Talkin' Trade: All About Ancillary Proceedings

Ropes & Gray’s podcast series Talkin’ Trade explores the world of Section 337 unfair import investigations at the U.S. International Trade Commission. Much of the focus of Section 337 litigation at the ITC is on the “violation” phase, where the Commission determines in the first instance whether to issue an exclusion order or cease and desist order. But ITC litigants should not lose sight of follow-on proceedings where these remedial orders can be modified or rescinded, or the ITC can impose civil penalties to enforce these orders. In this episode, Ropes & Gray IP litigators Matt Rizzolo, Matt Shapiro, Brendan McLaughlin, and Becca Gentilli shed some light on these so-called “ancillary proceedings,” explaining why and how they are used, who presides over them, and comparing and contrasting them to other post-violation procedural options.

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Transcript:

Matt Rizzolo: Welcome back to Talkin’ Trade, a podcast where we explore the ins and outs of Section 337 investigations at the U.S. International Trade Commission. I’m Matt Rizzolo, and with me today are my fellow Ropes & Gray IP attorneys Matt Shapiro, Brendan McLaughlin, and Becca Gentilli. How’s everyone doing today? It’s been a few months since our last episode, and I know our listeners have been waiting with bated breath this summer for the final part of our series on ITC remedies, but I got to admit, my New York Mets have been too good and too much fun to watch this summer, so I’ve taken a bit of time off from the podcast. I’ve actually been trying to figure out how to pivot Talkin’ Trade to Talkin’ Mets, but I guess we’ll stick to the ITC for now.

With today’s episode, we’re going to set out to tack a final episode onto our series focusing on what happens after the Commission finds a violation of Section 337. Specifically, we’ll be discussing so-called ancillary proceedings at the ITC—those proceedings that happen, as I mentioned, after the Commission actually issues a remedial order. These proceedings include modification proceedings, rescission proceedings, enforcement proceedings, and requests for advisory opinions. So, we’ll unpack all of that in a few minutes. But first, let’s go to Brendan: What’s new at the Commission over the last few months?

Brendan McLaughlin: Thanks, Matt. While it’s been a little while since our last episode, things have been generally quiet at the Commission. Since the beginning of May, the Commission has received 18 new complaints, though that’s not all that uncommon for the summer months. In that same time, the Commission has issued six new opinions. Also, the ITC’s bench has seen some changes. In April, Judge Bryan Moore joined the bench as the newest ALJ. Judge Moore served as an Administrative Patent Judge at the PTAB since 2012, and before that he worked as an investigative attorney in the Office of Unfair Import Investigations. Judge Moore brings a wealth of patent experience to the bench, and he is now the second straight ALJ appointed that has an OUII background. He’s also the first African American to serve as an ITC ALJ. And in early July, ALJ David Shaw left the bench after over a decade of service, joining the Copyright Royalty Board as its chief judge. His expertise will be missed by the Commission, which is now also looking for his replacement, so stay tuned on that front.

Finally, there are two updates from other fora that may have an impact on ITC practice:

First, the USPTO Director Katherine (Kathi) Vidal announced that the PTAB will not use its precedential Fintiv decision to deny institution of validity challenges to patents that are being asserted in parallel ITC proceedings. This is a significant change in policy, as PTAB petitions challenging patents involved in an ITC proceeding were regularly denied under the Fintiv precedent for approximately the last year and a half. And this marks a return to the PTAB pre-Fintiv practices, at least on this issue.

Second, the chief judge of the Western District of Texas announced at the end of July that all new patent cases filed in that district will be randomly assigned amongst the 12 district judges. This is a major development because plaintiffs who filed in the Waco Division were guaranteed that Judge Alan Albright would hear their cases. And as most of our listeners are likely aware, Judge Albright is a former patent litigator with a reputation for putting patent cases on an accelerated, patentee-friendly schedule. This policy will probably lead to a drop in West Texas patent cases, and it’ll be interesting to see whether some of those seeking an accelerated schedule might instead turn to the ITC.

Matt Rizzolo: Thanks, Brendan. Like you said, it’s been somewhat of a slow summer in terms of new complaints or Commission opinions, although there were a couple just filed in the last couple of weeks, but I would note that the Commission really is as active as ever—you have over 125 active investigations in the quarter ending June 30. 

As far as updates go, I think those last two that you flagged, they’re really some of the most important and can change the strategic calculus for both complainants and respondents. Patent owners can no longer count on Judge Albright’s West Texas accelerated schedule, so the fast pace of the ITC is going to be even more attractive if a patent owner feels like they can get over the domestic industry hump. And then on the flip side from a respondent’s perspective, I really do think respondents received a gift with the PTAB changing its policy on Fintiv and the ITC. They still won’t be able to stay ITC cases pending a parallel PTAB proceeding, but we will see more final written decisions out of the PTAB that could have an effect on an ITC investigation or remedies going forward.

That actually segues us nicely into the main topic today of ancillary proceedings before the ITC. When we’ve talked about investigations in past episodes, we really focused on the violation phase, where the Commission determines whether or not there’s actually been a violation of Section 337 in the first instance. But once the Commission has determined that a violation has occurred, and the Commission issues a remedial order, the Commission’s job isn’t necessarily over. Matt, can you give us a run through of the different types of ancillary proceedings, and who gets involved there?

Matt Shapiro: Sure—absolutely, Matt. There are three types of ancillary proceedings before the Commission:

• First, there are modification and rescission proceedings, where any party—but in this case, typically a respondent—may request that the Commission change the scope of an existing exclusion order.
• Second, there are enforcement proceedings, where a complainant may request that the Commission determine whether a party has violated the Commission’s remedial relief, and if so, whether the Commission should impose a civil penalty.
• And third, any party—in this case, even parties that were not named in an underlying investigation—may request an advisory opinion regarding whether an article falls within the scope of an existing remedial order.

Matt Rizzolo: First things first, and with apologies to Jerry Seinfeld: What’s the deal with modification and rescission proceedings?

Rebecca Gentilli: Any person who believes that either changed conditions of fact or law, or the public interest, require that a remedial order be modified or rescinded, may file a petition requesting the Commission to take such action. If the petitioner was a respondent found in violation of Section 337 during the underlying investigation, it will have the burden of proof. And as with an investigation on violation, the Commission will generally determine whether or not to institute a modification or a rescission proceeding within 30 days of filing the petition.

Matt Rizzolo: In modification and rescission proceedings, we’re dealing with altering or rescinding an exclusion order, but the procedure you just described sounds pretty similar to the procedure for an initial Section 337 investigation at the violation phase. But does a modification or rescission proceeding take as long?

Rebecca Gentilli: Not quite—typically, these proceedings will involve a fairly narrow issue for the Commission to decide. For example, a respondent may petition for modification of an exclusion order to include a carve-out provision for a redesigned product that was not adjudicated during the violation phase. The only issue for the Commission might be whether the accused article contains one element that the respondents claim to have removed, thus making the article non-infringing. For the last several years, the ITC has run a pilot program where it has aimed to complete these proceedings in a matter of several months, as opposed to 16-18 months like a full-blown 337 investigation.

Matt Rizzolo: Who at the ITC presides over these modification and rescission proceedings? Is it like the violation phase where it’s an ALJ?

Rebecca Gentilli: It depends on the nature of the modification requested. If it’s a “pure question of law,” then it will be handled by the ITC’s Office of General Counsel, and they’ll seek to issue a ruling within 60-90 days. But if there’s “minimal fact finding,” the ITC’s Office of Unfair Import Investigations will conduct the proceeding, and typically issue a report within 3-6 months. For proceedings involving “extensive fact finding,” those will take 6-9 months or more, and proceed before an ALJ.

Matt Rizzolo: Those are faster, and it’s great that the Commission is trying to shorten the length of time to complete those proceedings, but they do still tend to be longer than a petitioner may hope—especially if their products are being excluded by Customs in the interim. As our listeners may recall, Customs handles substantially similar issues through so-called Part 177 proceedings on timelines that are typically a little bit faster than those aspirational timelines that Becca just discussed. So, Becca, why would a respondent opt for a modification proceeding as opposed to just going to Customs in a Part 177?

Rebecca Gentilli: It will depend on what the modification the petitioner wants, as well as practical business considerations, including when a redesign product may be ready for adjudication. As you note, the primary drawback to modification proceedings is that they typically take longer than Part 177 requests before a CBP. But ITC final decisions in modification proceedings are binding on CBP and are immediately appealable to the Federal Circuit. On the other hand, Part 177 decisions do NOT bind the ITC, and may be effectively overruled in an ITC modification or enforcement proceeding. Adverse Part 177 decisions also must first be appealed to the Court of International Trade and then to the Federal Circuit—potentially lengthening their timeline. It’s actually not uncommon for parties to opt to file a parallel Part 177 request and modification petition so that the same request runs in parallel before both agencies.

Matt Rizzolo: I’ll also point out that while Part 177 rulings aren’t binding on the ITC, we’ve seen at least one instance recently where Customs rendered its opinion first in the Part 177 proceeding, and then the ITC favorably cited Customs’ opinion when rendering its own decision in a related ancillary proceeding. So, they’re related in parallel—they still may play off each other a bit.

Matt, how about rescission proceedings?

Matt Shapiro: Rescission proceedings deal with requests to repeal the ITC’s exclusion and cease and desist orders entirely. One common situation involves settlement—when parties settle a dispute, they’ll often jointly file a petition to rescind the LEO and CDO. And in investigations involving patents, rescission proceedings are appropriate if the patent(s) subject to the remedial orders have been found invalid in a separate proceeding, such as a PTAB proceeding, and all appeals have been exhausted. As we’ve discussed in previous episodes, the Commission does not immediately repeal a remedial order if the claims are cancelled—instead, a party subject to those orders must first petition the Commission to rescind that order. But it’s worth noting that the Federal Circuit recently confirmed in Mayborn Group v. ITC that the Commission cannot hear patent invalidity arguments in the first instance during a modification or rescission proceeding—instead, the Commission may only adjudicate patent validity when an invalidity defense is raised by a respondent in the course of an investigation, and this can occur on the violation phase or during an enforcement proceeding, as we’ll discuss shortly.

Matt Rizzolo: Yes, that’s an important point. There needs to have been a changed issue of fact or law that’s the impetus for the modification request or rescission request, and this is related to the issue that DBN faced in the DBN Holding decision that we discussed last episode, I believe. Even though the patent underlying the consent order there was later found to be invalid, DBN began importing products that fell within the scope of the consent order instead of seeking rescission based on that invalidity finding, and was found to be liable for a $6 million civil penalty. So, it just goes to show you how critical it is for litigants to understand the nuances of these ancillary proceedings.

As Matt previewed, up next is enforcement proceedings. Matt, can you tell us a little bit about those?

Matt Shapiro: Sure—and just to pause for a moment on that $6 million civil penalty. We’ll get into that later, but the civil penalty can be extreme for violation of a CDO, and keeping that in mind in an enforcement proceeding is important.

Under ITC Rule 210.75, a complainant can file a complaint with the Commission setting forth an alleged violation of any exclusion order, cease and desist order, or consent order. Interestingly, there’s no express statutory hook for an enforcement proceeding, and recall that the ITC happens to be a creature of statute. That said, the Federal Circuit in Vastfame Camera v. ITC interpreted Section 337(b) to allow for such investigations as it gives the Commission general authority to investigate violations of Section 337. And just like an investigation at the violation phase, the Commission will typically make a decision on institution of an enforcement complaint within 30 days. The enforcement phase will then proceed before an ALJ, and will include an evidentiary hearing.

Matt Rizzolo: As you mentioned earlier, a respondent in an enforcement proceeding can raise invalidity as a defense, but are there any limits on what other issues or defenses can be raised?

Matt Shapiro: As a general matter, no. A respondent in an enforcement proceeding is permitted to raise all defenses—this would include invalidity, non-infringement, or lack of a domestic industry. However, depending on the extent to which the particular issues were litigated in the underlying violation phase, a respondent in the enforcement proceeding may be subject to collateral estoppel, which would limit its ability to raise certain defenses.

Matt Rizzolo: Let’s say the enforcement proceeding runs its course and the ITC finds that a respondent has in fact violated a remedial order—what then?

Matt Shapiro: Like in the violation phase, the ITC has broad power to craft an appropriate remedy. For example, it can issue new or modified exclusion orders, including General Exclusion Orders. And perhaps more importantly, if the respondent has violated a cease and desist order, as I was mentioning earlier, the Commission can assess civil penalties. As we have discussed as well on prior episodes, the penalty for violating a CDO can be VERY substantial, and is up to twice the domestic value of the articles sold or imported each day that is in violation of the order, or $100,000 per day—and critically, it’s whichever is greater. That’s potentially a steep penalty for any respondent.

Matt Rizzolo: Yes, I’ll say. And I know we’ve had conversations about some interesting questions concerning whether the statute actually does grant the ITC the authority to assess and impose those civil penalties, but that is a conversation for another day. I will say, what the statute definitely does do, is it empowers the ITC to file suit in district court to collect civil penalties. I’ll note that compared to modification and rescission proceedings, enforcement proceedings—probably because they mirror the original violation phase so much more—are generally not that expeditious. The Commission has a goal of completing them within 12 months, but with extensive and complex discovery—especially where the complainant might be trying to enforce a remedial order against a party that was not part of the original investigation—it can often extend months beyond that 12 month period.

Alright, we’ve got one more here to wrap us up. Becca, what can you tell us about advisory opinions?

Rebecca Gentilli: Advisory opinions are an interesting option. Under ITC Rule 210.79, any person may request an advisory opinion regarding whether any person's proposed new course of action or conduct—for example, importation of a similar article or product allegedly redesigned to avoid infringement of the suit patent—would violate a particular Commission order.

A proposed course of action in the request must not be hypothetical, and the requester must have a compelling business need for the advice—for example, that it’s rolling out a new product in the coming months. Furthermore, the requester bears the burden of proof. For example, where a respondent requests an advisory opinion that its redesigned products do not infringe the patents at issue and thus are not subject to a Commission order, the respondent has the burden of proof, even though the burden of proving infringement is usually on the patent owner. But on the flip side, a complainant requesting an advisory opinion as to whether a respondents’ new product is infringing would still bear the burden to show infringement.

Finally, as with modification proceedings, depending on the complexity of the issues, the Commission may refer a request for an advisory opinion to an ALJ for a hearing, or it may refer the request to OUII or the Office of General Counsel.

Matt Rizzolo: Advisory opinions are a different kind of beast in other ways as well—Section 337 and the Commission rules don’t require that they may be issued in a certain amount of time, although, Becca, as you just pointed out, the Commission does have that pilot program where they try to expedite them. But more importantly, they’re not “final decisions under the Administrative Procedure Act,” and they cannot be appealed to the Federal Circuit. So with that you might be thinking: Why would anyone actually ask for an advisory opinion from the ITC? A couple reasons—so, for one, they are still binding on Customs. So, if you think you might get a more favorable ruling from the ITC than from Customs, you can do that and the ITC ruling will bind Customs. And as with modification and rescission proceedings, they can be filed in parallel with Part 177 proceedings. So, they are a tool worth considering for any party, but especially because they are not appealable, certainly something you want to proceed on with caution.

With that, that’s all the time we have for this episode of Talkin’ Trade. You can find this podcast and other Ropes & Gray podcasts on Apple Podcasts, Spotify, or at in our podcast newsroom. I’m Matt Rizzolo, and on behalf of Matt Shapiro, Brendan McLaughlin, and Becca Gentilli, thank you all for listening.