeit products.
Both foreign companies and U.S. companies that import products should audit their overseas operation to ensure they are in compliance with U.S. laws, the violation of which could form the basis of a Section 337 investigation. Such measures should include:
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The popularity of the ITC for filing disputes is on the rise. The ITC has jurisdiction over not only intellectual property disputes, but also broadly over all unfair acts in the importation of products and components thereof. Section 337 provides for powerful and speedy remedies, and the ITC is an important forum for domestic industries that believe they are being harmed or threatened by foreign imports.
Looking for More Help? Evaluating potential claims and defenses in Section 337 proceedings is complicated, and involves evaluation of the ITC’s legal standards and standing requirements, whether the complainant can satisfy the domestic industry and/or injury requirements, and the complainants’ and respondents’ products and trade practices. A full evaluation is available by contacting Mr. David Hickerson at firstname.lastname@example.org or +1 (202) 672-5467.
1While the domestic industry requirements are beyond the scope of this article, in general, for statutory IP claims, a complainant is required to show that with respect to the article protected by the patent, trademark or copyright, it has made substantial investments in plant, equipment and/or labor; or that it has made significant investments in R&D, licensing or engineering.
219 U.S.C. § 1337(a)(1)(A),
3See Int’l Trade Commission, “Section 337 Statistics,” https://www.usitc.gov/press_room/337_stats.htm.
4In re Certain Potassium Chloride Powder Products, 337-TA-1013. Foley & Lardner LLP represented the Complainants in this investigation.
5See Gregory Husisian and Robert Huey, “International Trade Litigation and the New Trump Administration: Your Top Ten Questions Answered,” https://www.foley.com/international-trade-litigation-and-the-new-trump-administration-your-top-ten-questions-answered-01-06-2017/.
6If the ITC issues an exclusion order, it may also issue a Cease and Desist Order to prevent Respondents from stockpiling the accused articles before the exclusion order comes into effect.