Navigating The Range Of Remedial Orders At The ITC
This article originally appeared in Law360 on July 26, 2022. It is republished here with permission.
At the end of an investigation under Title 19 of the U.S. Code, Section 1337, the U.S. International Trade Commission will issue a final determination that determines: (1) whether a violation of Section 337 has occurred, and (2) if so, the appropriate remedy.1
While much of the commentary on Section 337 investigations is directed to issues relevant to whether a violation has occurred — e.g., infringement, invalidity, domestic industry — it is becoming increasingly important for companies and attorneys to be knowledgeable about the remedies available in Section 337 investigations.
Over the past few years, the number of Section 337 investigations that have reached a final determination on the merits has risen significantly. For example, in 2020, a record 35 Section 337 investigations were completed on the merits, and 2022 is on pace to break this record.2
This article explores the scope of such remedial orders and the options available when confronted with a remedial order.
Overview of Section 337 Remedial Orders
There are two types of remedial orders that the ITC can issue in a Section 337 investigation: exclusion orders and cease-and-desist orders.
An exclusion order prohibits the importation of violative articles into the U.S., and a cease-and-desist order prohibits unfair activity associated with violative articles that were imported prior to the effective date of an exclusion order.
Both types of orders are meant to stop the unfair acts for which a violation of Section 337 was found. Practically speaking, this means that the scope of both orders tends to be broad.
For example, in the case of violations based on findings of patent infringement, the exclusion order will typically extend to any articles or components thereof that infringe one or more of the patent claims for which a violation was found.3
In other words, the scope of remedial orders can and often does extend beyond the specific articles that were adjudicated in the Section 337 investigation.
Exclusion Orders
An exclusion order can take one of two forms: a limited exclusion order and a general exclusion order. Both limited and general exclusion orders prohibit the importation of articles that were determined to violate Section 337 and are enforced by U.S. Customs and Border Protection.
If the ITC finds a violation of Section 337 and the public interest does not compel otherwise, the ITC will presumptively issue a limited exclusion order. A limited exclusion order bars importation of violative articles by the specific respondents identified in the underlying Section 337 investigation.
A general exclusion order is a significantly broader remedy and bars importation of all violative articles, regardless of source.4
The ITC will impose a general exclusion order in two situations: (1) where it is necessary to prevent circumvention of an exclusion order limited to specific entities and (2) where there is a pattern of violating of Section 337 and it is difficult to identify the source of the violative articles.5
Cease-and-Desist Orders
A cease-and-desist order prohibits a respondent in a Section 337 investigation from committing any unfair acts in the U.S. associated with previously imported violative articles, including the sale of imported articles out of U.S. inventory.6
Cease-and-desist orders are generally issued when respondents maintain commercially significant inventories in the U.S. or have significant U.S. operations that could undercut the remedy provided by an exclusion order.7 Unlike exclusion orders, cease-and-desist orders are administered by the ITC, not CBP.
The violation of a cease-and-desist order can result in the imposition of significant monetary sanctions. If a violation is found, the ITC can assess civil penalties of twice the domestic value of the violative articles up to $100,000 per day.
Presidential Review Period
Prior to any remedial order taking effect, the order is subject to a 60-day presidential review period that immediately follows the ITC’s final determination.8
The presidential review period affords the president the opportunity to disapprove of any remedial order — such disapprovals are rare.9 Once the presidential review period expires, the exclusion order and cease-and-desist order will take effect.10 During this period, any articles that were determined to violate Section 337 can continue to be imported and sold so long as a bond is posted.11
As part of the ITC’s final determination, the ITC will set a bond amount that is intended to protect the complainant from any injury or offset any competitive advantage resulting from the unfair act.12 The bond amount typically can range anywhere from 0% to 100% of the value of the imported article.13
There are two bonds that must be posted: one to CBP and one to the ITC. The bond posted to CBP is for violative articles that are imported into the U.S. during the presidential review period.14 The bond posted to the ITC is for unfair acts associated with violative articles that were imported prior to the issuance of the exclusion order — e.g., sales of already imported articles.
Implementation of Exclusion Orders
A fundamental question that arises with respect to exclusion orders is: How does a respondent continue to import articles that are not subject to the exclusion order — e.g., articles that do not infringe a patent?
A respondent that is subject to an exclusion order has four options for importing such articles: self-certifying to CBP, submitting a ruling request to CBP, petitioning the ITC for a modification of the exclusion order, and petitioning the ITC for an advisory opinion regarding the scope of an exclusion order.
Further, if a complainant believes that a respondent is in violation of a remedial order, it can submit a complaint for an enforcement proceeding.
CBP Procedures
The branch of CBP responsible for administering and enforcing exclusion orders is the Exclusion Order Enforcement Branch of CBP. It is common for CBP-EOE to reach out to both the complainant and respondent prior to the ITC’s final determination to discuss the mechanics of how any potential exclusion order will be implemented.
During this meeting, CBP-EOE will also discuss post-exclusion order procedures, including certification procedures and requests for rulings pursuant to Title 19 of the Code of Federal Regulations, Section 177.
CBP-EOE holds these meetings separately with the complainants and respondents and, at the meetings, the parties are afforded the opportunity to make presentations regarding issues relevant to the potential exclusion order. Any ruling from CBP-EOE is appealable to the Court of International Trade.15
Certification Procedures
It is customary for the ITC to include a certification provision in the limited exclusion order.16 The standard certification provision authorizes CBP to require an importer to self-certify that they are familiar with the terms of the limited exclusion order, that they have made appropriate inquiry, and that, to the best of their knowledge and belief, the articles being imported are not excluded from entry under the limited exclusion order.17
The purpose of the certification provision is to account for the potential difficulty that CBP could have in ascertaining whether a particular article is subject to an exclusion order. The precise procedures for how the certification will be implemented are determined by CBP-EOE.
As part of this process, CBP-EOE will often begin discussing the certification provision with the respondent before the ITC issues the final determination in the Section 337 investigation. This may include the CBP-EOE proposing to the respondent a draft certification.
Thereafter, up until the end of the presidential review period, the respondent will be able to discuss with CBP-EOE the precise terms of the certification provision.
While certification provisions are obviously desirable to respondents, they do have limits. In particular, certification provisions are intended to be used only for articles that have been adjudicated as not violating Section 337 in the underlying investigation — e.g., articles that were adjudicated as noninfringing.
Thus, certification provisions are not an option for redesigns of violative articles that were not adjudicated in the Section 337 investigation or new designs. This is particularly relevant as it may not be feasible or cost effective to develop a redesign in sufficient time to have it adjudicated in the underlying Section 337 investigation.
Rule 177 Proceedings
If a respondent wishes to import an article that is within the scope of the Section 337 investigation and was not adjudicated in the investigation, it can submit a Rule 177 request.18 In this request, the respondent asks CBP-EOE to declare that an article is not subject to an exclusion order.
Significantly, in Rule 177 requests, the burden is on the respondent, e.g., in the case of patent infringement, a respondent must show by a preponderance of the evidence that an article does not infringe.19 If the Rule 177 request is successful, the respondent can begin importing the article into the U.S.20 Rule 177 requests are inter partes proceedings where the complainant will have the opportunity to oppose the request.21
A Rule 177 request should include the evidence necessary to show that an article is not subject to an exclusion order. As Rule 177 explains, a Rule 177 request should include “photographs, drawings, or other pictorial representations of the article and, whenever possible, by a sample article, unless a precise description of the article is not essential to the ruling requested.”22 Fact and expert declarations can also be included with a Rule 177 request.
After the Rule 177 request has been submitted, CBP-EOE will reach out to both the complainant and respondent about setting up a briefing schedule. Typically, there will be multiple rounds of submissions along with an oral discussion. An exemplary schedule is set forth below.
The primary advantage to a Rule 177 request is speed.
Most requests will be completed in under 90 days.23 This means that a diligent respondent could receive a ruling shortly after the end of the 60-day presidential review period, thereby minimizing the impact of an exclusion order.24 Additionally, Rule 177 requests have generally resulted in favorable rulings to respondents.
However, there are several key limitations of Rule 177 requests. CBP-EOE will not revisit any issue addressed during the Section 337 investigation. CBP-EOE will not adjudicate issues of patent validity or enforceability and instead will only address whether the respondent can show that the article is noninfringing.25 CBP-EOE will also not adjudicate any articles that were part of the Section 337 investigation.26
ITC Procedures
Respondents can also utilize procedures at the ITC for importing redesigned or newly designed articles. Namely, respondents can petition the ITC to modify a remedial order or for an advisory opinion regarding the scope of a remedial order.
Modification Proceedings
Another option for a respondent that wants to import a redesigned article is to submit a petition for a modification proceeding, per Title 19 of the Code of Federal Regulations, Section 210.76.
The purpose of modification proceedings is to determine whether the scope of an existing remedial order should be modified based on changed circumstances of fact or law. In a modification proceeding, the ITC can determine whether a redesigned or new article is covered by an existing remedial order and whether the order should provide a carve-out for the redesigned or new article.
The timing of modification proceedings depends on the complexity of the proceeding. According to the ITC, modification proceedings can take anywhere from 60 days to nine months:
- For modification proceedings that involve a pure question of law, final decisions are normally issued within 60 to 90 days from the date when the notice of institution of the modification proceeding is published in the Federal Register.27
- For modification proceedings that involve minimal fact-finding, final decisions are normally issued within 90 to 180 days from the date when the notice of institution of the modification proceeding is published in the Federal Register.28
- For modification proceedings that involve extensive fact-finding, final decisions are issued within six to nine months from the date when the notice of institution of the modification proceeding is published in the Federal Register.29
The primary drawback to modification proceedings is that the proceedings take longer than Rule 177 requests. However, final decisions from modification proceedings are binding on CBP and are immediately appealable to the U.S. Court of Appeals for the Federal Circuit.
It is permissible to concurrently pursue a Rule 177 request with CBP and a modification proceeding with the ITC.30
Advisory Opinions
Another option for a respondent that wants to import a redesigned article is to submit a petition for an advisory opinion, per Title 19 of the Code of Federal Regulations, Section 210.79.
In an advisory opinion proceeding, the ITC addresses whether importation of a redesigned or new article will violate an existing remedial order. Any would-be importer can seek an advisory opinion. The timing of advisory opinion proceedings are similar to modification proceedings.
Unlike modification proceedings, advisory opinions are not binding on CBP or appealable to the Federal Circuit.
Enforcement Proceedings
If a complainant believes that a respondent is improperly circumventing a remedial order, it can submit a complaint for an enforcement proceeding, per Title 19 of the Code of Federal Regulations, Section 210.75.
An enforcement proceeding will proceed much like a typical Section 337 investigation, e.g., it will proceed before an administrative law judge, involve discovery, involve a final determination and is appealable to the Federal Circuit. If the ITC finds that a respondent has violated a remedial order, the ITC can assess civil penalties of twice the domestic value of the violative articles up to $100,000 per day.
Takeaways
Given the foregoing, it is important to consider potential remedial orders early in a Section 337 investigation.
If you are a respondent, this may mean considering the availability of potential redesigns and injecting them as early as possible into the Section 337 investigation. Having a redesigned article — or any article — adjudicated as nonviolative in a Section 337 investigation should allow a respondent to self-certify to CBP that the article is outside the scope of any exclusion order and minimize any disruption to the respondent’s business.
Considerations regarding potential redesigns may also affect claim construction in patent cases for both complainants and respondents. Even if a redesign is not available during the Section 337 investigation — and is instead adjudicated through a Rule 177 request, modification proceeding or advisory opinion — the claim construction order is almost certain to be relevant to whether the redesign is ultimately adjudicated as being outside the scope of any remedial order.
Additionally, as certification procedures are only available for articles that were adjudicated by the ITC or CBP as nonviolative, it is beneficial for a respondent to have as many articles adjudicated as nonviolative as possible. This will allow a respondent to take advantage of the certification procedures without having to submit a Rule 177 request.
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1 19 U.S.C. § 1337(c).
2 Through Q2 2022, 19 Section 337 investigations have been completed on the merits. See https://www.usitc.gov/intellectual_property/337_statistics_average_length_investigations.htm.
3 See, e.g., Certain Cloud-Connected Wood-Pellet Grills and Components Thereof, Inv. No. 337-TA-1237, Limited Exclusion Order at 2 (May 12, 2022).
4 See 19 U.S.C. § 1337(d)(2).
5 See id.
6 See, e.g., Certain Cloud-Connected Wood-Pellet Grills and Components Thereof, Inv. No. 337-TA-1237, Cease and Desist Order at 2-3 (May 12, 2022).
7 See Certain Magnetic Tape Cartridges and Components Thereof, Inv. No. 337-TA-1058, Comm’n Op. at 65 (Apr. 9, 2019).
8 19 U.S.C. § 1337(j)(2).
9 The U.S. International Trade Commission – Section 337 Investigations – Answers to Frequently Asked Questions, Publication No. 4105 at 25 (Mar. 2009).
10 19 U.S.C. § 1337(j)(4).
11 19 U.S.C. § 1337(j)(3).
12 See, e.g., Certain Digital Video Receivers and Related Hardware and Software Components, Inv. No. 337-TA-1103, Comm’n. Op. at 31 (May 13, 2020).
13 See, e.g., id.
14 See App. B to Part 113 of 19 C.F.R.
15 19 U.S.C. § 1641(e)(1).
16 See, e.g., Certain Cloud-Connected Wood-Pellet Grills and Components Thereof, Inv. No. 337-TA-1237, Comm’n Op. at 10-11 (May 24, 2022).
17 See, e.g., Certain Cloud-Connected Wood-Pellet Grills and Components Thereof, Inv. No. 337-TA-1237, Limited Exclusion Order at 3 (May 12, 2022).
18 While Rule 177 Requests are typically submitted by respondents, complainants can also file a Rule 177 Request.
19 See, e.g., HQ H323308 at 11 (Feb. 8, 2022).
20 19 C.F.R. § 177.9.
21 See, e.g., HQ H323308 at 1 (Feb. 8, 2022).
22 19 C.F.R. § 177.2(b)(3).
23 Since 2017, the average time to receive a Rule 177 Ruling was between 80 and 90 days.
24 A Rule 177 can be requested as soon as the exclusion order issues (i.e., the respondent does not need to wait until the end of the Presidential review period).
25 See H259071 at 15 (Dec. 10, 2014).
26 See H315840 at 16 (Feb. 8, 2021) (“CBP is bound by the findings of the Commission”).
27 https://www.usitc.gov/press_room/featured_news/pilot_program_will_test_expedited_procedures_usitc.htm.
28 See id.
29 See id.
30 See 19 C.F.R. § 210.79(a).
