From PLI S Course Handbook s1

From PLI’s Course Handbook Patent Litigation 2008 #14977

AN INTRODUCTION TO SECTION 337 AND THE U.S. INTERNATIONAL TRADE COMMISSION

G. Brian Busey Morrison & Foerster LLP AN INTRODUCTION TO SECTION 337 AND THE U.S. INTERNATIONAL TRADE COMMISSION G. Brian Busey Morrison & Foerster LLP for the Patent Litigation Program 2008 Practicing Law Institute

This paper is intended to provide an introduction to Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337 (“Section 337”) and the agency that administers the statute, the U.S.

International Trade Commission (“ITC”). Section 337 has become increasingly attractive to

U.S. patentholders as one of the principal enforcement tools against infringing imported products and components. The growth in the ITC’s docket of new Section 337 cases – from 12 new cases instituted in fiscal year 2000 to 37 new cases instituted in fiscal year 20081 – evidences the increasing importance and popularity of Section 337 and the ITC.

I. OVERVIEW

A. What is Section 337?

Section 337 of the Tariff Act of 1930, as amended (part of the famous “Smoot Hawley

Tariff Act”), authorizes the ITC to conduct investigations into allegations of unfair practices in import trade. The statute makes unlawful “[u]nfair methods of competition and unfair acts in the importation of articles . . . into the United States, or in the sale of such articles by the owner, importer, or consignee, the threat or effect of which is (i) to destroy or substantially injure an industry in the United States . . . .” 19 U.S.C. § 1337(a)(1)(A). Section 337 also declares unlawful, without any required showing of economic injury to a U.S. industry, the infringement of certain statutory intellectual property rights and other forms of unfair competition in import

1 As of July 7, 2008.

2 trade. See id. at § (a)(1)(B), (C), (D), (E).2 As a result, the vast majority of Section 337 investigations involve allegations of patent infringement or other violations of statutory intellectual property rights. However, Section 337 is broad enough to encompass many other claims of unfair competition including misappropriation of trade secrets, passing off, gray market goods, false advertising, violations of the Digital Millenium Copyright Act, and antitrust violations.

B. What is the ITC?

The ITC is an independent federal agency charged with administering a number of provisions of U.S. trade laws. For example, the agency investigates the effects of dumped and subsidized imports on U.S. industries and conducts global safeguard investigations. Pursuant to

Section 337, the ITC also adjudicates complaints involving alleged infringement by imported products of U.S. intellectual property rights.

The ITC is led by six Commissioners who are nominated by the President and are subject to Senate confirmation. No more than three Commissioners can be from the same political party and the Commissioners serve overlapping terms of nine years. The current Commissioners are as follows:

 Shara L. Aranoff (Chairman)

 Daniel R. Pearson (Vice Chairman)

 Deanna Tanner Okun

 Charlotte R. Lane

 Irving A. Williamson

 Dean A. Pinkert

2 Section 337 makes the infringement of the following statutory rights unlawful import practices: a U.S. patent; U.S. copyright registered under Title 17; a registered trademark, mask work under Chapter 9 of Title 17, or a boat hull design protected under Chapter 13 of Title 17.

3 At one time, the bulk of the Commission’s time was devoted to antidumping, countervailing duty and other trade law cases under its statutory jurisdiction, with relatively little involvement in Section 337 intellectual property cases. This has changed markedly during the last several years as the ITC’s docket of antidumping and countervailing duty cases has diminished and its Section 337 caseload has surged. As only one example of this trend, the

Commission in 2007 held a two-day hearing on whether to grant a downstream exclusion order in its Baseband Processor Chips and Chipsets investigation, ITC Inv. No. 337-TA-543, which involved a patent infringement complaint brought by Broadcom against Qualcomm. Most of the major wireless industry members had a strong interest in the outcome of this case and many testified before the full Commission during the hearing. Following the unusual public hearing, the full ITC decided, by a split 4-2 vote, to grant a limited downstream exclusion order that excluded future generations of cellphone handsets and personal digital assistants but grandfathered such models already being imported into the U.S.

The Commission is supported in its handling of Section 337 investigations by three key offices within the agency: the Office of Administrative Law Judges, the Office of Unfair Import

Investigations (the “OUII” or the “ITC Staff”) and the Office of General Counsel (“OGC”).

When the ITC votes to institute an investigation, it assigns an administrative law judge to conduct pretrial proceedings, to hold a hearing (i.e., a trial) and issue an initial determination which is subject to administrative review by the full Commission in its discretion. The ITC currently has five administrative law judges who exclusively handle Section 337 cases:

 Chief Judge Paul Luckern (appointed Chief Judge in July 2008)

 Judge Charles Bullock

 Judge Carl Charneski

4  Judge Theodore Essex (appointed October 2007)

 Judge Robert Rogers (appointed July 2008)

Another long-serving Administrative Law Judge, Sidney Harris, retired in mid-2007 and another

Judge, Robert Barton, departed the agency in 2007. The ITC is currently recruiting for a sixth

Administrative Law Judge.

Lawyers with the OGC play an important role in advising the Commission during their consideration of appeals by the parties from initial determination by the administrative law judges to the full Commission.

From even before a case is filed, attorneys in the OUII play a key role in Section 337 proceedings. In addition to reviewing draft complaints before they are filed and providing confidential input to complainants and advising the Commission after filing on whether to institute an investigation, the OUII also participates actively in all phases of a Section 337 investigation after it is instituted, representing the public interest. The ITC Staff thus acts as a party in Section 337 proceedings and takes positions on critical merits and procedural issues in each investigation. Because the ITC Staff has extensive knowledge of ITC precedent and patent law from experience with prior ITC investigations, and because the ITC Staff has no commercial interest in the outcome of the investigation, the Staff’s views may sometimes be given greater deference by the ITC ALJs. It is therefore important for a party also to persuade the Staff of the merits of its positions during the course of an investigation.

C. What types of products are the subject of Section 337 cases?

A snapshot of some recent Section 337 complaints reveals a wide cross-section of complainants, respondents and products. For example, here is a list of some recent investigations:

5 Caption Investigation No. Complainants Respondents Keystone Automotive, Ford Global Automotive Parts 337-TA-651 LKQ Corp., Carson & Technologies Taiwan manufacturers Semiconductor Chips with ASE, ChipMOS & 337-TA-649 Tessera Minimized Package Size STATS Vein Harvesting Surgical Maquet Cardiovascular 337-TA-645 Terumo Corp. Systems LLC Manufacturers in Cigarettes and Packaging 337-TA-643 Philip Morris Moldova and Ukraine Phitek Systems Ltd., Noise Cancelling GN Netcom, Audio 337-TA-626 Bose Corporation Headphones Technica, Creative Labs and Panasonic Vizio, AmTran, Digital Televisions 337-TA-617 Funai Syntax-Brillian, Polaroid & ProView Personal Computer & 337-TA-606 Hewlett Packard Acer Digital Display Devices Chinese DVD Players and 337-TA-603 Toshiba manufacturers and Recorders distributors A large number of the Section 337 cases involve electronics and electronic components.

Over the last five or so years an increasing number of cases have involved Chinese, Taiwanese and other Asian producers and exporters to the U.S. It is also worth noting that foreign-based companies are not prohibited from being complainants in Section 337 proceedings as long as they (or their licensees) exploit their U.S. intellectual property in the U.S. through relevant manufacturing, assembly, engineering, research and development, after market activities or licensing activities.

D. Special Jurisdictional Elements for Section 337 Cases

Unlike the requirements for a patent infringement action in federal district court, Section

337 imposes some special, additional threshold requirements for bringing a patent infringement

6 complaint before the ITC. First, the statute requires that there be importation of infringing articles. Second, the statute requires the complainant to demonstrate that a domestic industry in articles practicing a claim of the patent in suit “exists or is in the process of being established.”

19 U.S.C. § 1337(a)(2).

1. Importation Requirement

Section 337 is a part of U.S. trade law and therefore requires an importation into the U.S., a sale for importation or a sale within the U.S. after importation of the infringing article.

Usually, the complainant will submit copies of shipping and Customs documents as proof of importation. Importation is typically not a difficult element to prove and in many cases the parties stipulate to importation.

It is also well-settled that a complainant can satisfy the importation requirement even if the sale was made outside the U.S. by a foreign manufacturer to an intermediary. See Ride-On

Toy Vehicles, ITC Inv. No. 337-TA-314 (1991) (importation established through sale to trading company outside U.S.). Also, importation need not be shown to have occurred but merely be imminent. In Variable Speed Wind Turbines , ITC Inv. No. 337-TA-376, the ITC concluded and the Federal Circuit affirmed, based on the totality of the written documentation and contemporaneous conduct by the parties, that there was clear intent by a German supplier of wind generators to enter into a contract to sell such product to a Texas utility. EnerCon v. ITC,

151 F.3d 1376, 1382 (Fed. Cir. 1998). Among its other reasons for sustaining the conclusion that the ITC properly exercised jurisdiction, the Federal Circuit noted that the 1988 amendments to Section 337 added the phrase “sale for importation” to strengthen the statute’s effectiveness in eliminating problems caused by infringing imports. Id. at 1382-83.

7 Also, even small quantities of imported infringing goods such as samples for a trade show will support the ITC’s jurisdiction. See Acesulfame Potassium and Blends, Inv. No. 337-

TA-403, 1999 ITC LEXIS 130 (March 1999). Additionally, the ITC has determined that it has authority to reach products imported electronically. In Hardware Logic Emulation Systems, Inv.

No. 337-TA-383, Comm’n Op. at 20 (April 1, 1998), the Administrative Law Judge found the

ITC had jurisdiction over software that was imported via a corporate intranet. On review, the

Commission agreed, but elected not to issue an exclusion order covering such transmissions. Id.

The ITC has also determined that the importation requirement is satisfied even if the act of infringement occurs inside the U.S. Thus, in Sputtered Carbon Coated Computer Disks, Inv.

No. 337-TA-350, the investigation involved a process for coating computer disks which was performed by a number of the respondents within the U.S. The products were then shipped outside the U.S., assembled into disk drives and reimported as finished products. In those circumstances, the ITC held that the importation requirement was satisfied.

2. Domestic Industry Requirement

To prove a violation of Section 337 based on infringement of a valid U.S. patent by imported products also requires a showing that “an industry in the United States relating to articles protected by the patent . . . concerned, exists or is in the process of being established.”

19 U.S.C. §1337(a)(2). A domestic industry is defined in subsection 337(a)(3) as follows:

(3) For purposes of paragraph (2), an industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the patent, copyright, trademark, mask work, or design concerned—

(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.

8 The domestic industry requirement can be satisfied by meeting any one of the three criteria listed above. Certain Semiconductor Chips with Minimized Chip Package Size, Inv. No.

337-TA-432, Order No. 13 (Initial Determination) at 5 (Jan. 24, 2001). The existence of a domestic industry is normally measured with reference to the time the complaint is filed, however, evidence concerning the status of the post-complaint domestic industry is also relevant and can be submitted. The complainant carries the burden of proving the existence of the domestic industry.

It is often said that there are two prongs to the domestic industry requirement—an economic prong and a technical prong. The economic prong measures the investment—relating to subsections (A)-(C) above—that a patentholder or its business have made in the U.S. in exploiting the patents-in-suit. In the event that a complainant relies on factors (A) and (B) above to prove a domestic industry, it must also satisfy the technical prong of domestic industry – by a technical showing that domestic articles exist that practice the patented invention. See Certain

Ammonium Octamolytidate Isomers, Inv. No. 337-TA-477, Comm’n Op at 55, USITC Pub. 3668

(Jan. 2004).

By contrast, Subsection (C) of the statute sets forth a simpler test for domestic industry than that required under subsections (A) or (B). Certain Microlithographic Machines and

Components Thereof, Inv. No. 337-TA-468, Initial Determination at 346 (Jan. 29, 2003). For example, when a complainant relies on a licensing program under Subsection (C) to meet the domestic industry requirement, the complainant need not show that one of its licensees practices the patent-in-suit. Instead, the complainant must show that there is a “nexus” between the activities on which it relies and the patent it is asserting. See Certain Microlithographic

Machines and Components Thereof, Inv. No. 337-TA-468, Initial Determination at 346. Thus,

9 Subsection (C) expanded the scope of what qualifies as a domestic industry and the statute does not require actual production of the article in the U.S. if there are substantial activities of the type required under this subsection.

Importantly, it is well-established that marketing and sales in the U.S. alone are not sufficient to satisfy the domestic industry requirement. See Certain Microlithographic

Machines, Initial Determination at 345.

II. SECTION 337 PROCEEDINGS

A. Prefiling Preparation and ITC Staff Review

There is considerably more work involved in preparing a Section 337 patent-based complaint than a district court patent infringement action. Part of this results from the additional requirements under the statute—the importation and domestic industry requirements. The

Commission’s rules, 19 C.F.R. § 210.12, however, also require much more than the simple notice pleading allowed under the Federal Rules of Civil Procedure.

For example, ITC Rule 210.12 requires that complaints in patent-based cases contain, among other things:

 an identification of the specific claims of the patents asserted to be infringed,

 a non-technical description of each patented invention, a list of each

corresponding foreign patent,

 identification of each license under the patent-in-suit,

 a showing by description and a claim chart of how at least the asserted

independent claims of each patent-in-suit read on imported infringing articles as

well as the domestic industry articles,3 and

3 This was part of the changes to the Commission rules effective August 6, 2008. 73 Fed. Reg. 38316, 38317 (July 7, 2008).

10  the economic investment in the U.S. made to exploit articles that embody the

patents-in-suit.

Additionally, because of the expedited schedule in Section 337 cases under which most discovery requests have a 10-day response deadline, prudent complainants’ counsel will collect, review and assemble their clients’ documents well in advance of filing the complaint.

After complainants’ counsel performs all the diligence necessary to prepare a Section 337 complaint and has a final draft with exhibits prepared, it is customary for counsel to present the draft to the ITC Staff for their review and comment. This is an informal, voluntary and confidential process which can be very helpful for complainants to identify deficiencies and potential issues with their complaints. For the ITC, this process has the benefit of informally weeding out certain cases that may not meet the ITC’s requirements.

B. Post-Filing 30-Day Review Period

After a Section 337 complaint is filed with the ITC, the ITC Staff reviews the complaint for sufficiency and compliance with the ITC Rules. 19 C.F.R. § 210.9. It is common during this review process for the ITC Staff to contact the complainant’s counsel to request clarification and supplementation of the complaint by letter. The ITC Staff then prepares a memorandum to the full Commission making a recommendation on whether or not to institute an investigation. In only very rare cases does the ITC Staff recommend against institution.

The Commission, unless the period is extended, normally determines whether to institute a Section 337 investigation within 30 days after the filing of the complaint. 19 C.F.R. §

210.10(a). Sometimes the period is extended at the request of a complainant which, for example, might decide to amend its complaint close to the deadline for institution of the investigation to add new patents and/or new respondents. The Commissioners vote on whether to institute by

11 circulating what is referred to as an “action jacket.” The Commission only rarely declines to institute an investigation.

The 30-day preinstitution period is an important period for both complainants and respondents, but particularly for respondents. Respondents need to make maximum use of this period to select counsel (if they have not already do so), to investigate the claims asserted in the complaint and identify possible defenses, to identify potential expert witnesses or consultants, to prepare to respond to complainant’s initial discovery requests especially requests for production of documents, and to prepare affirmative discovery requests to the complainant. A complainant, which typically has already had at least several months to prepare for institution, nevertheless should use this period to finalize discovery and otherwise prepare for the onset of the case.

C. Post-Institution

If the Commission determines the Section 337 complaint is property filed, the

Commission will issue a notice of institution. The notice of institution will include several important pieces of information including the identities and locations of complainants and respondents, a definition of the scope of the investigation, the Administrative Law Judge who is assigned to handle the investigation prior to the Commission’s review, and the ITC Staff attorney who is assigned to the case. A few days after the notice is issued by the ITC, it will appear in the

Federal Register, which marks the official institution of the investigation. 19 C.F.R. §

210.10(b). Commonly, counsel for complainants and respondents serve initial discovery requests on the day the notice of institution appears in the Federal Register. See 19 C.F.R. §

210.29(b) (interrogatories may be served after date of publication); 210.30(b) (document requests may be served after date of publication); 210.30(c) (requests for admission may be served after date of publication). Under the Administrative Law Judges’ Ground Rules (see

12 attached exemplars B.1-4) responses to discovery requests are typically due within 10 days after they are served unless the period is extended by order of the Administrative Law Judge.

After the Commission institutes a Section 337 investigation, the complaint and notice of investigation are served by the Secretary of the Commission on the respondents and upon the embassies in Washington, D.C. of any foreign countries where the respondents reside. Unless modified by the Administrative Law Judge, Respondents have 20 days within which to respond from the date of service of the complaint plus an additional three days for mailing. 19 C.F.R.

§ 210.13(a), 201.16(d). If the respondents are served outside the U.S. by courier or express mail, they are allowed 30 days to respond to the complaint. 19 C.F.R. § 201.16(d).

D. Parallel Proceedings and Stays

As discussed in more detail below, remedies at the ITC are largely limited to injunctive relief. Because of this, complainants typically file parallel district court patent infringement actions against the same respondents (provided the district court can properly exercise jurisdiction). The district court action allows a complainant potentially to gain monetary damages for infringement not available via the ITC. However, respondents who find themselves defending both an ITC investigation and a district court patent infringement action involving the same issues have a statutory right to stay the district court proceedings under 28 U.S.C. § 1659, and this right is usually exercised.4

Stays of the ITC investigation, however, are very difficult to obtain and have rarely occurred. The primary reason is the Commission’s statutory obligation under 19 U.S.C. §

4 28 U.S.C. §1659(a) provides: In a civil action involving parties that are also parties to a proceeding before the United States International Trade Commission under section 337 of the Tariff Act of 1930, at the request of a party to the civil action that is also a respondent in the proceeding before the Commission, the district court shall stay, until the determination of the Commission becomes final, proceedings in the civil action with respect to any claim that involves the same issues involved in the proceeding before the Commission, but only if such request is made within—(1) 30 days after the party is named as a respondent in the proceeding before the Commission, or (2) 30 days after the district court action is filed, whichever is later.”

13 1337(b)(1) to “conclude any investigation and make its initial determination under this section at the earliest practicable time . . . .” The Commission takes this obligation very seriously and, as a result, is extremely reluctant to grant stays of the proceedings for any reason. In particular, there have been numerous requests in recent years to stay ITC investigations on the ground that the at- issue patent or patents may be undergoing reexamination at the U.S. PTO. Such requests have almost always fallen on deaf ears. See, e.g., Certain Semiconductor Chips with Minimized Chips

With Minimized Chip Package Size and Product Containing Same, Inv. No. 337-TA-605

Comm’n Op. (May 27, 2008) (reversing ALJ’s stay that had been based on pending reexamination proceedings at PTO).

E. Protective Order and Ground Rules

Among the first orders that the assigned Administrative Law Judge will issue in

Section 337 cases are the ITC’s standard protective order for Section 337 cases and his particular

Ground Rules which will govern the case while it is before the Judge. See 19 C.F.R. 210.34(a).

A notable feature of the ITC’s standard protective order in Section 337 cases is that it restricts access to confidential business information to outside counsel, independent experts and consultants and ITC Staff and attorneys. The standard protective order in 337 cases thus excludes in-house counsel from access to confidential information. Because a majority of the documents and information that is produced in Section 337 proceedings is typically designated

“CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER,” a large part of the case and papers filed in the case cannot be shared with the parties’ corporate representatives who are often directing outside counsel in these cases. Although the standard protective order contains a process for declassifying documents that process is often time- consuming and problematic in expedited Section 337 proceedings.

14 It is extremely important in Section 337 cases where there are often large teams of counsel involved in representing clients that they all subscribe to the terms of the protective order and that counsel educate their whole team including support staff and legal assistants as to proper procedures to follow when handling confidential business information. The ITC jealously guards its protective orders in Section 337 proceedings and the sanctions for violating such orders can be harsh and include potentially: an official reprimand, disqualification from a pending investigation, permanent disqualification from appearing before the ITC, and referral of the matter to bar disciplinary authorities.

Following or simultaneously with the issuance of the standard protective order, the

Administrative Law Judge will issue his Ground Rules. The Ground Rules specify, for example, the timing of responses to discovery, how discovery disputes will be handled, privilege objections and logs, prehearing statements, and the order and submission of testimony and exhibits at trial. It is extremely important that counsel familiarize themselves with the Ground

Rules of the Administrative Law Judge to whom their case is assigned in their cases and operate accordingly. Copies of Ground Rules from recent cases before Judges Luckern, Bullock and

Charneski and Essex are attached as Exemplars B.1-4.

F. Target Dates and Timelines for Section 337 Cases

15 By statute, permanent Section 337 proceedings5 must be completed by the ITC “at the earliest practicable time.” 19 U.S.C. § 1337(b)(1). Also, within 45 days after the investigation is initiated, the statute requires the Commission to establish a “target date” by which the entire

Section 337 investigation will be completed. Id. 19 C.F.R. § 210.51(a). The Administrative

Law Judge assigned to the case typically issues a target date order within the first few weeks after a case is instituted. Most recent Section 337 proceedings have target dates of 15 months, although recently due to special circumstances and the ITC’s growing docket of 337 cases, in some cases target dates have exceeded 15 months. Sample orders setting target dates are provided as Exemplars A.1 and A.2.

In an important development, the ITC recently adopted amendments to its rules governing target dates and issuance of initial determinations. See 73 Fed. Reg. 38316 (July 7,

2008). Under the newly-revised ITC rules in permanent relief cases, the Administrative Law

Judge must issue his Initial Determination on the merits no later than four months before the target date, regardless of whether the target date is beyond 16 months. 19 C.F.R. 210.42(a)(1)(i).

Also under the newly revised rules, the ALJ can now issue a target date up to 16 months without

Commission review. It is an open question whether the ALJs will now shift to issuing 16 month target dates in most Section 337 investigations.

As a practical matter this means that in the typical Section 337 case with a 15 or 16 month target date, discovery may last approximately 6 to 7 months, the hearing will occur in roughly the 8th month, and post-hearing briefings will be completed by the 9th to 10th months.

This allows the Administrative Law Judge approximately two months to prepare and write his

5 In addition to permanent relief proceedings, the ITC also is authorized to issue temporary relief in so-called temporary exclusion order (“TEO”) proceedings – on the same standards as preliminary injunctions are issued in federal district court. See 19 C.F.R. § 210.52.

16 Initial Determination following the close of posthearing briefing. Sample procedural schedules are provided as Exemplars C.1 and C.2.

F. Discovery

Discovery in Section 337 cases is quite broad and very compressed in terms of timing.

The scope of discovery includes “the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things…” 19 C.F.R. § 210.27(b)(1). Similar to the Federal Rules of Civil Procedure, the ITC rules permit discovery by means of depositions, interrogatories, document requests, requests for admissions and subpoenas. 19 C.F.R.

§§ 210.28-32. By contrast with the Federal Rules of Civil Procedure, the Administrative Law

Judges’ Ground Rules typically allow only 10 days to respond to most discovery requests. Also, unlike normal district court patent cases in which discovery may last a year or more, discovery in

ITC actions normally takes place over a truncated period of 5 to 7 months.

By contrast with most district court litigation, the documents and information needed by complainants in Section 337 cases often is located in foreign countries. The ITC is typically able to obtain information from foreign respondents who are required to cooperate in the discovery process or face the risk of sanctions including adverse inferences. Where discovery is required from nonparties located abroad, this is much more problematic given the expedited timetable of

ITC cases and the sometimes cumbersome process involved in taking evidence abroad under the

Hague Convention.

G. Hearings

Following discovery and submission of prehearing statements and exhibits, the

Administrative Law Judges hold trial type hearings under the Administrative Procedure Act,

5 U.S.C. ¶ 556. The hearing in a Section 337 case is similar in many respects to a bench trial in a

17 patent infringement case in federal district court, however, there are some important differences.

One key difference is that in most instances, unlike federal district court practice, the ITC

Administrative Law Judge will not hold a separate Markman hearing prior to trial to conduct claim construction. In the ITC, the Administrative Law Judges normally receive claim construction positions and arguments in the parties’ pre-trial statements and at the hearing through expert testimony. Thus, unlike a federal district court bench trial in a patent infringement case, in the ITC the parties are often required to present their cases using alternate claim construction approaches because the Administrative Law Judges have typically not yet issued pre-trial claim construction orders.6

Another difference worth noting is that the Administrative Law Judges may require all direct testimony to be presented in writing in the form of written questions and answers. Among the currently serving ITC Administrative Law Judges, Judge Bullock requires written direct testimony7 while Judges Charneski and Luckern prefer live direct testimony. Judge Essex permits the use of both. The use of written direct testimony means that a witness is tendered immediately for the cross-examination and then can provide live redirect testimony. This means that the judge’s first perception of the witness’ demeanor is through cross-examination and thus this puts a premium on preparing a witness thoroughly for cross-examination and potentially for extensive redirect examination.

Finally, another notable difference between trials in the ITC and in federal district court is that ITC hearings are not subject to the Federal Rules of Evidence. Thus, the ITC

Administrative Law Judges are not required to exclude hearsay and in general allow greater

6 However, there does seem to be a trend towards separate Markman hearings. See, e.g., Certain Catheter, Consoles and Other Apparatus for Cryosurgery, Inv. No. 337-TA-642, Order No. 3 (May 22, 2008); Certain Nitrile Rubber Gloves, Inv. No. 337-TA-612, Order No. 38 (Nov. 13, 2007); Certain Rechargeable Lithium-Ion Batteries, Inv. No. 337-TA-600, Order No. 6 (June 27, 2007). 7 Judge Barton, who recently left the ITC, also required written direct testimony in his Ground Rules.

18 latitude on the admission of evidence. See generally G. Brian Busey and Charles Barquist,

“Trying Section 337 Cases Before the ITC: Why Early Trial Preparation is Indispensable,” IP

Litigator, pp. 1-8 (Jan/Feb. 2007).

H. Commission Review

Parties have the right in permanent relief proceedings under Section 337 to petition the full Commission to review the Administrative Law Judge’s Initial Determination (“ID”).

19 C.F.R. § 210.43(a). The petition for review from the ID on the merits must be filed within

10 days after service of the ID. Even when a party prevails on most but not all issues, it is common for the party to file what is sometimes styled a “contingent” petition for review which is treated as any other petition for review.

A petition for review may spell out one or more of the following grounds: (1) that a finding or conclusion is clearly erroneous; (2) that a legal conclusion is erroneous, without legal precedent, rule or law, or constitutes an abuse of discretion; or (3) the determination is one affecting Commission policy. Any issues decided adversely to a party that are not raised in a petition for review are considered abandoned. 19 C.F.R. § 210.43(b)(4). Also, any issue not raised in a petition for review will not be considered by the Federal Circuit on review. Texas

Instruments, Inc. v. U.S. Int’l Trade Comm’n, 988 F2d 1165, 1176 (Fed. Cir. 1993). The ITC

Staff also has the right to petition for review and it usually increases the odds that the

Commission will take review of the Initial Determination if the ITC Staff also petitions for review.

Within 60 days (formerly 45 days) after service of the Initial Determination, the

Commission will decide on the basis of the petition for review and replies (or on its own motion)

19 whether to review some of the ID or all of it.8 19 C.F.R. § 210.43(d)(1). If the Commission decides to review none of an ID or only some of it, the unreviewed portions become the final determination of the Commission. It only requires the vote of one participating Commissioner to order review of an Initial Determination. 19 C.F.R. § 210.43(d)(3).

If the Commission determines to order review, it issues a notice describing the scope and issues for its review. It may then also set a briefing schedule. In rare cases, such as the

Baseband Processor Chips investigation (Inv. 337-TA-543) which involved a downstream exclusion order that impacted a large part of the mobile phone business, the Commission will hold oral argument on the issues under review. The Commission can affirm, set aside or modify the portions of the Initial Determination under review.

I. Presidential Review

If the Commission determines that a violation of Section 337 has occurred and adopts a remedy (i.e. exclusion order), then that determination is transmitted to the President. 19 U.S.C.

§ 1337(j)(1). The President may within a 60-day period disapprove the ITC’s order for policy reasons. Id. (j)(2). The President has acted only rarely in the past 30 years to disapprove ITC orders in Section 337 cases, and not since the administration of President Reagan. During the presidential review period, respondents may continue to import the infringing articles provided the importer posts a bond with the Customs Service in an amount determined by the

Commission. In the event the President does not disapprove the remedial order, then the previously posted bonds may be forfeited to the complainant.

8 The change from 45 days to 60 days is part of recent Amendments to the ITC Rules adopted by the Commission. 73 Fed. Reg. 38316 (July 7, 2008).

20 J. Federal Circuit Review

Any person “adversely affected” by a Commission decision under Section 337 may appeal the decision to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”).

19 U.S.C. § 1337(c). Any appeal under the statute must be filed within 60 days after the

Commission decision becomes final. Thus, if a complainant prevails at the ITC and an exclusion order is issued, the decision becomes final at the end of the 60-day Presidential review period. If the ITC finds no violation of Section 337, the determination becomes final when it is issued.

In appeals of ITC decisions in Section 337 cases, the agency is the respondent and defends its own decision on appeal. However, it is common for prevailing parties to intervene in order to support the Commission’s final determination on appeal. Generally, the Commission has had a high success rate on appeal to the Federal Circuit.

K. Temporary Relief

The ITC also has authority under Section 337 to conduct expedited temporary relief proceedings and to issue temporary exclusion orders and/or cease and desist orders. Thus, a complainant can file a motion for a temporary exclusion order (“TEO”) at the same time it files its Section 337 complaint. In determining whether to grant a TEO, the ITC’s Rules require the

Commission to apply the same standards as those applied by the Federal Circuit when it determines whether to affirm a trial court granting or denying a preliminary injunction.

19 C.F.R. § 210.52(a). The ITC Rules require that the motion for a TEO contain a detailed memorandum and supporting affidavits similar to preliminary injunction papers in federal district court.

In terms of timing, the Commission must make a decision on whether to provisionally accept a TEO motion and institute an investigation within 35 days after the complaint and

21 motion are filed. 19 C.F.R. § 210.58. In an ordinary TEO case, a response to the motion is due to be filed within 10 days after service of the motion. 19 C.F.R. § 210.59(a). The Commission must make a determination by statute whether to grant the TEO no later than the 90th day after the date on which an investigation involving temporary relief is instituted. 19 U.S.C. § 1337(e).

If the case is deemed “more complicated,” then the Commission has until the 150th day after institution to make its determination on the TEO motion.

The number of TEO motions in Section 337 cases is relatively small. This is largely due to the fact that regular Section 337 cases are already compressed and fairly expedited. Also, unlike in permanent relief proceedings involving patent infringement claims, in TEO proceedings complainants are required to demonstrate economic injury, which adds further complexity to the case.

III. Relief Available and Enforcement

A. Types of Relief Available

Monetary damages are not available in Section 337 actions. Rather, the only type of relief available is injunctive relief, stemming from the fact that the ITC’s jurisdiction is in rem over the infringing imported products and components, rather than in personam over the infringers. The two forms of injunctive relief available are exclusion orders and/or cease and desist orders.

1. Exclusion Orders

If the ITC finds that there has been a violation of Section 337, it may issue an exclusion order directing the U.S. Customs and Border Protection agency to exclude shipments of infringing products from entry to the United States. There are two types of exclusion orders: general and limited.

22 a. General exclusion orders

General exclusion orders exclude every imported article of a certain type of product that infringes the asserted claims of the patents-in-suit, regardless of the identity of the importer, exporter or manufacturer. See, e.g., Certain Lens-Fitted Film Packages, Inv. No. 337-TA-406,

General Exclusion Order (June 2, 1999). General exclusion orders are more difficult to obtain than limited exclusion orders, and generally require either: (1) a necessity to prevent circumvention of an exclusion order limited to products of named respondents; or (2) a pattern of violation with difficulty identifying the source of infringing products. 19 U.S.C. § 1337(d)(2).

The primary advantage of a general exclusion order is that it covers all infringing goods, not just those of identified respondents. Thus, if a manufacturer or importer who was not a respondent attempts to import into the United States an infringing article in violation of the order, those goods may be excluded from entry. (See Ex. D). Additionally, given its broad scope, a general exclusion order is more difficult for a manufacturer or importer to circumvent by changing company names or product numbers, etc. The primary advantage of a general exclusion order—its breadth—can also be a disadvantage, however, as it may interfere with the legitimate trade of licensees.

b. Limited exclusion orders

Limited exclusion orders generally target only the products of particular manufacturers or importers specifically identified in an ITC action. See, e.g., Certain Display Controllers with

Upscaling Functionality and Products Containing the Same, Inv. No. 337-TA-481, Limited

Exclusion Order (August 20, 2004). The orders typically use broad language encompassing all products that infringe certain claims of the asserted patents, rather than the particular exemplary product models evaluated to determine infringement or importation during the investigation

23 itself. See, e.g., Certain Optical Disk Controller Chips and Chipsets and Products Containing

Same, Including DVD Players and PC Optical Storage Devices, Inv. No. 337-TA-506, Comm’n

Opinion at 56-57 (Sept. 28, 2005) citing Certain Hardware Logic Emulation Systems and

Components Thereof, Inv. No. 337-TA-383, Comm’n Opinion at 16 (March 31, 1998). This is done to prevent circumvention of the limited exclusion orders by simply changing model numbers. Id.

A limited exclusion order has a few advantages. First, because infringing manufacturers and importers are specifically identified, a limited exclusion order is less likely to interfere with any permissible licensed on-going importation activities. Second, depending on the number of respondents pursued, the litigation costs of seeking a limited exclusion order could be somewhat less than those for pursuing a general exclusion order. For a limited exclusion order, the complainant would not need to establish widespread infringement, and could limit its action (and hence its infringement analyses) to certain entities.

There are two primary disadvantages, however, to a limited exclusion order. First, although it may serve as a warning to other infringers, a limited exclusion order will not actually prevent manufacturers and importers who were not named as respondents from selling infringing goods in the United States. Thus, in cases of widespread infringement, a limited exclusion order may have only a limited impact. Second, a limited exclusion order can be circumvented more easily by an unscrupulous manufacturer or importer than can a general exclusion order. For example, by simply changing its name, or re-incorporating or re-locating its business, a foreign manufacturer of infringing products might potentially avoid a limited exclusion order.

24 c. Downstream products

The Commission has the authority in Section 337 proceedings to issue an exclusion order covering, in certain cases, “downstream products” containing the infringing product as a component. To determine whether this is proper, the ITC applies a test that balances the complainant’s interest in obtaining complete relief against the possible disruption of legitimate trade of products that were not themselves found to violate Section 337. The factors used in this balancing test are known as the EPROMs factors after the investigation in which they first were employed, and they include, but are not limited to, the following:

 The value of the infringing articles compared to that of the downstream products,  Whether the downstream products’ manufacturer is also a respondent,  The incremental value to the complainant of excluding the downstream products,  The incremental detriment to respondents of excluding the downstream products,  The burdens imposed on third parties from excluding the downstream products,  The availability of alternative downstream products not containing infringing articles,  The likelihood that downstream products actually contain infringing articles,  The opportunity for evasion of an exclusion order that does not include downstream products, and  The enforceability of such an exclusion order by Customs.

Certain Erasable Programmable Read Only Memories, Components Thereof, Products

Containing Such Memories, and Processes for Making Such Memories, Inv. No. 337-TA-276,

1989 ITC LEXIS 122, at *254 (May 1989), aff’d Hyundai Elecs. Indus. Co., Ltd. v. U.S. Int’l

Trade Comm’n, 899 F.2d 1204, 1209 (Fed. Cir. 1990).

2. Cease & Desist Orders

In addition to exclusion orders, cease and desist orders are a common form of relief that will be granted in a Section 337 case where the evidence indicates that a respondent possesses commercially significant inventory of infringing products in the Untied States. See Certain

Crystalline Cefadroxil Monohydrate, Inv. No. 337-TA-293, Comm’n Opinion at 6 (January 19,

25 1990). This provides a means of limiting infringing sales of products already imported into the

U.S. at the time an exclusion order issues. It also may deter any attempt to circumvent an exclusion order by the build-up of inventory during the pendency of an ITC case. It is important to note, however, that even if a general exclusion order is sought to exclude importation of all infringing articles, only the named respondents in the ITC action can be subject to a cease and desist order.

3. Costs and attorneys fees

In general, costs and attorneys fees are not recoverable in Section 337 proceedings, but can be imposed under Commission Rule 210.25 as sanctions for violations of other rules, such as those prohibiting abuse of process and discovery, or prohibiting violation of any protective order.

B. Enforcement

When violations of Section 337 are found, the ITC will issue a relatively broad ruling.

The ITC’s order subsequently will be sent to U.S. Customs and Border Protection (“Customs”), where the Intellectual Property Rights (“IPR”) branch of Customs assumes the primary responsibility for the interpretation and implementation of ITC orders.

Generally, after an exclusion order is issued, any interested party, whether an importer, manufacturer, respondent or complainant, will have an opportunity to present its position on interpretation of the scope of the exclusion order. Presentations regarding the scope of an order generally involve meeting with Customs officials in Washington, D.C. A complainant usually will want to meet with Customs officials shortly after an exclusion order is issued by the ITC to discuss the scope of the exclusion order and assist Customs in identifying infringing (or non- infringing) products. A complainant’s presentation typically includes, without limitation, the following information: (1) expected ports of entry, (2) how the infringing goods are classified

26 under the Harmonized Tariff Schedule, (3) known importers, (4) known exporters, (5) manufacturers, (6) visual exhibits of the infringing products and expected future infringing products, (7) specific model numbers known to be infringing, and (8) other graphics or features that will help Customs to easily identify infringing products or features of the products.

The actual instructions that are drafted by the Customs authorities are confidential and are entered directly into Customs’ electronic database used by inspectors at various ports.

Generally, the only way to know whether an error is contained in the instructions is if a product is or is not properly excluded, so close monitoring of infringers’ activities is therefore important even after an exclusion order is granted. Additionally, for limited exclusion orders, any company, product, or brand name changes should be brought promptly to Customs’ attention.

In addition, after an exclusion order issues, parties may ask Customs to issue an advisory opinion as to whether certain products would fall within the scope of the order. See, e.g.,

Certain Lens-Fitted Film Packages, Inv. No. 337-TA-406, Exclusion order, HQ 474182, 2003

WL 22794084, at *1 (U.S. Cust. Serv. Nov. 6, 2003) (finding that a refurbished disposable cameras fell outside the scope of an exclusion order). This often occurs in the context of redesigned products. See, e.g., Certain EPROM, EEPROM, Flash Memory and Flash

Microcontroller Devices and Products Containing the Same, Inv. No. 337-TA-395, Exclusion order, HQ 47083, 2001 WL 456817, at *3 (U.S. Cust. Serv. Apr. 10, 2001) (stating that the lack of data from the party offering the redesign prevented Customs from making a full evaluation).

The party asserting that a product is outside the scope of an exclusion order generally bears the burden of proving that the order does not cover its goods. Id.

27 If a party attempts to import articles covered by an exclusion order into the United States, the articles can be seized and forfeited to the United States. See, e.g., Certain Ink Markers and

Packaging Thereof, Inv. No. 337-TA-522, Seizure and Forfeiture Order (June 8, 2006).

IV. Pros and Cons of Section 337 Actions

There are some important advantages to bringing a Section 337 complaint that a U.S. patentholder should consider when considering its enforcement strategy. However, ITC 337 actions can have certain potential limitations and disadvantages relative to district court patent infringement cases that should also be weighed by a patentholder in developing its overall strategy.

Among the most important advantages of a Section 337 case is the speed of the typical

ITC case. Although the statute no longer prescribes a specific time deadline for completion in permanent relief cases (as it once did), the statutory injunction to complete the proceeding “at the earliest practicable time” means the Section 337 cases are expedited. In most recent 337 cases, the ITC Administrative Law Judges are setting target dates for investigations at about 15 months, and most cases are completed within 15-18 months after institution. This compares favorably with most federal district courts in which the average time to trial in patent cases may be 24 months or longer.

A second distinctive feature of the ITC in Section 337 cases is that the ITC exercises in rem jurisdiction over goods in such investigations. This allows complainants to reach many foreign producers and distributors that otherwise might be beyond the personal jurisdiction of a federal district court. The ITC’s in rem jurisdiction also makes it easier to take discovery of foreign respondents which are required to cooperate in Section 337 investigations or risk serious sanctions.

28 Third, the relief available in Section 337 proceedings – exclusion orders enforced by the

Customs Service through over 300 U.S. ports of entry coupled with cease and desist orders – is an extremely potent weapon against infringing foreign producers and distributors of their goods in the U.S. market. This injunctive relief is also a particularly powerful advantage of Section

337 cases today in the wake of the Supreme Court’s decision in Ebay Inc. v. Mercexchange,

L.L.C., 547 U.S. 388 (2006), which eliminates the automatic right of a prevailing patentholder to obtain a permanent injunction in federal court. Also, it is far more cumbersome and difficult to obtain similar broad injunctive relief in federal district court that applies nationally.

Fourth, the Administrative Law Judges of the ITC are generally highly experienced in handling patent infringement cases. Because the ITC Administrative Law Judges exclusively handle Section 337 investigations and over 90 percent of such investigations involve claims of patent infringement, they necessarily become highly experienced in the area, unlike most federal district court judges who have a large, diverse docket of civil and criminal cases.

Finally, the determination of the ITC in a Section 337 patent infringement case is not res judicata with respect to a future district court action on the same patent claims. Texas

Instruments v. Cypress Semiconductor Corp., 90 F.3d. 1558 (Fed. Cir. 1996); Tandon Corp. v

USITC, 831 F.2d 1017 (Fed. Cir. 1987). Thus, a patentholder that does not prevail in a Section

337 patent infringement case before the ITC is not precluded from seeking fresh consideration of its patent infringement claims before a federal district court, although a federal district court judge may choose to give the ITC’s determination such weight as he or she deems appropriate in subsequent district court proceedings.

Of course, depending on the facts of each case and the particular goals of the U.S. patentholder, a federal district court patent infringement case can present certain distinct advantages

29 over the ITC. One major advantage is that a district court can award monetary damages and attorneys fees (in appropriate cases). In many cases, a U.S. patentholder is primarily interested in obtaining money damages and may have no interest in excluding infringing goods from entering the U.S. market. Thus, in these circumstances a straightforward district court damages case may be the best option.

Second, district court patent infringement suits are much simpler to prepare and bring than ITC 337 cases. The additional threshold requirements for a Section 337 complaint including proof that the infringing goods are imported and domestic exploitation of the patent-in- suit as well as the detailed requirements imposed by the ITC Rules for complaints are not required in order to file a district court infringement complaint.

Third, although the cost of U.S. patent litigation is generally high, the cost of preparing and litigating a 337 case are both high and front-loaded. In the typical ITC Section 337 case, virtually all discovery and the hearing will occur within less than one year after the complaint is filed, which accelerates and compresses the overall costs of the litigation. By contrast, in a federal district court with a 24-36 month timeline to trial, the litigation costs may be spread out over several years.

Another potential disadvantage of an ITC case is that the ITC Staff acts as a party throughout the course of the investigation. Although the ITC Staff can be an important ally to the complainant or respondent, their role also introduces an added dimension of uncertainty and lack of control, which is not present in district court litigation.

In the end, whether an ITC case or a district court action is the better strategic option will depend on the specific facts of a particular case and the goals of the client. Also, bear in mind that the filing of a Section 337 complaint does not preclude the use of the district court. In fact,

30 it is a common strategy for a U.S. patentholder to file a complaint simultaneously in the ITC and in district court. However, in that circumstance, as noted above, the defendants in the district court have a statutory right under 28 U.S.C. § 1659 to request an automatic stay of the district court action involving the same patent claims.

Exemplars: Orders, Notices and Administrative Law Judges’ Ground Rules

A. Target Date Orders

1. Certain Hand-Held Meat Tenderizers, Thereof, Inv. No. 337-TA-647, Order No. 3: Setting Target Date

2. Certain Variable Speed Wind Turbines and Components Thereof, Inv. No. Inv. No. 337-TA-641, Order No. 3: Setting Target Date

B. Ground Rules

1. Certain Coaxial Cable Connectors and Components Thereof and Products Containing Same, Inv. No. 337-TA-650, Order No. 2: Notice of Ground Rules and Target Date (Judge Charles Bullock)

2. Certain Semiconductor Integrated Circuits Using Tungsten Metallization and Products Containing Same, Inv. No. 337-TA-648, Order No. 2: Issuance of Ground Rules (Judge Carl C. Charneski)

3. Certain Automotive Parts, Inv. No. 337-TA-651 Order No. 2: Ground Rules (Judge Theodore R. Essex)

4. Certain Cigarettes and Packaging Thereof, Inv. No. 337-TA-643, Order No. 1: Notice of Ground Rules (Judge Paul J. Luckern)

C. Scheduling Orders

1. Certain Semiconductor Integrated Circuits Using Tungsten Metallization and Products Containing Same, Inv. No. 337-TA-648, Order No 10: Setting Procedural Schedule

2. Certain Short Wavelength Semiconductor Lasers and Products Containing Same, Inv. No. 337-TA-627, Order No. 12: Setting Procedural Schedule