A Review of the ITC and the Recent Increase In Filings

The Commission adjudicates complaints brought by companies in a domestic industry (regardless of whether they are a subsidiary of a foreign entity) that allege infringement of U.S. intellectual property rights under Section 337 of the Tariff Act of 1930, or unfair methods of competition involving imported goods. Id. at 67.

Bringing an Action in the ITC

There are three general requirements for seeking relief from patent infringement under Section 337. First, there must be an importation or a sale for, sale after, or potential future importation of an infringing product into the United States. Second, the imported product must involve an unfair act of competition, such as infringement of a valid U.S. patent. Third, a domestic company must be engaged in sufficient domestic activity, such as investment in plant and equipment or employment of labor and capital, in the United States related to the accused product. CRS Report for Congress, Order Code RS22880, May 16, 2008, at 2. If a complainant seeks relief for a non'patent-based claim, there must also be a demonstration of injury.

The ITC adjudicates complaints by conducting investigations. These investigations are conducted in accordance with the Administrative Procedure Act, which affords both the patentee and the accused party the opportunity to conduct discovery, present evidence, and make legal arguments before the Administrative Law Judges (“ALJ”) and the Commission. The investigation process involves numerous steps over the course of many months.

The first step in seeking relief from patent infringement is to ensure the patent holder can prove the ITC possesses jurisdiction over the dispute under Section 337. In particular, the patentee must be practicing or using the patent(s) at issue (or be gearing up to do so) in some fashion, such as making: 1) significant investment in plant and equipment; 2) significant employment of labor or capital; or 3) substantial investment in its exploitation, including engineering, research and development, or licensing. Consequently, a simple patentee who has no “investment” in the United States other than obtaining a U.S. patent cannot bring an action in the ITC for infringement, regardless of whether it is a domestic or foreign entity.

If the patent holder can satisfy the jurisdiction restrictions, the patent holder must file a factually detailed complaint, in order to educate the ITC and enable it to determine whether to initiate its investigation. This complaint includes not only the charges of infringement and claim charts that detail the alleged infringement, but also provides details regarding both the patentee's domestic industry and the accused infringer's allegedly infringing products, “downstream” products (if any), and sales. Preferably the complainant would meet with the ITC prior to filing its complaint, with a draft of the complaint. The two main reasons for holding a pre-filing meeting with the ITC are to educate the ITC as to the grounds for the case, as well as to uncover any defects in the complaint so that they can be rectified prior to filing.

Upon receiving such a complaint, the ITC has 30 days to decide whether to initiate a Section 337 investigation. If the ITC determines that an investigation is warranted, the ITC will officially initiate an investigation, and will provide official notice of the investigation to the potential respondents by publishing information regarding the investigation in the Federal Register.

Once the investigation has officially been initiated, the case is assigned to one of the ITC's five ALJs, who will then oversee and conduct the investigation. One interesting aspect of ITC practice is that the U.S. government not only oversees the conduct of the trial (in the form of the ALJ), but also directly participates in the investigation. The government's participation occurs via the ITC's assignment of an investigative attorney from its Office of Unfair Import Investigations (“OUII”). The investigative attorney, who essentially represents the public interest during the investigation, may submit briefs, take discovery, and otherwise provide his or her views to the ALJ regarding the respondent's alleged violation of Section 337. Accordingly, the investigative attorney will participate not only in the discovery between the parties, but also in the ultimate trial.

After the ALJ conducts an evidentiary hearing, that ALJ will issue an initial determination (“ID”) that finds whether a Section 337 violation occurred. Shortly after the ALJ issues his or her violation ID, the respondent(s) or third parties can petition the ITC Commission to review that ID on the basis that it: 1) contains clearly erroneous findings of material fact or erroneous legal conclusions; and/or 2) affects Commission policy.

Moreover, within 14 days of the issuance of the violation ID, the ALJ also issues his or her recommended determination (“RD”). The ALJ's RD sets forth his or her recommendations as to the remedy, the bond, and the public interest, along with factual support for his or her recommendations.

Upon review of the ALJ's ID and the parties' petition(s) for review, the ITC may decide to: 1) change some or all parts of the ID; 2) completely reject the ID; or 3) remand the ID to the ALJ. Regardless, the ITC will ultimately issue its Final Determination, in which it states whether or not a Section 337 violation occurred. The ITC's violation and exclusion orders are appealable to the Court of Appeals for the Federal Circuit.

If the Commission ultimately determines that a Section 337 violation occurred, the ITC may issue remedies for curing those violations. The remedies available to the ITC include the issuance of: 1) exclusion orders and/or 2) cease and desist orders. An exclusion order prevents products from being imported into the United States, and can either be: 1) limited, which excludes the importation into the United States of infringing goods from particular parties; or 2) general, which excludes infringing products regardless of their manufacturer. Because a general exclusion order has the potential to disrupt legitimate trade, the ALJ is required to make additional findings supporting such a broad exclusion. An exclusion order may be limited to the accused products at issue or, if a proper showing is made, may also cover certain “downstream products” that incorporate those accused products. Conversely, cease and desist orders pertain only to commercially significant inventories of infringing products that are already in the United States, and are directed against a specific entity. For example, a cease and desist order could prohibit a certain company from servicing and repairing infringing products.

Respondents or third parties that wish to import goods that could potentially fall within the scope of an ITC exclusion or cease and desist order (e.g., redesigned goods) can ask the ITC to clarify the scope of those orders so as to avoid a finding of contempt. For example, a third party could ask the ITC to issue an Advisory Opinion concerning whether a particular redesigned product would violate a general exclusion order. The ITC can consider any number of grounds for doing so, including the impact of an exclusion order on the public's health and safety, or its impact on the ability of the resulting industry to satisfy U.S. market demand. Additionally, a party can request that the ITC modify its order. For example, a prevailing complainant can ask the ITC to modify its order so as to prevent the importation of products that were modified after the order was issued. Similarly, a respondent can ask the ITC to modify its order so that it clearly differentiates between products that infringe and products that do not infringe.

The exclusion order is ultimately enforced by the U.S. Bureau of Customs and Border Protection (“U.S. Customs”). It is U.S. Customs that actually stops the infringing products from entering the United States. Should Customs decide to exclude certain shipments from the United States, the respondent may file a protest with Customs. Any determination of that protest by Customs would be appealable to the U.S. Court of International Trade.

The Advantages to Bringing an Action in the ITC

There are many advantages to bringing an action in the ITC as opposed to a district court. Perhaps the biggest advantage arose not out of legislative intent, but as a consequence of a decision by another branch of the federal government. Specifically, in 2006 the Supreme Court held that a patent holder that successfully proves infringement is not automatically entitled to a permanent injunction; instead, each request for a permanent injunction must be evaluated on its distinct facts. eBay, Inc. v. MercExchange L.L.C., 126 S. Ct. 1837, 1839 (2006). Consequently, only the ITC can offer a prevailing complainant the ability to stop all imports and/or sales of the infringing product. The ability to obtain an automatic exclusion order is a clear tactical advantage offered only in the ITC.

Another clear advantage to seeking relief in the ITC is that the patentee does not need to prove that the court has personal jurisdiction over the accused infringer. Jurisdiction is based instead on the product (in rem), specifically, the importation of the accused product into the United States, the sale for importation, or sale in the United States after importation. For example, oftentimes the infringing device is only a small part of the imported apparatus. Because that small part might have been assembled into the larger apparatus by a third party, it is often difficult to obtain personal jurisdiction over the party that initially made the infringing part. The ITC sidesteps the personal jurisdiction issue because the ultimate remedy provided by the ITC, if infringement is found, is exclusion of the infringing product (and not monetary damages assessed against a party). Eliminating the need to obtain personal jurisdiction over the foreign entity offers a substantial advantage to litigating in the ITC.

Another recognized advantage to bringing a patent infringement action in the ITC is the speed with which a decision can be reached. For example, in its most recent Performance and Accountability Report, the ITC reported that for investigations that went to a final decision on the merits in fiscal year 2007, it completed an investigation in an average of just 16 1/2 months. ITC's Performance and Accountability Report, Fiscal Year 2007, at 68. Such a time frame is obviously much quicker than in district courts in the United States, where patent litigation may last many years. Moreover, because of their narrowly focused case load, the ALJs tend to have a much better understanding of patent law than a typical district court judge.

Moreover, perhaps one big advantage of the ITC for patent holders that has gone largely unnoticed is the fact that of cases that reached a final determination on their merits, and were not simultaneously tried in a district court, 58% were resolved in the complainant's favor. Patently Protectionist? An Empirical Analysis Of Patent Cases At The International Trade Commission, Colleen Chien, Santa Clara University School Of Law, Legal Studies Research Papers Series, Working Paper No. 08-56, July 2008, at 27. When compared with the typical 35% win rate in district courts, Id., filing in the ITC is simply another tactical reason for choosing the ITC over a federal district court.

Finally, the ITC offers the ability to obtain a nationwide remedy against all the infringing products at once, thereby eliminating the need to sue all manufacturers or retailers of the infringing product in multiple district courts. This unique ability arises from the fact that, as discussed above, the exclusion order stops all infringing products at the border of the United States. By comparison, in order to stop the sale of all infringing products via a district court proceeding, the patent holder would need to sue every manufacturer and/or retailer of the infringing product in the appropriate district courts.

Advantages for Respondents

Importantly, there are also advantages for the accused infringer to be in the ITC. One such advantage relates to the cost of defending an ITC investigation. If the investigation is directed at a large number of accused infringers, a smaller infringer could take a “backseat” in the investigation, allowing the larger parties with much more at risk on the outcome of the investigation, to pay for the lion's share of the attorneys' fees and costs.

Another advantage that could accrue to an accused infringer arises from the very quick nature of ITC investigations. For example, if the complainant did not expend a great deal of effort in preparing to bring the investigation, and the accused infringer is able to quickly marshal its forces, the accused infringer could turn the tables and use the speed of the ITC's investigation to its advantage.

A Victim of Its Own Success

Perhaps not surprisingly, these clear advantages have caused the number of patent investigations instituted by the ITC to increase steadily over the last 10 years. For example, while the ITC instituted eight intellectual'property-based investigations in 1999 and 11 in 2000, that total has almost quadrupled to 43 instituted in fiscal year 2008 (with almost two weeks remaining in fiscal year 2008 when this article was finalized). This represents an approximately 30% increase from the 33 investigations instituted in fiscal year 2007. ITC's Performance and Accountability Report, Fiscal Year 2007, at 67.

Such increased interest and activity in the ITC has tended to extend investigations by an additional three months, to a total of 16 1/2 months to reach a final decision on the merits in fiscal year 2007 ' a significant increase from the previous average of 13 1/2 months. Id. at 68. It is logical that such a delay in reaching a final decision will only increase given the dramatic rise in the number of instituted investigations.

The ITC is aware of the “serious strain” the “rapid increase in the section 337 workload” has placed on the ITC. Accordingly, the ITC expanded its pool of ALJs to five, but not without considerable trouble in both hiring and retaining ALJs. Statement of The Honorable Daniel R. Pearson, Chairman, United States International Trade Commission, Before The House Committee On Appropriations Subcommittee On Commerce, Justice, Science And Related Agencies, Feb. 26, 2008, at 4-5. Nonetheless, the ALJs are likely to have considerably more experience in patent matters than most district judges.

Conclusion

Even with the potential for the pace of investigations to slow down as a greater number of cases are filed each year, so long as the tactical advantages offered by the ITC remain intact, so too will the increase in the number of patent holders seeking relief there.

Rel S. Ambrozy, a member of this newsletter's Board of Editors, is a partner with McKenna Long & Aldridge LLP, and focuses his patent practice on domestic and international patent litigation. Matthew T. Bailey is also a partner with McKenna Long & Aldridge, and concentrates his practice in the areas of patent and Intellectual Property enforcement. Prior to joining McKenna, he worked as an attorney adviser at the International Trade Commission, handling Section 337 investigations related to computer, semiconductor, and mechanical technologies.

Practitioners before the International Trade Commission (“ITC”) have noted a substantial increase in the number of filings and Section 337 investigations over the last several years. In addition to providing possible reasons for that substantial increase, this article provides an overview of IP-related investigations at the ITC, and explores the success rate of the complainants over the respondents in the ITC. Finally, this article considers whether the ITC will be “a victim of its own success,” following the pattern of the Eastern District of Texas and the Eastern District of Virginia.

The ITC's Mandate and Purpose

Congress formed the ITC with three mandates: 1) to administer U.S. trade remedy laws in a fair and objective manner; 2) to provide the President, the U.S. Trade Representative, and the Congress with independent analysis, information, and support on matters of tariffs, international trade, and U.S. competitiveness; and 3) to maintain the Harmonized Tariff Schedule of the United States. ITC's Performance and Accountability Report, Fiscal Year 2007, at 1. The ITC carries out these mandates via five areas of operation. Our interest is the Intellectual'Property-Based Import Investigation area (“IP Investigations”). IP Investigations are distinct investigative regimes that employ specific and detailed procedures set out in the legislation authorizing the ITC's creation. Id. at 5.

The Commission adjudicates complaints brought by companies in a domestic industry (regardless of whether they are a subsidiary of a foreign entity) that allege infringement of U.S. intellectual property rights under Section 337 of the Tariff Act of 1930, or unfair methods of competition involving imported goods. Id. at 67.

Bringing an Action in the ITC

There are three general requirements for seeking relief from patent infringement under Section 337. First, there must be an importation or a sale for, sale after, or potential future importation of an infringing product into the United States. Second, the imported product must involve an unfair act of competition, such as infringement of a valid U.S. patent. Third, a domestic company must be engaged in sufficient domestic activity, such as investment in plant and equipment or employment of labor and capital, in the United States related to the accused product. CRS Report for Congress, Order Code RS22880, May 16, 2008, at 2. If a complainant seeks relief for a non'patent-based claim, there must also be a demonstration of injury.

The ITC adjudicates complaints by conducting investigations. These investigations are conducted in accordance with the Administrative Procedure Act, which affords both the patentee and the accused party the opportunity to conduct discovery, present evidence, and make legal arguments before the Administrative Law Judges (“ALJ”) and the Commission. The investigation process involves numerous steps over the course of many months.

The first step in seeking relief from patent infringement is to ensure the patent holder can prove the ITC possesses jurisdiction over the dispute under Section 337. In particular, the patentee must be practicing or using the patent(s) at issue (or be gearing up to do so) in some fashion, such as making: 1) significant investment in plant and equipment; 2) significant employment of labor or capital; or 3) substantial investment in its exploitation, including engineering, research and development, or licensing. Consequently, a simple patentee who has no “investment” in the United States other than obtaining a U.S. patent cannot bring an action in the ITC for infringement, regardless of whether it is a domestic or foreign entity.

If the patent holder can satisfy the jurisdiction restrictions, the patent holder must file a factually detailed complaint, in order to educate the ITC and enable it to determine whether to initiate its investigation. This complaint includes not only the charges of infringement and claim charts that detail the alleged infringement, but also provides details regarding both the patentee's domestic industry and the accused infringer's allegedly infringing products, “downstream” products (if any), and sales. Preferably the complainant would meet with the ITC prior to filing its complaint, with a draft of the complaint. The two main reasons for holding a pre-filing meeting with the ITC are to educate the ITC as to the grounds for the case, as well as to uncover any defects in the complaint so that they can be rectified prior to filing.

Upon receiving such a complaint, the ITC has 30 days to decide whether to initiate a Section 337 investigation. If the ITC determines that an investigation is warranted, the ITC will officially initiate an investigation, and will provide official notice of the investigation to the potential respondents by publishing information regarding the investigation in the Federal Register.

Once the investigation has officially been initiated, the case is assigned to one of the ITC's five ALJs, who will then oversee and conduct the investigation. One interesting aspect of ITC practice is that the U.S. government not only oversees the conduct of the trial (in the form of the ALJ), but also directly participates in the investigation. The government's participation occurs via the ITC's assignment of an investigative attorney from its Office of Unfair Import Investigations (“OUII”). The investigative attorney, who essentially represents the public interest during the investigation, may submit briefs, take discovery, and otherwise provide his or her views to the ALJ regarding the respondent's alleged violation of Section 337. Accordingly, the investigative attorney will participate not only in the discovery between the parties, but also in the ultimate trial.

After the ALJ conducts an evidentiary hearing, that ALJ will issue an initial determination (“ID”) that finds whether a Section 337 violation occurred. Shortly after the ALJ issues his or her violation ID, the respondent(s) or third parties can petition the ITC Commission to review that ID on the basis that it: 1) contains clearly erroneous findings of material fact or erroneous legal conclusions; and/or 2) affects Commission policy.

Moreover, within 14 days of the issuance of the violation ID, the ALJ also issues his or her recommended determination (“RD”). The ALJ's RD sets forth his or her recommendations as to the remedy, the bond, and the public interest, along with factual support for his or her recommendations.

Upon review of the ALJ's ID and the parties' petition(s) for review, the ITC may decide to: 1) change some or all parts of the ID; 2) completely reject the ID; or 3) remand the ID to the ALJ. Regardless, the ITC will ultimately issue its Final Determination, in which it states whether or not a Section 337 violation occurred. The ITC's violation and exclusion orders are appealable to the Court of Appeals for the Federal Circuit.

If the Commission ultimately determines that a Section 337 violation occurred, the ITC may issue remedies for curing those violations. The remedies available to the ITC include the issuance of: 1) exclusion orders and/or 2) cease and desist orders. An exclusion order prevents products from being imported into the United States, and can either be: 1) limited, which excludes the importation into the United States of infringing goods from particular parties; or 2) general, which excludes infringing products regardless of their manufacturer. Because a general exclusion order has the potential to disrupt legitimate trade, the ALJ is required to make additional findings supporting such a broad exclusion. An exclusion order may be limited to the accused products at issue or, if a proper showing is made, may also cover certain “downstream products” that incorporate those accused products. Conversely, cease and desist orders pertain only to commercially significant inventories of infringing products that are already in the United States, and are directed against a specific entity. For example, a cease and desist order could prohibit a certain company from servicing and repairing infringing products.

Respondents or third parties that wish to import goods that could potentially fall within the scope of an ITC exclusion or cease and desist order (e.g., redesigned goods) can ask the ITC to clarify the scope of those orders so as to avoid a finding of contempt. For example, a third party could ask the ITC to issue an Advisory Opinion concerning whether a particular redesigned product would violate a general exclusion order. The ITC can consider any number of grounds for doing so, including the impact of an exclusion order on the public's health and safety, or its impact on the ability of the resulting industry to satisfy U.S. market demand. Additionally, a party can request that the ITC modify its order. For example, a prevailing complainant can ask the ITC to modify its order so as to prevent the importation of products that were modified after the order was issued. Similarly, a respondent can ask the ITC to modify its order so that it clearly differentiates between products that infringe and products that do not infringe.

The exclusion order is ultimately enforced by the U.S. Bureau of Customs and Border Protection (“U.S. Customs”). It is U.S. Customs that actually stops the infringing products from entering the United States. Should Customs decide to exclude certain shipments from the United States, the respondent may file a protest with Customs. Any determination of that protest by Customs would be appealable to the U.S. Court of International Trade.

The Advantages to Bringing an Action in the ITC

There are many advantages to bringing an action in the ITC as opposed to a district court. Perhaps the biggest advantage arose not out of legislative intent, but as a consequence of a decision by another branch of the federal government. Specifically, in 2006 the Supreme Court held that a patent holder that successfully proves infringement is not automatically entitled to a permanent injunction; instead, each request for a permanent injunction must be evaluated on its distinct facts. eBay, Inc. v. MercExchange L.L.C. , 126 S. Ct. 1837, 1839 (2006). Consequently, only the ITC can offer a prevailing complainant the ability to stop all imports and/or sales of the infringing product. The ability to obtain an automatic exclusion order is a clear tactical advantage offered only in the ITC.

Another clear advantage to seeking relief in the ITC is that the patentee does not need to prove that the court has personal jurisdiction over the accused infringer. Jurisdiction is based instead on the product (in rem), specifically, the importation of the accused product into the United States, the sale for importation, or sale in the United States after importation. For example, oftentimes the infringing device is only a small part of the imported apparatus. Because that small part might have been assembled into the larger apparatus by a third party, it is often difficult to obtain personal jurisdiction over the party that initially made the infringing part. The ITC sidesteps the personal jurisdiction issue because the ultimate remedy provided by the ITC, if infringement is found, is exclusion of the infringing product (and not monetary damages assessed against a party). Eliminating the need to obtain personal jurisdiction over the foreign entity offers a substantial advantage to litigating in the ITC.

Another recognized advantage to bringing a patent infringement action in the ITC is the speed with which a decision can be reached. For example, in its most recent Performance and Accountability Report, the ITC reported that for investigations that went to a final decision on the merits in fiscal year 2007, it completed an investigation in an average of just 16 1/2 months. ITC's Performance and Accountability Report, Fiscal Year 2007, at 68. Such a time frame is obviously much quicker than in district courts in the United States, where patent litigation may last many years. Moreover, because of their narrowly focused case load, the ALJs tend to have a much better understanding of patent law than a typical district court judge.

Moreover, perhaps one big advantage of the ITC for patent holders that has gone largely unnoticed is the fact that of cases that reached a final determination on their merits, and were not simultaneously tried in a district court, 58% were resolved in the complainant's favor. Patently Protectionist? An Empirical Analysis Of Patent Cases At The International Trade Commission, Colleen Chien, Santa Clara University School Of Law, Legal Studies Research Papers Series, Working Paper No. 08-56, July 2008, at 27. When compared with the typical 35% win rate in district courts, Id., filing in the ITC is simply another tactical reason for choosing the ITC over a federal district court.

Finally, the ITC offers the ability to obtain a nationwide remedy against all the infringing products at once, thereby eliminating the need to sue all manufacturers or retailers of the infringing product in multiple district courts. This unique ability arises from the fact that, as discussed above, the exclusion order stops all infringing products at the border of the United States. By comparison, in order to stop the sale of all infringing products via a district court proceeding, the patent holder would need to sue every manufacturer and/or retailer of the infringing product in the appropriate district courts.

Advantages for Respondents

Importantly, there are also advantages for the accused infringer to be in the ITC. One such advantage relates to the cost of defending an ITC investigation. If the investigation is directed at a large number of accused infringers, a smaller infringer could take a “backseat” in the investigation, allowing the larger parties with much more at risk on the outcome of the investigation, to pay for the lion's share of the attorneys' fees and costs.

Another advantage that could accrue to an accused infringer arises from the very quick nature of ITC investigations. For example, if the complainant did not expend a great deal of effort in preparing to bring the investigation, and the accused infringer is able to quickly marshal its forces, the accused infringer could turn the tables and use the speed of the ITC's investigation to its advantage.

A Victim of Its Own Success

Perhaps not surprisingly, these clear advantages have caused the number of patent investigations instituted by the ITC to increase steadily over the last 10 years. For example, while the ITC instituted eight intellectual'property-based investigations in 1999 and 11 in 2000, that total has almost quadrupled to 43 instituted in fiscal year 2008 (with almost two weeks remaining in fiscal year 2008 when this article was finalized). This represents an approximately 30% increase from the 33 investigations instituted in fiscal year 2007. ITC's Performance and Accountability Report, Fiscal Year 2007, at 67.

Such increased interest and activity in the ITC has tended to extend investigations by an additional three months, to a total of 16 1/2 months to reach a final decision on the merits in fiscal year 2007 ' a significant increase from the previous average of 13 1/2 months. Id. at 68. It is logical that such a delay in reaching a final decision will only increase given the dramatic rise in the number of instituted investigations.

The ITC is aware of the “serious strain” the “rapid increase in the section 337 workload” has placed on the ITC. Accordingly, the ITC expanded its pool of ALJs to five, but not without considerable trouble in both hiring and retaining ALJs. Statement of The Honorable Daniel R. Pearson, Chairman, United States International Trade Commission, Before The House Committee On Appropriations Subcommittee On Commerce, Justice, Science And Related Agencies, Feb. 26, 2008, at 4-5. Nonetheless, the ALJs are likely to have considerably more experience in patent matters than most district judges.

Conclusion

Even with the potential for the pace of investigations to slow down as a greater number of cases are filed each year, so long as the tactical advantages offered by the ITC remain intact, so too will the increase in the number of patent holders seeking relief there.

Rel S. Ambrozy, a member of this newsletter's Board of Editors, is a partner with McKenna Long & Aldridge LLP, and focuses his patent practice on domestic and international patent litigation. Matthew T. Bailey is also a partner with McKenna Long & Aldridge, and concentrates his practice in the areas of patent and Intellectual Property enforcement. Prior to joining McKenna, he worked as an attorney adviser at the International Trade Commission, handling Section 337 investigations related to computer, semiconductor, and mechanical technologies.