Podcast: Talkin’ Trade: Enforcement of Section 337 Exclusion Orders at U.S. Customs and Border Protection
Ropes & Gray’s podcast series Talkin’ Trade explores the world of Section 337 unfair import investigations at the U.S. International Trade Commission. All too often, little attention is paid to what happens after the ITC issues an exclusion order in a Section 337 investigation. In this episode—the third in a three-part series on remedies at the ITC—Ropes & Gray intellectual property litigators Matt Rizzolo, Matt Shapiro, Brendan McLaughlin, and Rebecca Gentilli address the myriad of issues surrounding enforcement of Section 337 exclusion orders by U.S. Customs & Border Protection, and discuss the procedural options available to both complainants and respondents.
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 everybody doing?
All right, glad to have everyone here. With today’s episode, we set out to finish our three-part series focusing on what happens after the Commission finds a violation of Section 337. Specifically, today, we’re going to do an overview of the enforcement of exclusion orders by the U.S. Customs and Border Protection. In my experience, this is an area of ITC practice that is very much overlooked, and it’s a great mystery to many litigants and even their attorneys. As we’ll talk about, the processes and procedures behind this have changed significantly over the last several years. All this, I think, makes it a great topic to wrap up our three-episode arc here on ITC remedies. But, before we get into that, Brendan, what’s new at the Commission?
Brendan McLaughlin: Thanks, Matt. Before jumping into what’s new at the Commission, we should first cover what’s new at the Federal Circuit, as the Court has issued a few ITC-related decisions since our last episode.
First, in DBN Holding, Inc., v. ITC, the Federal Circuit affirmed a Commission determination not to rescind or modify a $6 Million civil penalty that had been issued for violation of a consent order between the parties, even though the patent underlying the consent order was subsequently invalidated by a district court. The Federal Circuit affirmed on appeal, reasoning that a consent order has attributes of both a contract and a judicial decree and that, in this case, the consent order only provided for invalidation to operate prospectively. Invalidation, in other words, would not alter any breach of the consent order that had previously occurred. The Federal Circuit also found no error in the Commission’s assessment that the EPROMs factors did not independently require recession or modification.
Second, in Broadcom v. ITC, the Federal Circuit held that the complainant failed to satisfy the tech prong of the domestic industry requirement because the system-on-chip component it relied on did not practice every claim limitation, and Broadcom failed to identify an actual patent-practicing product. The Court also affirmed the ITC’s rejection of Broadcom’s related attempt to shift its DI theory. This serves as a cautionary tale to make sure your DI theory is sound even before filing a complaint.
Finally, in Mahindra & Mahindra Ltd. v. ITC, the Federal Circuit issued a Rule 36 Judgment affirming the Commission’s findings that Mahindra infringed FCA’s Jeep trade dress in the underlying 1132 investigation.
Turning away from the Federal Circuit to the Commission, there have been just three new section 337 complaints filed since our last episode, but the Commission has instituted nine new investigations—three of which are based on complaints filed by Ericsson.
Finally, the Commission and its ALJs have issued several interesting new opinions:
Certain Cloud-Connected Wood-Pellet Grills & Components Thereof, Inv. No. 337-TA-1237
In the 1237 investigation, the Commission affirmed the ALJ’s finding that PGR estoppel casts a really long shadow. While IPR estoppel applies to grounds based on patents and printed publications, the Commission found that PGR estoppel applies to any ground since any invalidity ground—including those based on physical products or system art—may be brought before the PTAB in a PGR proceeding. The Commission affirmed this decision in view of the recent Federal Circuit precedent regarding IPR estoppel. Now, while the ground has not settled for PGR estoppel, if other courts follow the ITC’s lead, this could reduce the number of PGR filings even further. You can read more about this decision in our colleague Scott McKeown’s excellent PatentsPostGrant.com blog.
Certain Movable Barrier Operator Systems, Inv. No. 337-TA-1209
Turning to the 1209 investigation, there the Commission affirmed the ALJ’s findings that respondent violated section 337 and issued an LEO and a CDO. This opinion appears to represent the first time in several years where the Commission has substantively addressed patent eligibility under section 101 at length, finding the claims at issue here to be patent eligible.
Certain Electronic Stud Finders, Inv. No. 337-TA-1221
In 1221, the Commission affirmed the ALJ’s finding that the complainant failed to satisfy the econ prong of the DI requirement. Notably, the Commission found that complainant erred in how it attempted to aggregate its investments across all of the DI products for each asserted patent. The Commission went as far as to say, under the facts of that investigation, “aggregating investments in different DI products that practice different patents effectively precludes the Commission from quantifying the amounts of the investments in each statutory category and determining the significance of [complainant’s] investments with respect [to] each of the asserted patents.” Since the majority of investigations similarly include multiple patents and multiple DI products, this opinion should serve as a warning for future complainants trying to satisfy the DI requirement.
Certain Wrapping Material, Inv. No. 337-TA-1210
And finally, the Commission issued a Notice of Review in the -1210 investigation asking the parties to brief 17 DI-related questions. But for those of us who were looking forward to the Commission dive into domestic industry in greater detail, just a week after the Notice issued, the parties settled.
Taking a second to take all that in, Matt, do you have any further thoughts?
Matt Rizzolo: My first thought is you should get a drink of water!
Brendan McLaughlin: I’m way ahead of you.
Matt Rizzolo: Going back to the first case you mentioned, that DBN case, I think that it’s really interesting because it showcases the power of the Commission, and the steep consequences if you disobey or flout its orders. I mean, even though those patents were found invalid, that was irrelevant. Once the Orders were issued, if you violated them, you’re going to have to pay a penalty. That applies to that consent order as well as other orders such as cease and desist orders. So, litigants should watch out for that in the future.
The 1210 investigation—those DI questions show that domestic industry is still an issue that a lot of commissioners are grappling with, and it’s very much a topic of discussion. So I expect that we’ll see other lengthy notices of review in some future cases.
With that, let’s turn to our main topic for today, which, as I mentioned, is a deeper dive into Custom and Border Protection’s—or CBP’s—enforcement of exclusion orders.
Matt, we know that Customs will exclude future shipments of the product that was actually litigated in ITC proceeding, and they’ll exclude them at ports of entry once the Commission issues an exclusion order. But what happens if a company wants to import a new or redesigned product—one that wasn’t actually adjudicated by the ITC in the underlying Section 337 investigation? What if the company believes that its new product is non-infringing? Will those products still be subject to exclusion?
Matt Shapiro: Well, unfortunately, Matt, I give you perhaps the most basic lawyer answer—and that is, it depends. Customs here will have to make an independent determination as to whether the unadjudicated product falls within the scope of the exclusion order. In other words, whether it infringes the patent.
Matt Rizzolo: So, why don’t you walk us through when and how Customs makes that determination?
Matt Shapiro: First, it’s important to note that Customs is not willing to accept self-certification of non-infringement. An importer can’t simply say to Customs, “This is a redesigned product that doesn’t infringe” unless that specific product was actually adjudicated at the ITC. A would-be importer is left with two main pathways to obtain Customs’ review of unadjudicated product.
First, an importer can just import the product at risk of potential exclusion by Customs. Customs may detain and inspect the product, and if it does, it must decide within 30 days whether to allow the product into the country as non-infringing or exclude it pursuant to the exclusion order. If Customs rules to exclude the product, the importer can protest its decision under 19 C.F.R. Part 174—this is called a protest, for short—and, if the protest is unsuccessful, appeal to the Court of International Trade. But in the meantime, Customs may notify the ITC of the exclusion, and the ITC may issue a “seizure and forfeiture order” allowing any future imports to be seized by Customs rather than simply excluded.
So you may get a ruling quickly—but the ruling isn’t necessarily binding on Customs as to the importation of future products, and if that ruling goes against you, there can be serious consequences.
Matt Rizzolo: It’s for this reason that importing “at risk”—so to speak—is pretty risky, as you might infer from the name. But there are things that an importer can do in the meantime to help Customs in making its determination on infringement, right?
Brendan McLaughlin: Yeah, absolutely—and this can start even before the underlying ITC case has wrapped up. Typically, a representative from Customs will reach out to the parties a month or two in advance of any potential exclusion order. Whether you’re a complainant or a respondent, it’s a best practice to take Customs up on the offer so that you can explain the issues from the client’s side of the dispute. If an exclusion order ultimately issues, it’s often a good idea to provide Customs with additional information showing how they can distinguish infringing products from non-infringing products—whether by inspection of the products themselves, or testing—and generally make Customs’ enforcement job as easy as possible. These conversations and communications can take place ex parte, and you want to try to anticipate what your opponent is telling Customs.
Matt Rizzolo: That’s right—an open dialogue and helpful information are both key. The last thing you want is for Customs to mistakenly detain some of your products and disrupt your business in the interim. So, Becca, Matt mentioned two options. What’s the other option an importer has to get Customs’ view on whether a product falls within the scope of an exclusion order?
Rebecca Gentilli: As a safer, but potentially more time-consuming and expensive proposition, an importer can seek a pre-importation ruling from Customs under 19 C.F.R. Part 177, in what’s known as a “Part 177 proceeding.” It used to be that these were conducted between just the importer and Customs, but a few years ago Customs modified its regulations to allow inter partes adjudication of these rulings, with participation by both parties. A Part 177 proceeding allows the importer to obtain certainty from Customs that the product it is seeking to import is not subject to an exclusion order. However, if Customs rules against the importer (or if it fails to issue any ruling at all), the importer’s avenues for relief are limited—it can only appeal to the CIT if it can demonstrate irreparable harm in the absence of judicial review.
Matt Rizzolo: Let’s focus on Part 177 proceedings for a minute. How do you request a ruling from Customs prior to importation?
Rebecca Gentilli: Well, Part 177 provides for Customs to “give full and careful consideration to written requests from importers and other interested parties for rulings or information setting forth, with respect to a specifically described transaction, a definitive interpretation of applicable law, or other appropriate information.” So, the first step is to submit a “written request” to Customs asking for a ruling respecting the unadjudicated products. This is typically in the form of a letter and should include whatever information and arguments you think Customs may need to make its determination.
Matt Rizzolo: Yeah, this is a really important step, and I can’t emphasize that strongly enough. You must—absolutely must—formally request a ruling in order to preserve the right to appeal if you receive an adverse determination. The Court of International Trade will not hesitate to reject if you forget to make a written request for a decision. Becca, you mentioned that a Part 177 proceeding is an inter partes proceeding. How does CBP conduct one of those proceedings?
Rebecca Gentilli: As I previously mentioned, the inter partes procedure under Part 177 is relatively new, with both the importer as well as the complainant in the ITC case as parties to the proceeding. Each party can submit arguments and evidence to support the importation or exclusion of the articles in question. In effect, this becomes like somewhat of a mini ITC investigation—except the issues are narrowed significantly to whether the new product is within the scope of the exclusion order and infringes the intellectual property at issue.
This enables Customs to render a decision based on a fully developed record, but practically it prohibits Customs from communicating with either party individually during the pendency the Part 177 proceeding.
Matt Rizzolo: And when you’re talking about Customs, here you’re specifically referring to the Exclusion Order Enforcement Branch of Customs, right? Who are they exactly, and what do they do?
Rebecca Gentilli: As with Part 177 proceedings, Customs’ Exclusion Order Enforcement Branch—or EOE for short—is relatively new to Customs. It has the authority to adjudicate issues relating to the administration of exclusion orders. And EOE is who will decide the procedural schedule for the Part 177 proceeding and eventually issue the Ruling Letter stating whether or not the new product is subject to the exclusion order. They have significant power under Customs rules and regulations. Currently Dax Terrill is the chief of the branch.
Matt Rizzolo: You mentioned one aspect of this that I’d like to backtrack to for a second—the procedural schedule. We know that ITC investigations are fast-paced. But, Matt, what about Part 177 proceedings? Do they go quickly?
Matt Shapiro: Well, if you think ITC investigations are quick, they are nothing compared to Part 177 proceedings, which on average take around four months to complete. Now, compare that to 17 months to the target date of a typical ITC Investigation—or frankly years for a district court case. That’s really fast. Sure, these proceedings are more limited in scope than a full-fledged ITC investigation, but they can still involve some complex, time-consuming issues that would necessitate a mini discovery period. For example, the most common issue is infringement, which may require an in-depth review of the subject products, including an analysis of their operation, fact testimony in the form of depositions, and even source code review. The parties may also submit expert declarations to explain the technology and offer opinions on infringement.
The EOE in some situations—and this is where it really gets interesting—might consider issues that the ITC never touched during the investigation. For example, EOE has the authority to construe a claim that the parties did not dispute during the investigation, but that is highly relevant to the new product at issue. And the parties can even advance new infringement theories for the first time before Customs. And all of this must be accomplished within the confines of the procedural schedule that’s decided by EOE at the outset. And this may lead to some variability in the length of the schedule for a particular proceeding.
Matt Rizzolo: So, pausing on that for a second—it is important to note that while EOE may decide issues of infringement and even claim construction, it will not decide patent invalidity theories. Customs does not have authority to find a patent invalid.
So, let’s say that the Exclusion Order Enforcement Branch sets the procedural schedule and the mini discovery period comes to a close. What then?
Matt Shapiro: Typically, you then enter a phase of briefing. The responding party will file a response to the initial ruling letter, citing evidence from the mini discovery period. The Ruling Letter requestor can then file a reply; and the responding party can file a sur reply. In some cases—but not all—this briefing period will end in an oral argument. And after the briefing period—and oral argument, if there is one—the proceeding is effectively entered. The parties then wait for Customs’ Ruling Letter, which is essentially a thumbs up or thumbs down: either the requestor may import the products, or it may not import the products. And, as should be apparent from this discussion, a Part 177 proceeding is really a targeted investigation as to specific products.
Matt Rizzolo: Does CBP actually need to issue a Ruling Letter in all cases? I mean, what happens if it never acts on that request?
Rebecca Gentilli: Customs cannot delay forever. After a certain period of time, you can appeal a “refusal to issue a ruling” directly to the Court of International Trade, just as if you had received an adverse determination.
Matt Rizzolo: All right, so let’s move on in the process. Let’s assume that Customs either doesn’t issue a ruling or that it issues a ruling that’s adverse to you. What happens next?
Rebecca Gentilli: Well, this is where things get a little complicated. After an adverse ruling—in cases where it has or has not issued a ruling letter—a requestor can appeal directly to the Court of International Trade. Unlike in the protest context, there is no need to exhaust your administrative remedies under Part 177 and follow through the protest process. As we discussed earlier, however, by statute, the Court of International Trade will only judicially review the ruling if you show that you “would be irreparably harmed unless given an opportunity to obtain judicial review prior to such importation.” In other words, review is not guaranteed as a matter of right.
Matt Rizzolo: And as we know from other contexts, irreparable harm can often be very hard to show. Brendan, how would you prove here that you would suffer irreparable harm in the absence of judicial review?
Brendan McLaughlin: So, the test here is the same as the test courts apply in determining whether to issue a preliminary injunction or temporary restraining order. So, allegations of financial harm, the unavailability of any other means for prospective relief, the possibility of delay, or the futility of importation in light of the ruling determination, wouldn’t be sufficient to establish irreparable harm. Instead, your best bet is to focus on something beyond monetary loss. For example, courts have sometimes found irreparable damage in the face of evidence of price erosion, loss of goodwill, damage to reputation, or loss of business opportunities. Your chances of success thus significantly improve if you can establish one of these conditions. But that success is never guaranteed.
Matt Rizzolo: What happens if you’re actually able to establish irreparable harm?
Brendan McLaughlin: In that case, then the Court of International Trade will review the decision as normal, applying the same standards that it would apply in an appeal of a Part 174 ruling for protest.
Matt Rizzolo: And what happens if you fail to establish irreparable harm?
Brendan McLaughlin: You’re stuck. You’re stuck with Customs’ ruling, and if you want to challenge it, you will need to try to import the product, wait for Customs to exclude it, and then protest and appeal in accordance with the first pathway, as discussed by Matt earlier.
Matt Rizzolo: Okay, well, shifting focus, we’ve spent some time discussing the role of Customs, but are there any other options available to either patentees or importers pre-importation?
Matt Shapiro: Well, your other option is to bypass Customs entirely and seek relief from the Commission. We could do a whole episode, or perhaps multiple episodes, on the Commission options available to patentees and importers after the violation phase—and we actually may do that, adding a fourth or possibly even a fifth part to this series—but for now, let me just give a quick overview. Your main options as an importer before the Commission are to request modification of the exclusion order to expressly exempt the previously unadjudicated products, or to request an “advisory opinion” from the ITC that a particular product or products are not within the scope of the exclusion order. On the other hand, as a patent holder, your primary remedy at the Commission is to request that the ITC institute an enforcement proceeding, which may result in civil penalties like the kind issued in the DBN case that we discussed at the beginning of the episode.
Matt Rizzolo: And these proceedings are generally known as ancillary proceedings. Unfortunately, given how long we’ve been going, I think that we’re going to have to leave a more detailed discussion of these for a future episode, lest this one go on for a whole hour. I will note that importers can and often do use both routes in parallel; they may file a Part 177 proceeding at Customs and pair that with a request for an advisory opinion or a modification proceeding at the ITC. Matt, that actually raises an interesting question about possible other routes. Can a district court ever get involved?
Matt Shapiro: Once again, Matt—and I want to return to, I think, my first answer on the episode, the same lawyer answer of—well, it depends. An importer does remain free to file an action for declaratory judgment of non-infringement against the patent owner in district court, in the rare instance where there wasn’t already a parallel case filed by the complainant. But even if the district court case hasn’t been stayed, the option will likely do little to remedy the exclusion in the short term because Customs would not be a party to the suit. If you are instead hoping to get an order compelling Customs to undertake any action, well, then no, a district court cannot do that. While a few courts have addressed the issue, two courts have categorically refused to get involved in a party’s dispute with Customs over excluded merchandise.
Matt Rizzolo: Brendan, I know you’ve looked at these cases. Can you give a quick overview of them?
Brendan McLaughlin: Sure. The first one is Wirtgen Am., Inc. v. United States. In that case, Wirtgen filed an action in the DDC challenging the exclusion of its machines under a limited exclusion order. The court dismissed the action for lack of subject matter jurisdiction, concluding that the Tariff Act commits claims related to an exclusion decision to the Commission (with appeal to the Federal Circuit) or to the Court of International Trade and not to the district courts. The second one is Keirton USA Inc. v. United States Customs and Border Protection. In that case, Keirton filed suit in the Western District of Washington, seeking to enjoin Customs from excluding future shipments of its agricultural equipment as “illegal drug paraphernalia.” The court determined that it lacked subject matter jurisdiction over Keirton’s claims because Congress intended to preclude district court jurisdiction when it created the protest system, and Keirton’s claim was of the type meant to be reviewed within the statutory scheme.
Matt Rizzolo: Thanks, Brendan. That the construction of the enforcement of exclusion order is by Customs, even though they are issued by a different agency, really creates some interesting issues of administrative law that could keep a lot of attorneys busy, and clients frustrated.
And with that, that’s all the time we have for this episode of Talkin’ Trade. Stay tuned for next time, when I guess we’ll talk about modification, advisory, and enforcement proceedings. You can find this podcast and other Ropes & Gray podcasts on Apple podcasts, Spotify, or Ropesgray.com/podcasts. I’m Matt Rizzolo, and on behalf of Matt Shapiro, Brendan McLaughlin, and Becca Gentilli, thank you all for listening.