What Every Multinational Company Should Know About . . . Section 337 Cases at the International Trade Commission

The United States International Trade Commission (ITC) is a fast-paced, high-stakes forum for companies with significant U.S. operations and/or U.S. intellectual property rights. Broad in scope, Section 337 empowers the ITC to hear and resolve complaints brought by companies alleging unfair acts in the importation of products. Most Section 337 cases involve allegations of infringement of patents, trade secrets, trademarks, and copyrights; however, the statute broadly covers non-IP violations as well. Notable examples include theft of trade secrets, antitrust claims, customs circumvention, claims based on importation of non-approved drugs, and Lanham Act claims based on false advertising and false designation of origin.

Intellectual property rights often are some of the most critical assets of U.S.-based companies, and Section 337 is a powerful tool to protect them. Frequently, U.S. patent owners try to resolve infringement issues in the U.S. district courts. After all, U.S. district courts are generally safe and reliable for adjudicating such disputes and, as such, business leaders and in-house counsel cannot be faulted for turning to the district courts as the default option to protect their interests. Even so, patent owners should not overlook the ITC, which provides quick and powerful remedies for those patent owners in the know. This article provides an overview of how proceedings at the ITC work and how these proceedings may provide a better option than U.S. district courts, in some circumstances, to protect against unfair acts by importers.

The ITC is unique with respect to its speed and available remedies. Successful ITC complainants can obtain exclusion orders prohibiting importation of articles that are found to violate Section 337, as well as cease-and-desist orders governing unfair activity for articles imported unlawfully prior to the exclusion order.

Foreign companies wishing to export products to the U.S. using business practices that run afoul of Section 337 may have their products excluded by the ITC even if those practices are lawful in the originating company. U.S. companies also may try to bar imports by alleging theft of trade secrets, including theft that occurred overseas and through computer hacking. The ITC also recently instituted investigations where the foreign manufacturer was alleged to have engaged in price fixing, in violation of U.S. antitrust laws, even though the alleged antitrust conspiracy occurred entirely outside the U.S. A successful claim under one of these theories can bar a company’s imports even if the conduct in question was legal under the foreign laws where the conduct occurred.

What is a Section 337 Investigation?

Section 337 of the Tariff Act of 1930 (as amended)¹ protects domestic businesses by prohibiting unfair trade or unfair competition in importation. Typically, complainants bring Section 337 investigations for alleged violations of intellectual property rights such as patent, registered trademark, or registered copyright infringement, although Section 337 is not limited to IP-related claims. Complainants also may bring non-IP claims for trade secret misappropriation, antitrust violations, false advertising, breach of contract, or tortious interference with contractual relations. Indeed, the statutory language of Section 337 might be broad enough to support other types of claims such as foreign bribery or use of forced labor.

To initiate a Section 337 investigation, complainants file a complaint with the ITC, which reviews the complaint and decides whether to begin an investigation — the decision typically is made within 30 days. Once the ITC initiates an investigation, it assigns an administrative law judge (ALJ) to preside over the investigation, including discovery, motions, and ultimately the hearing itself. Discovery in the ITC is similar to discovery in the U.S. district courts and includes the exchange of interrogatories, document requests, and requests for admissions. Parties also are entitled to depositions. The discovery process before the ITC is generally more expedited than in most U.S. district courts. Finally, when a Section 337 investigation proceeds to a hearing, the ALJ presides. Afterward, the ALJ will issue a preliminary decision on the merits, known as an Initial Determination. The commissioners at the ITC may then review and modify the initial determination. Once complete, the ITC will issue its Final Determination.

For Section 337 investigations involving IP infringement claims, complainants must prove the following:

• Infringement: Unsurprisingly, the complainant must prove the respondent’s accused products infringe the complainant’s intellectual property. Respondents can present most of the same defenses that are available to defendants in infringement actions asserted in the U.S. district courts. However, one key difference at the ITC is that ALJs typically do not hold Markman hearings or allow for separate claim construction briefing.
• Importation: Complainants must show the infringing products are imported, sold for importation, or sold within the U.S. after importation. While this sounds straightforward, unique issues involving importation may arise. For example, the ITC has the power to exclude products that do not infringe at the time of importation, provided the products include articles that infringe after importation.²
• Domestic Industry: Last, complainants must show a domestic industry exists or is in the process of being established in the U.S. There are two prongs to proving a domestic industry: First, complainants must prove a technical prong of the domestic industry: Under the technical prong, complainants must show “there is a domestic industry product that actually practices” at least one claim of the asserted patent.³ Next, complainants must prove the economic prong of the domestic industry. Under the economic prong, the patent owner must show that, with respect to the articles protected by the asserted patent, there is “(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.”⁴

Respondents, in turn, can raise a variety of affirmative defenses in a Section 337 investigation, including non-infringement, invalidity, or unenforceability. If an accused product is found to infringe the complainant’s patent, respondents can still avoid exclusion of their products by invoking the public interest. When a respondent successfully shows public-interest factors weigh against exclusion, the ITC may decline to issue an exclusion order. The statutory public-interest factors include (A) the public health and welfare, (B) competitive conditions in the U.S., (C) the production of like or directly competitive articles in the U.S., and (D) the effect on U.S. consumers. Practically, it is exceedingly difficult to avoid an exclusion order by invoking the public-interest factors, but respondents may have some success in delaying or modifying exclusion orders.

The Advantages of the ITC when Compared to U.S. District Courts

There are several advantages to bringing a Section 337 investigation over litigation in a U.S. district court — namely, the remedies available, expediency of the investigation, and jurisdictional benefits.

First, the ITC’s exclusionary power might be the most important advantage of pursuing a Section 337 proceeding. If a complainant succeeds in a Section 337 proceeding, the ITC has two types of remedial orders at its disposal: An exclusion order prohibits the importation of violative articles into the U.S., while a cease-and-desist order prohibits unfair activity associated with violative articles that were imported prior to the effective date of an exclusion order. The threat of an exclusion order is especially important because it cuts the challenged products off at the pass, which is particularly valuable given there can be no guaranty that a complaining patent owner will ultimately receive an injunction in a U.S. district court action.⁵

There are two types of exclusion orders for successful complainants: a limited exclusion and a general exclusion order. Both orders prohibit the importation of articles that the ITC determines violate Section 337. U.S. Customs and Border Protection enforces both types of orders too. Under a limited exclusion order, the ITC bars the importation of violative articles from the specific respondents named in an underlying Section 337 investigation. Under a general exclusion order, the ITC prohibits the importation of all violative articles, regardless of the origin and even if the importing party was not a party to the underlying Section 337 investigation. Strategic complainants might be able to leverage the extreme threat of an exclusion order into large settlements too.

Second, Section 337 investigations are extremely fast paced — most Section 337 investigations are completed within 12-to-15 months of initiation. Moreover, the ITC does not stay the investigation if parallel proceedings are brought in the U.S. district courts or before the Patent Trial and Appeal Board. Proceedings at the U.S. district courts, in comparison, may take several years.

Third, it is easier to bring Section 337 investigations against infringing articles. Jurisdiction in the ITC is in rem rather than in personam. That means the ITC has jurisdiction over the accused product rather than a proposed respondent. Personal jurisdiction, service of process, and venue are not issues at the ITC. This makes it easier to bring a Section 337 investigation to address multiple foreign or domestic respondents and multiple products.

Managing Unfair Importation Risks

Business leaders and counsel should consider Section 337 investigations when weighing how to protect their intellectual property interests. The remedial orders available and speed of ITC proceedings constitute critical tools in the arsenal of patent holders. For both complainants and respondents, it is important to engage experienced counsel, and quickly, when considering a Section 337 investigation or when one is brought against your products.

For information on Foley’s ITC 337 practice, click here.