Talkin' Trade: Introduction to Section 337 and the ITC

May 18, 2021
18:19 minutes

Ropes & Gray’s new podcast series Talkin’ Trade explores the world of unfair import investigations at the U.S. International Trade Commission. In this episode, IP litigation partner Matt Rizzolo and associates Matt Shapiro and Brendan McLaughlin introduce listeners to Section 337 Investigations at the ITC and explain how the ITC is a powerful tool in intellectual property disputes.


Matt Rizzolo: We are Talkin' Trade, a new podcast series from Ropes & Gray that will explore the world of unfair import investigations at the U.S. International Trade Commission. My name is Matt Rizzolo, and I'm a partner in Ropes & Gray's IP litigation group, based in the firm's Washington, D.C. office. With me here today are my colleagues Matt Shapiro and Brendan McLaughlin. Welcome, gentlemen—glad to have you here. And a warm welcome as well to all you first-time listeners out there—and really, you're all first-time listeners because this is our first episode. We decided to launch this podcast series to offer some insight into unfair import investigations brought at the ITC under Section 337 of the Tariff Act. These actions proceed very quickly and could provide valuable leverage for a company in a dispute with a foreign competitor, but we found that many businesses and practitioners are either blissfully unaware of what these proceedings are or have only just vaguely heard about the ITC. So our intention is to have each episode focus on a different aspect of ITC proceedings, sometimes discussing recent ITC-related current events or news as well. But today's episode will be centered on the basics: What is the ITC, what claims can be brought there, and what do these Section 337 investigations look like? So, Matt, for the uninitiated, what is the International Trade Commission?

Matt Shapiro: At a high-level, the International Trade Commission is an independent, nonpartisan, quasi-judicial federal agency that fulfills a range of trade-related mandates. And at the helm of the agency are six commissioners, half of which are Republican and the other half of which are Democrat. Each of these commissioners serves a nine-year term, with a new term beginning every 18 months. And currently, one of the seats is open. These commissioners are nominated by the president and confirmed by the Senate, as is typical for a federal agency. Now, the ITC has a number of responsibilities. It investigates and makes determinations in proceedings involving imports claimed to injure a domestic industry or violate U.S. intellectual property rights. Separate from that mandate, it also provides independent analysis and information on tariffs, trade competitiveness, and maintains the U.S. tariff schedule. And as you noted earlier, Section 337 investigations do proceed extremely fast. From complaint to trial, that would take approximately less than a year, and you typically receive a final determination of the dispute within 16-18 months. Now, contrast that with district court litigation, where a typical patent dispute may take three or more years to reach trial. And although the ITC can't award damages, the remedy it does provide is very powerful. That remedy comes in the form of an exclusion order that is enforced by U.S. Customs and Border Protection—this exclusion order would bar the importation of affected products into the United States market. And in patent cases, that exclusion order typically stays in place until the patent expires.

Matt Rizzolo: Brendan, I think it would be useful to walk through the elements of a Section 337 claim that a complainant needs to prove in order to get one of those exclusion orders. What are those?

Brendan McLaughlin: Generally, there are three main elements. First, there must be an “unfair act”—Section 337 protects “any type and form of unfair practice.” Some of these are laid out explicitly in Section 337, like patent infringement, which makes up over 90% of ITC claims. But trademark, false advertising, trade secret misappropriation are also actionable. Second, there must be an importation of goods related to the unfair act—a physical good must cross the border into the United States for the ITC to have jurisdiction. And finally, a complainant must have a domestic industry (and in some cases, injury)—the ITC is a protectionist agency in nature, so not everyone can bring a complaint.

Matt Rizzolo: Now that we've gone through a bit of the substance, let's talk about some of the procedural aspects of a typical ITC case. One thing right off the bat is that you simply go ahead and file the complaint—you don't need to serve it, at least not initially. And the complaint itself is much more detailed than you would see in a typical district court notice and plausibility pleading standard. The complaints often run dozens or even hundreds of pages. They're fact-based, must include detailed evidence of the violation, including patent infringement claim charts if patent infringement is at issue, as well as copies of the patents, assignments, file history, and other specific types of information. Complaints also need to be verified by a representative of the complainant under penalty of perjury. So once the complaint is filed, the Commission has 30 days to decide whether to institute an investigation. The parties have an opportunity to submit short papers alerting the Commission to any defects in the complaint or other issues. So there's a short period of time, eight days, in which to do that after the complaint is filed, and a complainant has a few days after that to respond. Then comes the institution decision. In practicality, the Commission almost always institutes an investigation as long as a procedurally appropriate complaint has been filed, whether it meets all the requirements of the statute. Institution in and of itself doesn't mean that there's likely to be a violation, but it means that an investigation has been instituted. And then, buckle up. So, Matt, what happens after that?

Matt Shapiro: Post-institution, the ITC proceeds generally like a district court case, except much quicker. The fact discovery period is often just a few months long, and discovery turnaround times are quick, just ten days. Now, contrast with the district court litigation, where the turnaround time is 30 days. Then following fact discovery, expert discovery also involves quick turnarounds, with summary determination deadlines approximately 60 days before trial. The proceeding culminates in a bench trial which usually lasts around five days. Now, historically bench trials involved direct testimony via written witness statements, but now, more and more ALJs—or administrative law judges—are moving towards live direct testimony. And at the end of the hearing, there are typically no closings—Brendan, why is that?

Brendan McLaughlin: There generally aren't closings because the hearing is followed by two rounds of post-hearing briefing. Generally, an opening brief is due within a few weeks of the hearing, followed by response briefs due soon thereafter. This is essentially a party's closing argument, so this briefing is extremely important. After the briefing is complete, the ALJ then issues an “initial determination,” which includes lengthy findings of facts and conclusions of law on all the issues presented. Parties can then petition for a review to the full Commission, and the Commission may ask for additional briefing or may simply issue its decision based on the petitions. If the Commission finds a violation of Section 337, the president—who has delegated this responsibility to the U.S. Trade Representative—has the option of vetoing the exclusion order for any reason. This is called the presidential review period, and lasts for 60 days. In practice, the veto rarely happens—the last time was in 2013 when the Obama administration vetoed an exclusion order in the case between Samsung and Apple involving wireless standard essential patents. Finally, any appeals go to the Federal Circuit. The Commission itself is a party to the appeal, and the winning party at the ITC typically will intervene to participate as well.

Matt Rizzolo: Let's also talk through some of the other differences between ITC cases and district court patent cases. And a big one in my mind for cases involving patent infringement, which—as you mentioned earlier—make up the vast majority of ITC investigations, is that the ITC does not stay cases pending parallel validity challenges before the Patent Trial and Appeal Board (PTAB). This is because the ITC is statutorily mandated to finish its investigations as quickly “as practicable.” This means that you are exceedingly unlikely as a respondent in an ITC case to be able to slow the process down by filing an inter partes review challenge at the PTAB. And in fact, the PTAB itself has now over the past year begun to deny institution altogether in many proceedings where there is an ITC case that will go to trial on that very same patent first. So for this reason, I often refer to the ITC as being somewhat of an “antidote” to the PTAB for patent owners.

Matt Shapiro: Now, the ITC has specific Rules of Practice and Procedures. In other words, the Federal Rules of Civil Procedure and Evidence do not apply at the ITC, and this makes for a much more flexible evidentiary hearing. For example, hearsay and FRE 403 or relevant objections generally do not apply.

Brendan McLaughlin: The ALJs making these determinations are very experienced. They generally served as ALJs at other agencies before joining the Commission, and some were also former IP or patent practitioners in private practice. And each of the ALJs have their own ground rules—some hold Markmans hearings, others don't. The practices vary among them.

Matt Rizzolo: I think it's worth talking about some other specific nuances of ITC practice as opposed to just distinctions between the ITC and district court. And, Matt, I know we'll be covering this in more detail on a future episode, but could you talk a little bit about the ITC's unique domestic industry requirement?

Matt Shapiro: Sure. Section 337, which is the statute that covers ITC disputes, is a protectionist statute, as we mentioned earlier. So not just anyone can file at the ITC because the ITC is tasked with policing trade and protecting U.S. industries, so there must be a sufficient reason for them to be interested and take jurisdiction over the dispute. In a patent case, generally this means that a complainant must have activities in the United States relating to products that themselves practice the asserted patents, and this falls into two prongs—a technical prong and an economic prong. Under the technical prong, there must be a patent practicing product that exists and is either made by or authorized by the complainant. And under the economic prong, the complainant must have “significant” or “substantial” investments in U.S. in certain types of activities, for example, plant and equipment, labor and capital, research and development, and engineering. Manufacturing is a classic example, but it isn't required. Now, contrary to some beliefs, non-practicing entities can still satisfy the domestic industry requirement. For example, they can rely on their own domestic licensing-related investments, or the products and activities of their licensees even if those licensees aren't a co-complainant to the investigation. But I will note that this domestic industry requirement can be challenging for non-practicing entities.

Matt Rizzolo: Yes, it definitely can be. And I'll also note that there have been multiple different bills introduced in Congress over the last several years that have targeted non-practicing entity activities at the ITC, but none of them have been enacted. So it's still technically possible for NPEs to bring cases at the ITC, and we do see that. Brendan, one of the things that a first-time litigant at the ITC is always surprised about is the presence of someone referred to as “the ITC Staff.” Could you explain a bit about who the ITC Staff are, and what their role is?

Brendan McLaughlin: Sure. I'm going to preface this with the fact that during law school I had the chance actually to work with the Staff attorneys, and that was great experience. The Staff participates as a full party representing the public interest in certain (but not all) 337 investigations. They're sort of a neutral third party, and they present their views on the appropriate outcome to the ALJ and the Commission. They can also help mediate discovery disputes between the private parties, and this has really added another wrinkle to ITC cases and ITC practice. So the Staff also assists the Commission in evaluating the sufficiency of filed complaints. They will even meet with potential complainants on a confidential basis and review proposed complaints for compliance with the ITC rules. It's a very valuable procedure that anyone seeking to file an ITC complaint should take advantage of.

Matt Rizzolo: Yes, absolutely. That pre-complaint review process is critical for many complainants. Now, one thing that litigants don't like to think about, especially when they're on the defensive side of ITC cases, is, "What happens when I lose?" And assuming that the president doesn't veto the exclusion order, many parties will either just settle or stop importing at that point. But there are a few other options. First, you can redesign or modify your product to be non-infringing, and then either ask the ITC itself or U.S. Customs, who is the one that ends up implementing and enforcing the exclusion order, for a ruling that this redesigned product is outside the scope of the exclusion order. And in fact, Customs recently created an entire group dedicated to assisting with the enforcement of exclusion orders, which is aptly named the Exclusion Order Enforcement Branch. Another option is to ask the ITC to modify or rescind the exclusion order itself based on changed circumstances. Now, maybe because the parties settled their dispute and they want the exclusion order to go away, or maybe the patent at issue was invalidated in another proceeding, whether in district court or in the PTAB, and therefore that should be binding and make the exclusion order not apply anymore—there's a variety of different changed circumstances that can apply. Matt, before we wrap up, I mentioned earlier that the vast majority of ITC cases involve claims of patent infringement, but we've seen some high-profile cases—particularly recently—involving other types of claims, haven't we?

Matt Shapiro: Yes, and in particular, trade secret misappropriation claims have gotten a lot of attention, and these have impacted a wide variety of industries. In the past few years, we've seen ITC trade secret disputes involving consumer electronics, health care devices, botulinum toxin (or Botox), and even food service equipment. While the ITC is designed to protect American industry, it does have the ability to reach trade secret misappropriation which occurred completely abroad, as long as the misappropriation can be connected in some way to the importation of products into the United States. The Federal Circuit blessed this expansive power in 2011 in an opinion named TianRui vs. the ITC. And note the trade secret cases involving non-statutory IP claims (those are non-patent claims), the complainant must also show “injury” to a domestic industry caused by the unfair act. Typically this is in the form of lost sales, lost profits, loss of employment, etc. This type of hurdle is not present for claims of patent infringement, where the injury is effectively presumed by statute.

Brendan McLaughlin: I just want to add one more point relevant to trade secrets—that's that spoliation or the destruction of evidence is often at issue in these trade secret matters. One high-profile case involved a trade secret dispute between LG Chem and SK Innovation concerning electric vehicle batteries. The ITC entered a finding of default as a sanction for spoliation and entered an exclusion order. And so the parties ended up entering into a $1.8 billion settlement, one of the largest—if not the largest—trade secret settlements of all time.

Matt Rizzolo: That settlement and that dispute were closely watched by the Biden administration and many involved in the electric vehicle industry in the United States. And I think that $1.8 billion settlement is a real testament to the power of the ITC. The threat of an exclusion order can be really significant and has a tendency to bring folks to the bargaining table.

Well, that does it for our time today. Thank you both, Matt and Brendan, for joining me. And we appreciate everyone listening to this inaugural episode of Talkin' Trade. You can listen to this and other RopesTalk podcasts on, Apple Podcasts, or wherever you get your podcasts. We're even on Spotify. We look forward to bringing you a future episode of Talkin' Trade soon, and maybe for the next one, we can come up with some sort of catchy intro. Until then, I'm Matt Rizzolo, and on behalf of Matt Shapiro and Brendan McLaughlin, thank you all for listening.