IP Litigation at the ITC: Protecting Your U.S. Market Share In a Global Economy

Originally published in Building and Enforcing Intellectual Property Value: An International Guide for The Boardroom, 2003

When Congress established the procedures for intellectual property litigation at the U.S. International Trade Commission (ITC), it sought to achieve a single goal: to slam the door on imported goods that infringe the intellectual property rights of a domestic industry without improperly impeding the flow of foreign goods to American consumers. Since American consumers make up a large and profitable part of the world's market for most goods, exclusion from the U.S. market can prevent foreign products from achieving the economies of scale necessary to compete in the global economy. Any business, anywhere in the world, that holds U.S. intellectual property (IP) rights or that sells goods imported into U.S. markets, may find its future at stake in an ITC litigation.

The Quickturn/Mentor Graphics case illustrates the stakes:

Conversely, very successful companies that fail to obtain relief at the ITC can be severely punished in the stock markets. The VISX/Nidek case provides a clue:

As free-trade policies lead to increasing globalization of production, distribution, and consumption of most goods, prudent business leaders must understand both the risks and the rewards of IP litigation at the ITC.

Located in Washington, D.C., the ITC is known as a small agency with big powers to resolve IP disputes involving imported goods. In Section 337 cases, the ITC Commissioners delegate their decisional authority to an administrative law judge (an ALJ) for "initial determinations" and delegate their investigative authority to the Office of Unfair Import Investigations (the staff attorneys) to represent the public interest. The Commissioners retain the right to make "final determinations" and issue remedial orders. After they act, the President may disapprove any remedial order for policy reasons and the loser in the case may appeal to the United States Court of Appeals for the Federal Circuit, also located in Washington.

The ITC's jurisdiction over IP disputes involving imported goods arises from Section 337 of the Tariff Act of 1930. Section 337 makes unlawful certain unfair trade practices involving imported goods, including the infringement of IP rights. Upon finding a violation of Section 337, the ITC can issue exclusion orders prohibiting further importation of the infringing goods into the U.S. It can also issue cease and desist orders prohibiting further commercial activity involving previously imported goods.

Section 337 cases involve at least three parties: complainants who hold IP rights, one or more respondents whose imported goods are accused of infringing those rights, and the staff attorney who represents the public interest.

The proceedings of Section 337 cases can involve the full range of legal activity ordinarily accompanying civil litigation: pretrial discovery, a flurry of motions, and a trial in Washington complete with witnesses and documentary evidence. But these proceedings are expedited, so what might take years in federal court can last just six months in the ITC. The initial determination, final determination, and issuance of remedial orders quickly follow. It's usually all over in 12 to 15 months. Only a few patent trial lawyers have a working knowledge of the ITC's substantive and procedural law, so the competition for experienced counsel can be intense.

Since 1990, over 90% of all Section 337 cases involved allegations of patent infringement. The remaining cases focus on trademark, trade secrecy, and copyright claims. With the globalization of trade, the ITC has moved to the forefront of IP litigation by conducting over 475 Section 337 cases between 1974 and August 2002.

Six Commissioners head the ITC. They are appointed by the President and confirmed by the Senate for terms of nine years. To provide a nonpartisan forum for resolving trade disputes, the ITC is insulated from the political process: no more than three Commissioners may be of any one political party, the Chairman and Vice-Chairman must be from different political parties, and the Chairman must not be from the same political party as the previous Chairman.

The current ITC Chairman, Deanna Tanner Okun, is an international-trade lawyer and former counsel for international affairs to Senator Frank Murkowski. For this article, she explains the structure of the ITC:

A Section 337 case is subject to the provisions of the Administrative Procedure Act (APA), which guarantees the right to be heard by an administrative law judge. Most Section 337 cases involve specialized issues of patent law and many involve complex technology.

Judge Paul J. Luckern, one of the four current ALJs, is a registered patent attorney, a past president of the Federal administrative law judges Conference, and has presided over more than 100 Section 337 cases. Judge Luckern summarized for this article the unique procedures of Section 337 cases:

Each ALJ typically handles fewer than 10 cases at any given time and thus can take a more active role than federal district-court judges who face far larger civil and criminal dockets. The ALJ expedites the case by limiting the time available for each step in the litigation. For instance, the 100- to 200-page post-trial briefs and reply briefs, the 100- to 500-page proposed findings of facts and corresponding objections, and the motions to strike evidence from the record-all must be prepared and filed within about four weeks after the trial ends. About 60 days later, the judge will issue a 100- to 200-page initial determination and recommendation on whether to exclude the imported goods from the U.S. market. ITC patent trial lawyers, needless to say, must be ready to act and act quickly.

The staff attorneys perform multiple roles in Section 337 cases. Before a complaint is filed, they are available to meet with prospective complainants, review draft complaints, and explain the requirements for instituting a Section 337 investigation. After a complaint is filed, they advise the ITC on whether to institute a Section 337 investigation. And once an investigation is instituted, the staff attorneys are parties to the case and represent the public interest.

Lynn Levine, Director of the ITC's Office of Unfair Import Investigations, contributed this explanation of the role of the staff attorneys during the investigation:

Section 337 prohibits unfair practices in the sale of products for importation, importation of those products, or sale of those products in the U.S. after importation. When IP rights are involved-and they almost invariably are-the ITC case concerns three primary elements:

Section 337 cases thus require the same proofs as other IP-infringement cases, plus a showing of "importation" and a "domestic industry." In turn, Section 337 respondents may assert all legal and equitable defenses, including arguments that the patent is invalid or unenforceable.

With few exceptions, the ITC follows the intellectual property law that governs cases in the U.S. federal courts. The Court of Appeals for the Federal Circuit has exclusive appellate jurisdiction over both district-court patent cases and Section 337 patent cases. A single body of patent law therefore applies in both proceedings.

Importation of the competing products is a jurisdictional requirement and a substantive element of Section 337 violations. Many complaints are triggered by the first importation of a product for display at a U.S. trade show.

Some instances of importation may not be intuitively obvious. For instance, in 1994, the ITC ruled that it had jurisdiction over imported disk drives that contained a key component manufactured in the U.S. by a process covered by the patent at issue. In a 1995 case, the ITC found that a purchase order for later delivery to the U.S. of a wind-powered turbine for generating electricity constituted a "sale for importation" that led to the exclusion of those turbines from the U.S. market until the patent expires in 2011.

The complainant must show a domestic industry with significant investments in plant and equipment, significant employment of labor or capital, or substantial investments in research and development or licensing associated with the IP right. The classic example of a domestic industry is a manufacturing facility located in the U.S. that produces articles covered by one or more claims of the patent at issue. There are two aspects of the domestic-industry requirement: an economic aspect concerning the significance of the domestic activity and a technical aspect concerning whether the domestic activity exploits the IP rights at issue.

Several cases have held that domestic manufacture of commercial quantities of a product satisfies the economic prong of the domestic-industry requirement. Domestic industries have even been found when the complainant produced only 1% of its devices covered by the patent in the U.S. and produced the other 99% abroad.

Establishing the technical prong of the domestic-industry requirement is often more challenging. In patent cases, one or more claims of the patent must be practiced by the domestic industry. The standards for establishing the technical prong of domestic industry parallel the standards for establishing infringement.

Powerful remedies can redress violations of Section 337. The ITC can issue either limited or general exclusion orders to prevent further importations of infringing goods. It can issue cease and desist orders to prohibit further commercial activity involving previously imported goods. It cannot, however, impose monetary awards as compensation for damages.

Limited exclusion orders instruct the U.S. Customs Service to exclude from importation all current and future goods covered by a patent found infringed in the case. These orders are "limited" because they apply only to products made by a respondent in the Section 337 case. In patent cases, exclusion orders remain in effect until the patent(s) expire.

General exclusion orders exclude all infringing goods, even if manufactured or imported by companies not involved in the underlying Section 337 investigation. To obtain a general exclusion order, a complainant must show that either:

Although difficult to obtain, general exclusion orders provide a very important remedy, especially where low-cost "knock-off" products threaten U.S. markets.

Respondents in the U.S. who accumulate commercially significant domestic inventories of products found to violate Section 337 are subject to cease and desist orders. These orders prohibit specific commercial acts involving previously imported goods that are subject to the order. For example, a cease and desist order typically prohibits marketing, distributing, offering for sale, or selling the products in the U.S. Violators of the orders risk penalties up to $100,000 for each day they are in violation.

Any company that either imports goods or uses imported goods must get ready. Without warning those goods may become the subject of a Section 337 investigation and could be excluded from the U.S. market. And any company owning U.S. patents must get ready as well. The day might come when the company must seek the protections of Section 337 to maintain or expand its share of the U.S. market.

Complainants and respondents alike must prepare for expedited proceedings governed by procedures and practices that differ from district-court litigation. In just a few months, complex IP issues and cutting-edge technology must be reduced to clearly understandable positions that can survive the scrutiny of the ALJs, Commissioners, and the U.S. Court of Appeals for the Federal Circuit. Section 337 provides more than just the power to resolve IP disputes involving imported goods. In some cases, it is the key to surviving in a global economy.