Patent Litigation in the ITC

Considering Patent Litigation: Consider the ITC

Patent owners whose IP rights are being infringed by imported goods have a choice of filing a patent infringement complaint in a district court or an unfair trade practice complaint, pursuant to '337 of the Tariff Act, with the U.S. International Trade Commission (“ITC”).

While the overwhelming majority of cases are filed in the district courts, many patentees would be better served by filing a '337 complaint. There are several advantages in litigating patent disputes in the ITC: The patentee has a higher success rate than in district court; cases move quickly (10 months to trial, and 15 months to final judgment); and injunctive-style relief is automatic. Apart from these advantages applicable to all '337 investigations, there are five specific scenarios where a patent owner should give particular consideration to the ITC.

Early in the Product Cycle

Where the patent owner is filing suit early in the product cycle of the infringing good, it makes sense to file at the ITC. The ITC does not award money damages for infringement, but this is of little importance early in the product cycle, as there is a small royalty base.

Moreover, a '337 action is the fastest way to obtain injunctive-style relief to mitigate the effects of the infringement in the market, for example when price erosion is occurring. Upon finding for a complainant, the ITC will issue either a limited exclusion order (good against the accused party's goods) or a general exclusion order (good against all the world) to be enforced by U.S. Customs. These orders preclude the importation of infringing products. The ITC can also issue a cease and desist order to preclude the sale of infringing products already in the United States out of inventory.

Where Personal Jurisdiction Is Questionable

Jurisdiction in the ITC is in rem, over the imported product. Because jurisdiction is based on importation of an infringing product, personal jurisdiction over a foreign manufacturer or importer is not required to commence a '337 investigation in the ITC. The ITC will serve the complaint on the respondents in the investigation, as well as the embassy of each foreign respondent. An exclusion order can be obtained though a default judgment entered against a foreign respondent that does not appear in the investigation.

In Response to a DJ or a Patent Infringement Action

Declaratory judgment of non-infringement or invalidity can put the patentee in a defensive position in an inconvenient and unfavorable forum. Further, the patentee is no longer the plaintiff; research has shown that a plaintiff-patentee has a significant statistical edge in jury trials relative to a DJ defendant-patentee. Filing a responsive case in the ITC will move the dispute to a fast-moving, patent-friendly forum and restore the patentee's role as the complaining party.

Further, after the ITC case is filed, the DJ plaintiff may opt to invoke the statutory stay of the district court action provided by 28 U.S.C. '1659 rather than fight an expensive two-front war. If the DJ is stayed and the '337 action is successful, the infringing goods would be excluded while the DJ action is resumed.

Likewise, a complaint for patent infringement can put the defendant-accused infringer on the defensive. The defendant-accused infringer, in lieu of counterclaiming for infringement of its own patents in the district court where it is being accused of infringement, can bring an action in the ITC. The ITC investigation will proceed to trial ahead of the district court action, giving the district court defendant-infringer an ITC complaint and upper hand in any settlement discussions or cross-licensing negotiations. A '337 complaint can effectively counter a DJ action or a patent infringement action.

Where the Patent Claims a Method of Manufacture

Making a product overseas by a method that would infringe if practiced in the United States is actionable both in the district courts and at the ITC. In the district courts, however, the defendant may avail itself of the “271(g) defenses.”

In district court action, an imported product, despite being made by a patented process, will not be considered infringing if “it is materially changed by subsequent processes,” or “it becomes a trivial and nonessential component of another product” under '271(g)(1) and (2). These '271(g) defenses are not available at the ITC.

This arose as the legislation that established subsection 271(g) provided that “the amendments made by this subtitle shall not deprive a patent owner of any remedies available ' under section 337 of the Tariff Act of 1930, or under any other provision of law.” (Pub. L. 100418, '9006(c).)

Both the ITC and the Federal Circuit (in dicta) held that this shows a congressional intent not to limit the scope of '337. Thus, where a patent has method of manufacture claims, the ITC may be a favorable forum.

The Litigation Target Makes Only a 'Sale for Importation'

Section 337 jurisdiction is slightly broader than the general infringement statute that provides jurisdiction in the district courts. In the district courts “importation” of an infringing article is actionable. ITC jurisdiction, however, reaches one step further to a “sale for importation.” This increases the number of potential respondents.

Often, the intended target of litigation is a direct competitor that makes a component part in Asia, then ships it to an Asian manufacturer for assembly into a finished good that is imported into the United States.

You cannot reach the component maker in district court as it is not the importer, but you can reach it in the ITC on the basis of its “sale for importation.” This can be critical where the actual importer is a customer or potential customer that you do not want to name as a defendant.

Counsel should weigh the costs and benefits of a district court action versus a '337 investigation in every case involving imported goods. Less than 1% of patent actions were brought to the ITC last year.

In view of its speed and pro-patent orientation, as well as the ubiquity of the several scenarios described above, it appears that patent plaintiffs are underutilizing the forum.

More on ITC Investigation

Under '337 of the Tariff Act of 1930 (19 U.S.C. '1337), the International Trade Commission (“ITC”) conducts investigations into allegations of certain unfair practices in import trade, such as the importation of products that infringe a U.S. patent.

Section 337 investigations are initiated by the Commission following the receipt of a Complaint. Once the Commission votes to institute the investigation, a notice announcing the institution of an investigation is published in the Federal Register and an Administrative Law Judge is assigned to preside over the investigation and conduct an evidentiary hearing. Section 337 investigations are conducted in conformity with the Administrative Procedure Act, 5 U.S.C. ”551 et seq., and pursuant to Commission Rules published at 19 C.F.R. Part 210, which is similar in many respects to the Federal Rules of Civil Procedure. In addition to these rules, the presiding Administrative Law Judge typically issues a set of Ground Rules for the conduct of the investigation. These Ground Rules provide detailed instructions on matters such as the time for responding to motions, the method for asserting privilege, the number of copies required of evidentiary exhibits, the use of translators, and the procedure for arranging a telephone conference between the parties and the Administrative Law Judge. Following the hearing, the Administrative Law Judge issues an Initial Determination as to whether '337 has been violated. The Commission may review and adopt, modify, or reverse the Initial Determination.

If the Commission determines that '337 has been violated, it may issue an exclusion order barring the products at issue from entry into the United States, as well as a cease and desist order directing the violating parties to cease certain actions. Appeals of Commission orders entered in '337 investigations are heard by the U.S. Court of Appeals for the Federal Circuit in Washington, DC.

Interested persons can get information about the status of an investigation at the Commission's Web site at http://info.usitc.gov/sec/dockets.nsf.

Timing of an ITC Investigation

Section 337 investigations normally have target dates requiring completion of Commission proceedings in 15 months or less. The Administrative Law Judge will issue his Initial Determination at least three months prior to the target date (i.e., 12 months or less from institution). This means that the hearing in the majority of the cases occurs approximately nine months from institution of the investigation. A more detailed timeline of a typical ITC investigation is set forth below.

[IMGCAP(1)]

Remedies Available in the ITC

The Commission is authorized under '337 to issue two types of remedial orders ' exclusion orders and cease and desist orders. Both types of orders may be issued in the same case. An award of monetary damages is not available as a remedy for violation of '337.

An exclusion order directs the U.S. Customs Service to exclude articles from entry into the United States. There are two types of exclusion orders ' general exclusion orders and limited exclusion orders. A general exclusion order directs the U.S. Customs Service to exclude all infringing articles, without regard to source. In contrast, a limited exclusion order directs the Customs Service to exclude all infringing articles that originate from a specified firm that was a respondent in the Commission investigation.

A cease and desist order directs a respondent in the Commission investigation to cease its unfair acts, including selling infringing imported articles out of inventory in the United States. Unlike exclusion orders, cease and desist orders are enforced by the Commission, not by the Customs Service.

Considering Patent Litigation: Consider the ITC

Patent owners whose IP rights are being infringed by imported goods have a choice of filing a patent infringement complaint in a district court or an unfair trade practice complaint, pursuant to '337 of the Tariff Act, with the U.S. International Trade Commission (“ITC”).

While the overwhelming majority of cases are filed in the district courts, many patentees would be better served by filing a '337 complaint. There are several advantages in litigating patent disputes in the ITC: The patentee has a higher success rate than in district court; cases move quickly (10 months to trial, and 15 months to final judgment); and injunctive-style relief is automatic. Apart from these advantages applicable to all '337 investigations, there are five specific scenarios where a patent owner should give particular consideration to the ITC.

Early in the Product Cycle

Where the patent owner is filing suit early in the product cycle of the infringing good, it makes sense to file at the ITC. The ITC does not award money damages for infringement, but this is of little importance early in the product cycle, as there is a small royalty base.

Moreover, a '337 action is the fastest way to obtain injunctive-style relief to mitigate the effects of the infringement in the market, for example when price erosion is occurring. Upon finding for a complainant, the ITC will issue either a limited exclusion order (good against the accused party's goods) or a general exclusion order (good against all the world) to be enforced by U.S. Customs. These orders preclude the importation of infringing products. The ITC can also issue a cease and desist order to preclude the sale of infringing products already in the United States out of inventory.

Where Personal Jurisdiction Is Questionable

Jurisdiction in the ITC is in rem, over the imported product. Because jurisdiction is based on importation of an infringing product, personal jurisdiction over a foreign manufacturer or importer is not required to commence a '337 investigation in the ITC. The ITC will serve the complaint on the respondents in the investigation, as well as the embassy of each foreign respondent. An exclusion order can be obtained though a default judgment entered against a foreign respondent that does not appear in the investigation.

In Response to a DJ or a Patent Infringement Action

Declaratory judgment of non-infringement or invalidity can put the patentee in a defensive position in an inconvenient and unfavorable forum. Further, the patentee is no longer the plaintiff; research has shown that a plaintiff-patentee has a significant statistical edge in jury trials relative to a DJ defendant-patentee. Filing a responsive case in the ITC will move the dispute to a fast-moving, patent-friendly forum and restore the patentee's role as the complaining party.

Further, after the ITC case is filed, the DJ plaintiff may opt to invoke the statutory stay of the district court action provided by 28 U.S.C. '1659 rather than fight an expensive two-front war. If the DJ is stayed and the '337 action is successful, the infringing goods would be excluded while the DJ action is resumed.

Likewise, a complaint for patent infringement can put the defendant-accused infringer on the defensive. The defendant-accused infringer, in lieu of counterclaiming for infringement of its own patents in the district court where it is being accused of infringement, can bring an action in the ITC. The ITC investigation will proceed to trial ahead of the district court action, giving the district court defendant-infringer an ITC complaint and upper hand in any settlement discussions or cross-licensing negotiations. A '337 complaint can effectively counter a DJ action or a patent infringement action.

Where the Patent Claims a Method of Manufacture

Making a product overseas by a method that would infringe if practiced in the United States is actionable both in the district courts and at the ITC. In the district courts, however, the defendant may avail itself of the “271(g) defenses.”

In district court action, an imported product, despite being made by a patented process, will not be considered infringing if “it is materially changed by subsequent processes,” or “it becomes a trivial and nonessential component of another product” under '271(g)(1) and (2). These '271(g) defenses are not available at the ITC.

This arose as the legislation that established subsection 271(g) provided that “the amendments made by this subtitle shall not deprive a patent owner of any remedies available ' under section 337 of the Tariff Act of 1930, or under any other provision of law.” (Pub. L. 100418, '9006(c).)

Both the ITC and the Federal Circuit (in dicta) held that this shows a congressional intent not to limit the scope of '337. Thus, where a patent has method of manufacture claims, the ITC may be a favorable forum.

The Litigation Target Makes Only a 'Sale for Importation'

Section 337 jurisdiction is slightly broader than the general infringement statute that provides jurisdiction in the district courts. In the district courts “importation” of an infringing article is actionable. ITC jurisdiction, however, reaches one step further to a “sale for importation.” This increases the number of potential respondents.

Often, the intended target of litigation is a direct competitor that makes a component part in Asia, then ships it to an Asian manufacturer for assembly into a finished good that is imported into the United States.

You cannot reach the component maker in district court as it is not the importer, but you can reach it in the ITC on the basis of its “sale for importation.” This can be critical where the actual importer is a customer or potential customer that you do not want to name as a defendant.

Counsel should weigh the costs and benefits of a district court action versus a '337 investigation in every case involving imported goods. Less than 1% of patent actions were brought to the ITC last year.

In view of its speed and pro-patent orientation, as well as the ubiquity of the several scenarios described above, it appears that patent plaintiffs are underutilizing the forum.

More on ITC Investigation

Under '337 of the Tariff Act of 1930 (19 U.S.C. '1337), the International Trade Commission (“ITC”) conducts investigations into allegations of certain unfair practices in import trade, such as the importation of products that infringe a U.S. patent.

Section 337 investigations are initiated by the Commission following the receipt of a Complaint. Once the Commission votes to institute the investigation, a notice announcing the institution of an investigation is published in the Federal Register and an Administrative Law Judge is assigned to preside over the investigation and conduct an evidentiary hearing. Section 337 investigations are conducted in conformity with the Administrative Procedure Act, 5 U.S.C. ”551 et seq., and pursuant to Commission Rules published at 19 C.F.R. Part 210, which is similar in many respects to the Federal Rules of Civil Procedure. In addition to these rules, the presiding Administrative Law Judge typically issues a set of Ground Rules for the conduct of the investigation. These Ground Rules provide detailed instructions on matters such as the time for responding to motions, the method for asserting privilege, the number of copies required of evidentiary exhibits, the use of translators, and the procedure for arranging a telephone conference between the parties and the Administrative Law Judge. Following the hearing, the Administrative Law Judge issues an Initial Determination as to whether '337 has been violated. The Commission may review and adopt, modify, or reverse the Initial Determination.

If the Commission determines that '337 has been violated, it may issue an exclusion order barring the products at issue from entry into the United States, as well as a cease and desist order directing the violating parties to cease certain actions. Appeals of Commission orders entered in '337 investigations are heard by the U.S. Court of Appeals for the Federal Circuit in Washington, DC.

Interested persons can get information about the status of an investigation at the Commission's Web site at http://info.usitc.gov/sec/dockets.nsf.

Timing of an ITC Investigation

Section 337 investigations normally have target dates requiring completion of Commission proceedings in 15 months or less. The Administrative Law Judge will issue his Initial Determination at least three months prior to the target date (i.e., 12 months or less from institution). This means that the hearing in the majority of the cases occurs approximately nine months from institution of the investigation. A more detailed timeline of a typical ITC investigation is set forth below.

[IMGCAP(1)]

Remedies Available in the ITC

The Commission is authorized under '337 to issue two types of remedial orders ' exclusion orders and cease and desist orders. Both types of orders may be issued in the same case. An award of monetary damages is not available as a remedy for violation of '337.

An exclusion order directs the U.S. Customs Service to exclude articles from entry into the United States. There are two types of exclusion orders ' general exclusion orders and limited exclusion orders. A general exclusion order directs the U.S. Customs Service to exclude all infringing articles, without regard to source. In contrast, a limited exclusion order directs the Customs Service to exclude all infringing articles that originate from a specified firm that was a respondent in the Commission investigation.

A cease and desist order directs a respondent in the Commission investigation to cease its unfair acts, including selling infringing imported articles out of inventory in the United States. Unlike exclusion orders, cease and desist orders are enforced by the Commission, not by the Customs Service.