China: ITC Can Provide Relief From Infringing Imports—An Overview Of Section 337

Last Updated: 26 September 2006
Article by Meg Utterback

Many U.S. companies have begun to utilize the U.S. International Trade Commission ("ITC") to seek relief from imported goods that infringe on a domestic producer’s patent, trademark, or copyright. The Commission also can redress acts of unfair competition, misappropriation of trade secrets, passing off, false advertising, and violations of the antitrust laws.

The ITC derives its investigative and enforcement authority from the Tariff Act of 1930, as amended (19 U.S.C. §1337) ("Section 337"). This Section of the Act establishes five categories of violations. First, the ITC can address any unfair method of competition or any unfair act in the importation of articles, or in the sale of such articles, by an owner, importer, or consignee, which threatens or has the effect of

  1. Destroying or substantially injuring a U.S. industry;
  2. Preventing the establishment of such industry; or
  3. Restraining or monopolizing U.S. trade and commerce.

Second, the ITC can bar the import, sale for importation, or sale after importation of a patent infringing product. Third, Section 337 prohibits the importation, sale for importation, or sale after importation, of an article which infringes a valid U.S. trademark. Fourth, Section 337 precludes the importation, sale for importation, or sale after importation, by an owner, importer or consignee of a semiconductor chip product which infringes upon a registered mask work. Finally, Section 337 protects original designs from acts of infringement by manufacturers, sellers, importers, and resellers of imported products.

The second, third, and fourth violations can occur only if an industry relating to the infringing product exists in the U.S. or is in the process of being established. Section 337 defines an industry as "existing" in the U.S. if, with respect to the articles in question, there has been significant investment in plant and equipment, significant employment of labor or capital, or substantial investment evidenced by expenditures for engineering, research and development, or licensing. Foreign companies may have standing to bring a complaint as a domestic producer if the foreign company can demonstrate sufficient domestic activity related to the intellectual property, such as the manufacture and sale of the product in the U.S. market. Typically, mere sales of imported product in the United States would not be sufficient to provide standing to the foreign company.

Process

Section 337 authorizes the ITC to institute an investigation of alleged infringement or unfair trade practice upon receipt of a properly filed complaint. The Commission can also proceed on its own initiative, but rarely does so. The Office of Unfair Import Investigations reviews the complaint and makes a recommendation to the Commission regarding whether an investigation is warranted. The Commission usually determines whether to investigate within thirty days of the filing of a complaint. Notice of the decision to commence the investigation is published in the Federal Register. If the Commission decides to investigate, it will serve the complaint on the respondents to the investigation and on the embassy of any foreign respondent listed in the complaint. A decision not to investigate is rare.

Once an investigation is initiated, the ITC appoints an administrative law judge (ALJ) to preside over the investigation, hear the case, and issue an initial determination as to whether Section 337 has been violated. Since the proceedings often involve proprietary corporate information, the ALJ typically will issue a protective order at the start of the investigation. The Commission also appoints an Investigative Attorney from the Office of Unfair Import Investigations, whose role in the case is to represent the public interest.

The Commission Rules (19 C.F.R. Part 210) are the procedural rules applicable to the investigations. They are similar to the Federal Rules of Civil Procedure, which govern proceedings in U.S. federal courts. The ALJ presiding over the case may also set his or her own ground rules, which will supplement the Commission Rules. The proceedings are also subject to the Administrative Procedure Act (5 U.S.C. § 551 et seq.). The parties have the right to a fair hearing, which typically includes an opportunity for cross examination, presentation of evidence, objections, and argument. Hearings are held at the ITC’s offices in Washington, D.C.

It is important to note, particularly for patent infringement cases, that counterclaims are not heard by the ITC. Any counterclaim must be removed to federal court and will not delay or affect the ITC investigation. Thus, the ITC will not hear a counterclaim for declaratory relief that the infringed patent at issue, in fact, is invalid. Invalidity may be raised by the Respondent as a defense. If a counterclaim is removed to federal court, the ITC claimant may request a stay of that proceeding pending the outcome of the ITC action.

The ALJ’s Initial Determination is certified to the Commission with the evidentiary record. The Commission can adopt, modify or reverse the Initial Determination. The Commission also can refuse to review the Initial Determination. If the Commission declines to review the Initial Determination, it becomes final. The Commission shall conclude its investigation "at the earliest practicable time," which typically means within fifteen months from the date of the Federal Register notice of investigation. Where the Commission finds a violation of Section 337 it may issue an exclusion order, which either precludes importation of all infringing products (general exclusion), or precludes importation of a named manufacturer’s infringing product (limited exclusion).

The Commission also may issue a cease and desist order to preclude certain actions, e.g., resale in the United States of the offending product. In reviewing an Initial Determination, or in issuing its final determination, the Commission is bound to consider the effect of the order on the public interest, such as public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive products, and its impact upon U.S. consumers. Commission orders are effective within 60 days of issuance unless disapproved by the President. Appeals of such decisions are filed with the U.S. Court of Appeals for the Federal Circuit.

Cases may be resolved by agreement or consent order. It is not uncommon for an infringement investigation to result in a licensing agreement between the complainant and one or more of the respondents.

Section 337 also provides for preliminary injunctive relief in the form of a temporary exclusion order or a temporary cease and desist order. The ITC considers the same factors as a federal court reviewing a prayer for preliminary injunctive relief:

  1. Likelihood of success on the merits;
  2. Harm in the absence of relief;
  3. Harm to the respondent; and
  4. Harm to the public interest.

The Commission’s decision to impose a temporary exclusion or cease and desist order is issued within 90 days of initiation of the investigation, or 150 days in complex cases.

Utilizing Section 337

Section 337 offers several advantages for a domestic complainant over federal court intellectual property and unfair competition suits. The process as discussed above is generally quicker and cheaper for the complainant. Because Section 337 does not entitle the complainant to receive any monetary compensation for the infringement, the complainant may want damages for past infringements once the ITC has issued the exclusion order and/or cease and desist order. Section 337 may be used by the complainant to obtain valuable discovery, which can set the stage to recover these damages in the federal court. Section 337, accordingly, could decrease the costs associated with subsequent federal court litigation.

Section 337 can provide more immediate injunctive relief than a federal court and, more importantly, can offer equitable relief against foreign corporations who may not be subject to personal jurisdiction in U.S. district courts.

The standard for the ITC to issue relief is less than the burden of proof required in federal court. Also, Section 337 does not allow the ITC to hear counterclaims, which is a significant disadvantage for a foreign respondent. Finally, a Section 337 order remains in effect until the respondent can demonstrate a change in circumstance, new evidence, or any ground which would permit relief to the respondent from a judgment or order rendered under the Federal Rules of Civil Procedure.

The popularity of Section 337 has increased among domestic producers in recent years. Given the geographic scope of its remedy and the relative speed at which relief is rendered, Section 337 is still an underutilized tool of domestic producers and U.S. subsidiaries of foreign producers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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