United States: Four Pitfalls To Avoid When Seeking To Terminate A Section 337 Investigation By Consent Order

A survey of recent decisions at the International Trade Commission (ITC) reveals a series of pitfalls practitioners should seek to avoid when drafting consent orders and stipulations to terminate a Section 337 investigation. In general, the preparation of motions for termination based on consent orders should be undertaken with great care. This is an area where even slight deviations from the numerous requirements of the Rules regarding the contents of the motion, the stipulation, and proposed consent order often result in rejection by the Judges or the Commission, requiring the redrafting and re-execution of the necessary papers to effect termination even when there is no opposition to the motion by the litigants.

Termination of an ITC Investigation by Consent Order

Parties before the ITC may move to terminate a Section 337 investigation on the basis of a consent order "at any time." 19 C.F.R. § 210.21(a)(2). Consent orders are generally based upon an agreement that respondents will cease further importations of accused goods during the remaining term of an asserted patent. The consent order stipulation may state that the stipulation is for settlement purposes only and does not constitute admission that an unfair act has been committed. 19 C.F.R. § 210.21(c)(3)(i)(F). In most cases, the complainant joins in the motion to terminate. However, the Commission's rule allows a respondent to move unilaterally for termination based on a consent order, and respondents have secured terminations on this basis notwithstanding a complainant's opposition. See, e.g., Certain Tires and Products Containing Same, Inv. 337-TA-894, Corrected Initial Determination Granting Termination of Respondent Doublestar Dong Feng Tyre Co., Ltd. Based on Consent Order Stipulation and Proposed Consent Order (Feb. 27, 2014).

The moving parties are required to submit the proposed consent order, along with the motion for termination and a stipulation that "incorporates" the proposed order. 19 C.F.R. § 210.21(c)(1)(ii). The stipulation must contain a series of statements set forth in Rule 210.21(c)(3), including an admission of all jurisdictional facts, identification of the asserted intellectual property, a waiver of the right to seek judicial review, and an acknowledgement that the consent order will be enforced in accordance with the Commission's rules. The proposed consent order must contain a series of statements set forth in Rule 210.21(c)(4), some of which overlap with those in the stipulation, including statements that respondent will not import or sell after importation the subject articles, and that respondent is precluded from seeking judicial review of the order, or challenging the validity or enforceability of the asserted intellectual property in a proceeding to enforce the consent order. Once accepted by the Commission, consent orders, similar to cease-and-desist orders, are enforced by the Commission.

Parties may execute, and are required to disclose, any side agreements that contain additional terms, such as provisions regarding monetary payments, that go beyond the undertakings allowed in Commission consent orders. 19 C.F.R. § 210.21(c). Unlike consent orders, the Commission considers such side agreements to be private agreements between the parties that are not enforceable by the Commission.

Because consent orders are Commission orders rather than private settlement agreements, the Administrative Law Judges and the Commission rigorously enforce the requirements set forth in Rule 210.21(c) regarding the form and content of both a proposed consent order and an accompanying consent order stipulation. In a number of instances, the Judges have rejected proposed consent order terminations that were supported by the Office of Unfair Import Investigations, and the Commission has reviewed and reversed Initial Determinations (IDs) of the Judges granting terminations based on consent orders that were not challenged by the parties. Thus, although many respondents are ultimately terminated on the basis of consent order motions, such motions are rejected with some frequency, and proposed consent orders then have to be reworked and refiled.

Four common pitfalls to be avoided when preparing motions to terminate based on a consent order are discussed below.

Pitfall #1: Deviating from the Language of the Requirements in Rule 210.21(c) or Intermingling Those Requirements

Rule 210.21(c) sets forth explicit requirements for proposed consent orders and related stipulations. Practitioners who paraphrase the language of the rule risk having their motions to terminate denied. See, e.g., Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 15 at 2-3 (December 17, 2013) ("The parties are advised that if another motion to terminate based on consent order is filed, instead of paraphrasing, the parties should use the actual language from the Commission Rules for the Consent Order.").

For example, the Judges have rejected proposed orders for failing to include a verbatim, or near-verbatim, recitation of the proscription that respondents "shall not seek to challenge the validity or enforceability [...] of the asserted patent claims [...] in any administrative or judicial proceeding to enforce the Consent Order" [19 C.F.R. § 210.21(c)(4)(viii) (emphasis added)] or seek judicial review challenging the order [§ 210.21(c)(4)(vi)]. Similarly, in Multiple Mode Outdoor Grills, the Judge rejected a consent order that provided it would "become null and void with respect to any claim of the Asserted Patents that has been held invalid or unenforceable . . . or as to any articles that have been found or adjudicated not to infringe," because this diverged too much "from the language required by Commission Rule 210.21(c)(4)(x)" which refers to "a final decision, no longer subject to appeal."1 Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 15 at 2-3 (December 17, 2013).

The Judges have also rejected motions for termination where parties have deviated from the various and separate requirements for consent orders and consent order stipulations by conditioning or intermingling these requirements. For example, in Dimmable Compact Fluorescent Lamps, the consent order stipulation recited the required waiver of all rights to "seek judicial review or otherwise challenge or contest the consent order," but stated that the waiver was "subject to" another paragraph of the stipulation allowing respondents to bring future validity challenges to the asserted patents "in any other proceeding." In rejecting the waiver provision, the Judge explained that the waiver required by the Commission's rules "must not contain any conditional statements or limitations.". Certain Dimmable Compact Fluorescent Lamps and Products Containing Same, Inv. No. 337-TA-830, Order No. 6 at 3-4 (May 16, 2012).

Similarly, in Digital Photo Frames, the Judge rejected a stipulation that set forth the required waiver provisions, but then made such provisions "subject to" limitations in other provisions of the consent order rule (e.g., a statement that the order would not apply to an expired IP right) that would have been permissible if they had only been included as stand alone provisions. Certain Digital Photo Frames and Image Display Devices and Components Thereof, Inv. No. 337-TA-807, Order No. 25 at 1-2 (March 14, 2012). The Judge rejected another stipulation and proposed order in the same investigation that stated the respondent agreed not to import infringing products "until the expiration, invalidation, and/or unenforceability of the . . . patents or until [respondent's] products are found to be not infringing or until [its] products are licensed." Certain Digital Photo Frames, Inv. No. 337-TA-807, Order No. 37 at 1 (July 3, 2012) (emphasis in original). The Judge found that the emphasized language "eliminates the unequivocal acceptance that is the basic requirement of a consent order." He then stated that the stipulation and order "must not contain any conditional statements or limitations" and the "only possible exception is one that reads 'except under consent or license from the Complainant, its successors or assignees.'" Id. at 2.2

Pitfall # 2: Omitting Statements Required by 19 C.F.R. § 210.21(c)

The Judges will also reject motions to terminate if the motion, proposed consent order, or consent order stipulations omit formal statements required by Rule 210.21(c). In several instances, Judges have rejected consent order stipulations for failing to explicitly acknowledge that the Commission has subject matter jurisdiction over the investigation in accordance with the requirement in Rule 210.21(c)(3)(i)(A) that the stipulation include "[a]n admission of all jurisdictional facts." See, e.g., Certain Dimmable Compact Fluorescent Lamps and Products Containing Same, Inv. No. 337-TA-830, Order No. 6 at 2-4 (May 16, 2012); see also Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 11 at 2 (November 19, 2013); Certain Electronic Devices Having Placeshifting or Display Replication Functionality and Products Containing Same, Inv. No. 337-TA-878, Order No. 7 at 4-5 (July 8, 2013).

In Certain Tires and Products Containing Same, the Judge denied a motion to terminate by consent order because the motion failed to include the statement that "there are no other agreements, written or oral, express or implied between the parties concerning the subject matter of the investigation," as required under Rule 210.21(c). Certain Tires and Products Containing Same, Inv. No. 337-TA-894, Order No. 8 at 1-2 (November 8, 2013). In Multiple Mode Outdoor Grills, the Judge rejected a provision in a proposed consent order regarding respondent's cessation of importation and sales because the provision omitted the phrase "except to the extent permitted by the settlement agreement between complainant and respondent," as required by Commission Rule 210.21(c)(4)(iii). Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 15 at 2 (December 17, 2013).

Pitfall # 3: Ambiguity Regarding the Terms of the Consent

Another basis for the rejection of proposed consent orders has been ambiguity regarding coverage of the orders.

The Commission's rules require that consent orders in patent-based investigations identify the "subject articles" and include "a statement of any allegation in the complaint that the respondents sell for importation, import, or sell after importation the subject articles in violation of section 337 by reason of asserted patent claims." 19 C.F.R. § 210.21(c)(4)(i). For consent order stipulations, the rules require "[a] statement identifying the asserted patent claims . . . and whether the stipulation calls for cessation of importation, distribution, sale, or other transfers . . . of subject articles in the United States and/or specific terms relating to the disposition of existing U.S. inventories." 19 C.F.R. § 210.21(c)(3)(i)(B). Recent decisions of the Commission and the Judges have held that these identifications must be specific and without ambiguity.

In Electric Skin Care Devices, the Commission undertook review of the Judge's termination ID on its own motion and ordered the parties to revise a consent order containing "ambiguous language at least concerning the identity of the articles subject to the consent order." Certain Electric Skin Care Devices, Brushes, and Chargers Therefor, and Kits Containing the Same, Inv. No. 337-TA-959, Notice of a Commission Determination to Review an Initial Determination Terminating the Investigation as to Respondent Nutra-Luxe M.D., LLC Based on a Consent Order at 2 (September 29, 2015). Specifically, the Commission took issue with language in the proposed order regarding "any other product containing an oscillating brush head that has been previously adjudicated as infringing . . ." According to the Commission, this wording failed to "clearly identify the articles subject to the consent order because it does not state what tribunal would do the referenced 'adjudicat[ion],' or whether the adjudication must be final without right to further appeal" and because the term "previously" was undefined and unclear. Id. The parties overcame these deficiencies by modifying the proposed order to include explicit reference, by case number, to the single adjudication between the parties completed before the consent order stipulation was signed. See Electric Skin Care Devices, Inv. No. 337-TA-959, Joint Submission in Response to Notice of a Commission Determination to Review an Initial Determination at 4-5 (October 13, 2015); see also Commission Order, Inv. No. 337-TA-959 at 2 (November 3, 2015).

Problems with ambiguity also arose in Certain Electronic Devices Having Placeshifting or Display Replication Functionality. There, the proposed consent order and stipulation provided that respondents would cease importing and selling "any accused products that infringe the asserted [patent] claims" without defining the meaning of the term "accused products." The Judge deemed the reference to "accused products" to be an "improper and ambiguous limitation in scope." Certain Electronic Devices Having Placeshifting or Display Replication Functionality and Products Containing Same, 337-TA-878, Order No. 7 at 4-5 (July 8, 2013).

In Certain Multiple Mode Outdoor Grills, the ALJ rejected a consent order stipulation for, inter alia, failing to state "whether [it] calls for cessation of importation, distribution, sale, or other transfers (other than exportation) of subject articles in the United States and/or specific terms relating to disposition of existing U.S. inventories of subject articles," as required by 210.21(c)(3)(i)(B). Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 11 at 2-3 (November 19, 2013).

Pitfall # 4: Inconsistencies Among the Consent Order, Stipulation, and Notice of Investigation

Motions to terminate based on consent orders have also been rejected when the Judges have found inconsistencies among the consent order stipulation, proposed order, and/or Notice of Investigation.

For example, in Two-Way Global Satellite Communication Devices, the ALJ denied two motions to terminate a respondent because provisions in a proposed order and stipulations were not commensurate with the scope of the Notice of Investigation. In denying the first motion, the Judge found the respondent's failure to encompass all of the products covered by the Notice of Investigation (i.e., systems and components, as well as two-way global satellite devices) to be an improper limitation of the proposed order and stipulation. Certain Two-Way Global Satellite Communication Devices, System and Components Thereof, Inv. No. 337-TA-854, Order No. 20 at 1-2 (March 4, 2013) (recounting holding in confidential Order 11). In rejecting a subsequent motion to terminate that removed this product limitation, the Judge found the required admission of "all" jurisdictional facts was deficient because it continued to refer only to "two-way global satellite communication devices" while the Notice of Investigation included "two-way global satellite communication devices,system and components thereof." Id. at 2-3 (emphasis in original). The denials of these motions for termination illustrate how closely the Judges review the language of proposed consent orders and associated stipulations, and how strictly they apply each of the rules' provisions regarding consent order terminations.

In Toner Cartridges, a motion to terminate was also denied based on the presence of inconsistent provisions in the stipulation and consent order. While the stipulation indicated "without any disclaimer" that respondents could not challenge the validity of the consent order or the validity or enforceability of the asserted patent in a proceeding to enforce the consent order, the proposed order stated that these provisions were "subject to" other paragraphs of the order regarding the effect of expiration of the patents or adjudications of invalidity or unenforceability. Certain Toner Cartridges and Components Thereof, Inv. No. 337-TA-829, Order No. 15 at 1-2 (September 14, 2012). Citing the requirement of Rule 210.21(c)(l)(ii) that "a proposal to terminate by consent order shall be submitted as a motion to the administrative law judge with a stipulation that incorporates a proposed consent order," the Judge denied the motion for termination because the "Proposed Order contains provisions that are inconsistent with the provisions in the Stipulation." Id. at 1 (emphasis in original).


1 Specifically, the rule states that "if any claim of the patent . . . is held invalid or unenforceable by a court or agency of competent jurisdiction or as to any articles that has been found or adjudicated not to infringe the asserted right in a final decision, no longer subject to appeal, this Consent Order shall become null and void as to such invalid or unenforceable claim."

2 Rule 210.21(c)(4)(iii ) requires that the consent order contain a statement that "the respondent shall not sell for importation, import, or sell after importation the subject articles, directly or indirectly, and shall not aid, abet, encourage, participate in, or induce the sale for importation, the importation, or the sale after importation except under consent, license from the complainant, or to the extent permitted by the settlement agreement between complainant and respondent." (Emphasis added.)

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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