United States: The International Trade Commission And Section 337: An Underused Trademark Enforcement Mechanism

Last Updated: September 29 2015
Article by Leonard N. Budow

The Tariff Act of 19301 ("Act") provides that infringement of patent and registered trademark rights2 to be unfair practices in the importation of goods into the United States. The Act is implemented by the United States International Trade Commission ("Commission") which is an agency of the United States government that serves a bi-partisan function to advise the President, Office of the United States Trade Representative, and Congress on matters related to international trade. In addition, it also has a judicial function which is too often overlooked by apparel companies seeking to enforce its rights against importers of goods which infringe their intellectual property rights. Globalization of the fashion industry means that it is more likely than not a domestic United States enterprise will directly or indirectly be involved in the international sale of goods. Thus, the Commission may seem to be an obvious avenue of recourse to strike at the heart of many infringement claims; the production of goods entering the United States which infringe on a company's intellectual property rights. So why the dearth of actions before the Commission by fashion companies?

There are several reasons why an apparel company and counsel may feel the Commission is not a viable forum to seek relief. First, tactical. The nature of an infringement may be best appreciated or understood by a jury as opposed to an Administrative Law Judge ("ALJ"). The ALJ is designated by the six (6) Commissioners who are nominated by the President, confirmed by the Senate and serve for nine (9) years. Proceedings before the Commission3 are more administrative4 than judicial so depending upon the nature of the trademark or even upon the location of the plaintiff, an apparel company may feel it has tactical advantage before a jury in a "home" jurisdiction as opposed to before a "sterile" ALJ.

The next disincentive for selecting the Commission for relief is actually the nature of the relief desired. The Commission cannot grant monetary damages5 or targeted relief. If the goal is to secure monetary damages that relief is not available before the Commission. The nature of relief is in the form of a General Exclusion Order ("GEO") or a Limited Exclusion Order ("LEO"). The GEO generally bans importation of the infringing goods even an importer is not a party to the proceeding before the Commission and the LEO is targeted to the actual named infringer. However, there is no calibration of the relief. While goods may be banned from further import into the United States the Commission cannot order destruction, re-call or other flexible relief.6

Then there is the rocket docket. Counsel may see the expedited processing of the administrative tribunal to be a negative. The ramp up function in itself will be time consuming. Prior to filing with the Commission it is critical that all ducks be lined in a straight row; that will be an advantage to plaintiff and will place defendant in an accelerated defensive position. Depending on the nature of the defendant's internal operations, and its intellectual property and litigation counsel, the commencement of the process in itself might lead to an expedited settlement. But the plaintiff might not be able to take advantage of the tactical move if it too suffers from the defendant's internal limitations.

The rocket docket also has a very practical negative side for all parties: accelerated legal fees and costs. Those costs and expenses will include expensive surveys, census analysis as well as other experts. Depending on the solvency of the plaintiff as well as its cash flow, it might be imprudent to start an action that will have an immediate impact on its expenses. In a judicial proceeding, although the relief may be delayed, one can practically budget for a slower, protracted, as opposed to a fleeting, war.

Another disincentive or threshold bar to an action before the Commission is jurisdictional. As noted above while apparel companies may be involved in the importation of goods, there are times when establishing that the targeted goods have been imported. If you cannot establish importation the Commission will not have jurisdiction.

Also one must establish harm to a domestic industry.7 This means the plaintiff in a trademark infringement case must show at least one of the following three: a material investment in plant and equipment; a significant investment of labor or capital; or a substantial investment in research and development or licensing.8 If the plaintiff cannot show both domestic industry impact as well as importation of goods the Commission will not have jurisdiction.

Notwithstanding the apparent limitations or hurdles presented by a Section 337 action, an apparel company must view such an action as being just another weapon to enforce its intellectual property rights.9 For example to combat grey market goods10 as opposed to outright infringement, recourse to the Commission may be a viable option. The plaintiff in a Section 337 grey market case would have to show the goods are materially different, such as differing warranties which is almost a given on foreign versus domestic sale of goods. The relief, since it is based on the in rem jurisdiction against the goods, could be a broad GEO implemented in the time frame of a rocket docket.

Although the availability of a GEO or LEO and not monetary damage is identified as negative for a Section 337 proceeding, note that damages are also available in a Federal District Court proceeding; the remedies and actions are not mutually exclusive although it is likely that the Federal District Court case will be stayed pending the proceeding before the Commission.

For luxury brands or any brand concerned about dilution, as well as infringement of its trademark, the rocket docket is a positive not a negative. A trademark owner may see the import of infringing goods as adversely affecting its good will and the value of its brand. The greater the dissemination of the products, the length of time permeating the domestic market, the greater the impact on brand value. Thus the expedited time frame afforded by the Commission can be a great tactical advantage.

Practically speaking sometimes the effective target of an action may not be subject to the in personam jurisdiction of the United States courts. A manufacturer which may not have contacts for long arm jurisdiction will not be adversely affected by an action brought in Federal District court. However the jurisdiction of the Commission is in rem thus it is against the goods. So while a manufacturer may not appear before the Commission a GEO will bar the importation of the offending goods.

The Section 337 proceeding while common for patent actions is still a relatively rare bird for trademark. However it can be effective tactical weapon if wisely deployed in the appropriate circumstances. Precipitous preclusion or implementation are both to be avoided; however, either through over sight or ignorance, to date Section 337 enforcement actions have not been deemed a conventional part of enforcement mechanisms for a fashion and that is a strategic error.

Footnotes

1. 19 U.S.C. §1337

2. See 19 U.S.C. §1337(a)(1)(B)-(E). Misappropriation of trade secrets, palming off, misleading or false advertising and general violations of antitrust laws are also subject to the bailiwick of the Commission

3. The rules of the Commission are set forth in 19 CFR Part 210

4. But to be clear the investigations conducted by the ALJ are subject to procedural that are similar to the Federal Rules of Civil Procedure. The hearing is conducted in accordance with 5 U.S.C. 551 et seq. which does provide for notice, cross examination, the right to object, motion practice etc.

5. Under the Lanham Act one can recover the infringer's profits in addition to actual damages.

6. E.g. Levi Strauss & Co v Sunrise International Trading, Inc. 51 F 3d 982 (11th Cir 1995)

7. See Sections 337(a)(2) and (3) of the Act.

8. See 19 U.S.C. §1337(a)(1)(B).

9. In the Matter of Certain Handbags, Luggage, Accessories, and Packing Thereof Investigation No. 337- TA-754 Publication 4387 USITC March 2013

10. See Grey Market Trademark Infringement Actions at the U.S. International Trade Commission: The Benefits of the Forum and Analysis of Relevant Cases," 8 John Marshall Review of Intellectual Property Law 271 (2009).

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.

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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