Podcast: Talkin’ Trade: The Powerful General Exclusion Order
Ropes & Gray’s podcast series Talkin’ Trade explores the world of Section 337 unfair import investigations at the U.S. International Trade Commission. In this episode—the second in a three-part series on remedies at the ITC—Ropes & Gray intellectual property litigators Matt Rizzolo, Matt Shapiro, and Nicole Pobre explore the unique and rarely issued General Exclusion Order remedy that is available in ITC Section 337 investigations, and discuss the unique aspects that set this remedy apart from the other types of ITC remedial orders.
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 Ropes & Gray IP litigation partner, Matt Rizzolo, and with me today are my fellow Ropes & Gray IP attorneys, Matt Shapiro and Nicole Pobre. Glad to have you here. And thanks to everyone who's been tuning into our podcast so far. Today's the second part of our three episode series on what happens when the Commission finds a violation of Section 337. If you haven't already, I'd encourage you to check out our first episode, which deals with an overview of the specific remedies that the ITC provides, with a focus on limited exclusion orders and cease and desist orders. Today, we're taking a closer look at the last of the remedies provided by the Commission: General exclusion orders, also known as GEOs. But before we get into that, Nicole, what's new at the Commission?
Nicole Pobre: The Commission has continued to see significant activity at the ITC since the New Year with at least 11 complaints filed in January and early February. In large part, this activity has been part of an escalation between Apple and Ericsson, which represents four of the 11 new complaints. The Commission also instituted at least nine new investigations since the New Year. One investigation worth highlighting is the recently instituted 1296 investigation, which is a rare instance of a tortious interference claim. There, the complainant alleges that Alvotech has induced and continues to induce the complainant's current and former employees to breach their non-competition and confidentiality agreements with the complainant by joining Alvotech, and that those acts have interfered and continue to interfere with the complainant's contractual relationships with its employees. This is just one more example of the diverse set of cases that are filed at the ITC.
On the other end of things, the Commission has issued its final determination in the 1191 investigation, Certain Audio Players and Components. The Commission found that the respondent violated Section 337 and issued a limited exclusion order against certain smart speaker and video streaming devices. But the ITC did create an exemption for a number of redesigned products, which did not infringe the asserted patents. The Federal Circuit also recently issued a decision in Kyocera Senco v. ITC, vacating an exclusion order issued in a case involving certain gas spring nailers. The CAFC found that the ALJ had improperly relied on the testimony of an expert who admittedly did not meet the standard of ordinary skill in the art, as adopted during claim construction. Also, Chief Judge Bullock has officially retired. ALJ Cheney is currently serving as the acting chief ALJ. It'll be interesting to see if he ultimately ends up as the permanent chief. And we are awaiting the appointment of a new ALJ to fill Chief Judge Bullock's spot. It looks like the job posting has been taken down, so hopefully that means the ITC is close to making a decision. Matt, do you have any thoughts on the recent uptick in activity at the Commission?
Matt Rizzolo: To some extent, I think it may be a bit related to the recent attention on the Western District of Texas, as well as the PTAB pulling back a bit on some of its use of its Fintiv precedent. So, with respect to the Western District of Texas, that court has become notorious for its accelerated case schedules and its perception as a patentee—and non-practicing entity (NPE)—favorite. We've seen patent owners flocking there in large part due to the at least nominal fast-pace of the court—it sets very, very aggressive trial dates, although in many instances, doesn't end up sticking with those. And that early trial date makes it harder for alleged infringers to take advantage of the PTAB, whether it's getting stays, which the Western District of Texas doesn't grant, or even getting institution of IPRs, as well. If any listeners want a more in-depth explanation of the interplay between the ITC and the PTAB, and a little bit of discussion of the Western District of Texas, I would say listen to episode number four with our colleague, Scott McKeown. But, as I noted, over the last few months, we've seen everyone from the Federal Circuit, to members of Congress, and even Chief Justice Roberts expressing concerns with the fact that the Western District of Texas has become the center of the patent universe. As a result, it has appeared that the Western District of Texas has reeled in a bit its expansive view of venue and jurisdiction, and is starting to transfer more cases to other courts. Many patent owners, including a lot of NPEs, now seem to be looking even more so to the ITC to provide benefits that are similar to what the Western District of Texas was providing when it comes to parallel PTAB proceedings. So, this is certainly an ever-evolving issue that we'll keep our eye on. Nicole, thanks for the update on everything.
Let's turn to our focus for today, which is a deeper dive, as I mentioned, into general exclusion orders—the most powerful of all ITC remedies. Matt, why don't you start by giving us an overview of the ITC's power to exclude?
Matt Shapiro: As a brief recap of our last episode, the ITC has the power to grant three types of remedies: Limited exclusion orders, cease and desist orders, and general exclusion orders. Limited exclusion orders (or LEOs), as the name implies, have a limited application to the products of a specifically named respondent. Cease and desist orders (or CDOs) are a bit different, and they preclude a named party from participating in various types of activities with respect to the articles found to violate Section 337. An example would be engaging in the sale of inventory in the United States. For anyone interested in a more in-depth description of LEOs and CDOs, I recommend listening to our prior episode, which covers these two remedies in detail.
Now, that leaves us with the third—and most expansive—remedy: A general exclusion order (or GEO), which is the topic for today's episode. A GEO allows the Commission to exclude a covered article from being imported into the United States, not just by the named respondent, as would be the case with an LEO, but instead by anyone in the world, regardless of whether they were named as a respondent in the investigation. Practically, that means that importers of articles covered by a GEO, including importers that had no involvement in the ITC investigation and potentially no knowledge even that an ITC investigation had been instituted, will have its covered products excluded from entry into the United States. This makes a GEO a much more powerful form of relief for a complainant seeking a broad remedy, when compared to an LEO.
Matt Rizzolo: Yes, that's right. A GEO is an extremely powerful remedy, and it can have major impacts on importers. It can potentially cause significant supply chain disruptions for all sorts of different entities who may be importing products, potentially subject to the order. So, given how powerful GEOs are, why do we see so few GEOs issued by the Commission relative to other remedies, like LEOs?
Matt Shapiro: The primary reason is that both Section 337 and the Commission's own rules impose a set of heightened requirements for obtaining a GEO. Obtaining an LEO has its own set of challenges, and a GEO builds upon that and requires a further showing. And that's for good reason—because a GEO applies against unwitting importers, this relief could have a chilling affect on legitimate commerce. Therefore, Congress drafted a heightened set of requirements directly into Section 337 to ensure that a complainant really needs a GEO rather than an LEO in order to protect its domestic industry. Specifically, Section 337 requires that a complainant seeking a general exclusion order must show that either a general exclusion order is necessary to prevent circumvention of an exclusion order limited to the named parties, or there's a pattern of violation of Section 337 and it's difficult to identify the source of infringing products. These standards are pretty challenging to satisfy.
Matt Rizzolo: You mentioned that Commission rules are another obstacle to obtaining a GEO. What do they require a complainant to show?
Matt Shapiro: Matt, one good example of an additional requirement is the difference of proof for obtaining exclusionary relief against a defaulting respondent. If a complainant is seeking only an LEO, the Commission rules state that, "The facts alleged in the complaint will be presumed to be true." In other words, the Commission will treat a complainant's statement as true and not engage in an evaluation of evidence. In contrast, if a complainant is seeking a GEO against a defaulting respondent, the Commission will not necessarily take the complainant at its word, and they may instead require a complainant to provide "substantial, reliable, and probative evidence” to establish that a violation has occurred, including, for example, that the complainant has established the existence of a domestic industry. One example here is former Chief ALJ Bullock recently issued an initial determination (before his retirement) finding a violation by the defaulting respondents, and recommending that the Commission issue a GEO—this was in the 1196 investigation, Certain In Vitro Fertilization Products. On review though, the Commission reviewed and reversed the ALJ's finding that the complainant had satisfied the economic prong of the domestic industry requirement. While the Commission was split on how to perform a proper domestic industry analysis, which is certainly worth covering in a separate episode, this decision also highlights that the Commission will apply increased scrutiny to a complainant's showing when that complainant is seeking a GEO. The Commission will only issue a GEO, again, if the complainant specifically requests one up front in the complaint, so that's another challenge for certain complainants who may decide later they would like a GEO after discovering new evidence. But that's too late if a complainant would request it for the first time later in the investigation, such as in the pre-hearing brief. And this, of course, is for good reason—this way, all parties (and potentially all affected third-parties) are aware at the outset of the investigation and can respond appropriately.
Matt Rizzolo: I think these rules make a lot of sense in context when you're looking at defaulting respondents. If you've brought a complaint against a couple of entities who don't appear and default, and you're seeking a limited exclusion order that applies only to them, then it makes sense to presume the facts as true, and then issue the order. But if you're seeking a GEO that would apply not just against the defaulting respondents, but anyone importing the products, these procedural safeguards are critically important to avoid burdening legitimate commerce.
Let's go back to the specific requirements of Section 337. Nicole, can you talk a bit about how a complainant would satisfy Section 337's requirement that a GEO is necessary to prevent circumvention of a limited exclusion order under 337(d)(2)(A)?
Nicole Pobre: In order to get a GEO under Section 337(d)(2)(A), a complainant needs to show that there is a high risk that the respondent would try to circumvent a regular limited exclusion order. For example, the complainant might show evidence that the respondents have made their intent clear that they'll try to avoid the Commission's rulings—things like showing that they misleadingly marked their products with the intention of getting around an exclusion order. The Commission has also found a GEO appropriate where respondents obscure the origin of the accused products, such as by making new shell companies or altering shipping labels.
Matt Rizzolo: Yes, this is something that came up recently in the 1186 investigation. Can you explain what happened there?
Nicole Pobre: That was a pretty unusual case in that there was a lot of clear evidence that the respondents both intended to dodge any kind of exclusion order directed at them and that they had the means to do so. For example, the respondents marked product before importation with a downstream customer's logo instead of the respondent's logo, such there was nothing on the product that even identified the respondent as the original manufacturer. There was even evidence that this was an intentional strategy by the respondent to evade possible exclusion orders, as they had a product manager on record offering this as an option to clients. The individual respondent was also found to have made new entities for the sake of continuing to use the misappropriated trade secrets, even after he was already held liable for this by a Chinese court. The respondents were also shown to collude with downstream product manufacturers to obscure the origin of the targeted components. Plus, the respondents also previously tried to evade ITC orders by listing a shipping company as an importer of record, instead of the respondent's own name, in order to try to mask the source of the product. Given what the Commission saw as a pretty egregious pattern of deception, the Commission agreed it was necessary to have a GEO to avoid circumvention of the exclusion order. And, like other GEOs, the order here covered downstream products, regardless of the source, that contained the covered articles.
Matt Rizzolo: That was a pretty egregious case. It was really clear that the respondents were trying to do whatever they could to get around an exclusion order. In that case, you also saw a really rare instance of the ITC issuing remedies against an individual, as opposed to only against corporations or other organizations like that. Before moving on, I think it's also worth noting that —it wasn't just the points that Nicole covered as well as what I just mentioned about an individual—there the GEO was issued because there was misappropriation of trade secrets, and that's really almost unheard of. It's very typical for Customs to enforce that, and trade secret misappropriation is often such a party-specific offense. So, in many cases, if you issue a GEO like that, it could have a serious chilling affect on legitimate commerce, but the circumstances in the 1186 investigation were just so out of the ordinary that the Commission seemingly felt compelled to act.
Shifting back to the other way that you can request a GEO at the Commission. Nicole, what does a complainant need to show in order to obtain a GEO under the so-called pattern of violation option?
Nicole Pobre: This second option, 33(d)(2)(B), has a two-part requirement. A complainant needs to show that, one, there's a pattern of violation of Section 337 and, two, it's difficult to identify the source of the infringing products. So, the first part you meet by showing a pattern of infringement in the industry, whether by the respondents or other non-respondent entities. For the second part, a complainant might show that products in this field tend to be unmarked, or that this is a field where products look very similar and it may be hard to tell whether an import belongs to a respondent as opposed to any other entity in the field.
Matt Rizzolo: Interesting. So, can you tell us about an investigation that fell under this category of GEO?
Nicole Pobre: Recently, the Commission issued a GEO in the 1216 investigation, Certain Vacuum Insulated Flasks. This investigation concerned Hydro Flasks, a popular water bottle brand. I'm sure you've all seen these at the grocery store or being toted around the gym or office. If you're not familiar with them, these are cylindrical, metal, vacuum insulated flasks, and each water bottle is clearly marked with Hydro Flask's logo on the side. Here, Hydro Flask moved for summary determination against a number of defaulting respondents, claiming that these respondents were violating Section 337 by importing vacuum insulated flasks that infringed their trademarks and design patents. The Commission determined that a GEO was appropriate here under both Section 337(d)(2)(A) and (B). First, a GEO is necessary to prevent circumvention of an LEO. Hydro Flask had identified “tens of thousands” of infringing sales online through various marketplaces. This made it difficult to identify the source of infringing products, and the CALJ also found that respondents might easily circumvent the LEO by changing their store name, providing a fake address, or otherwise masking their identity. Second, the CALJ also found substantial infringement despite Hydro Flask's own extensive efforts to enforce its intellectual property rights, and that there was a widespread pattern of violation because online marketplaces allowed manufacturers and sellers to conceal the source of the infringing goods. So, for those reasons, Hydro Flask got a GEO on the basis of their trademarks and design patents.
Matt Rizzolo: This decision's interesting for a couple reasons. For one, this involved design patent infringement and trademarks. Often, you see GEOs issued where the violation is a result of patent infringement because most ITC investigations do involve allegations of patent infringement, but the Commission can issue a GEO for any unfair act. And in this case, and often where you see the pattern of violation subsection satisfied, it's more akin to what folks think of as a traditional counterfeiting-type action where it really is difficult—you see all these products, they look like the original, but you just can't tell. In this case, the Hydro Flask investigation, the Commission did find that both prong (A) and prong (B) were satisfied. Matt, is a complainant required to show that a GEO is necessary to prevent circumvention of a limited exclusion order and that there has been a pattern of a violation of Section 337 in order to get a GEO?
Matt Shapiro: No, that's right, Matt—it’s either/or. But in many cases practically, a complainant attempts to satisfy both prongs, and the Commission typically provides an analysis under both prongs. For example, the Commission recently issued another GEO after analyzing both prongs of 337(d)(2) in the 1194 investigation, Certain High-Density Fiber Optic Equipment and Components Thereof—this case involved components used in optical cabling systems. So, taking the two prongs in an opposite fashion, under prong (B), the Commission found that many of the respondents infringed the patents at issue, and the large number of non-respondents also sold “strikingly similar” products that probably infringe. The Commission then went on to describe how it was difficult to identify sources of potentially infringing products here. For example, some of the potentially infringing products were sold without any branding or identification, and other manufacturers were known to produce products and then sell them under other brands. The Commission also noted that many non-respondents’ products looked like the respondents’ infringing products, which adds an additional layer of difficulty in distinguishing between respondents' and non-respondents' products at the border. Plus, another factor here was that this was a market with a lot of turnover in manufacturers and distributors. As the Commission noted, the portion of the market not occupied by named respondents “appears to be full of rapidly appearing and disappearing manufacturers and distributors that make and sell products with strong similarities to both Corning's EDGE products and the infringing products of the named respondents"—Corning here, of course, being the complainant.
The Commission also found that an established need for a GEO under prong (A), as well—that was the first prong that we discussed earlier. For example, this was a market with a fairly low barrier to entry, so there was a concern that you'd have a lot of market penetration through established foreign manufacturers offering OEM and private-label services. Plus, the Commission also determined that many of the respondents and non-respondents in this industry were “not established or reputable,” which the ITC views as making them more likely to attempt to evade an LEO.
Matt Rizzolo: By its nature, GEO could really put a damper on the trade of certain products. Are GEOs limited to only specifically identified articles or are they broader?
Matt Shapiro: This actually has been a pretty interesting issue at the Commission lately. Typically, GEOs are tailored to specific products. You also sometimes see them extend to “components thereof” in order to protect against indirect infringement issues, but again, those are usually really specialized components. For example, a fairly classic example would be to issue a GEO on a printer ink cartridge, and then extend that exclusion order to include parts like the cartridge case, without the ink in it. You can see how that would be a component that does not really have any other use aside from being used to make the protected article. However, we saw the ITC seem to break with this trend a bit in the 1194 investigation that we just discussed—again, this was an investigation that concerned Certain High-Density Fiber Optic Equipment and Components Thereof. As you can tell from the name of the case, the articles in question were described in a rather generic manner. The respondents challenged the GEO on this basis, saying that there were “substantial non-infringing uses” for the products that were covered by the GEO. Interestingly, the ITC agreed with this characterization, but still maintained the GEO was appropriate. The Commission rejected the request to omit “products with substantial non-infringing uses” from the GEO, stating that the definition of covered products already sufficiently carved out certain products. And then, the Commission went on to note that the request was “contrary to Commission practice,” and pointed out that if the respondents want to import accused products for non-infringing uses, they can seek a determination for the importation of those products for those purposes.
Matt Rizzolo: For those of you who tuned into our last episode, you know that the Commission's practice in issuing exclusion orders—they don't typically identify particular models, but they cover all products of a particular category “that infringe whatever claims of the patent at issue were found to be infringed." And the same is true for general exclusion orders, as well. So, once the Commission issues an exclusion order, whether it's limited or general, the burden then shifts to the importer to prove that their product is not covered by the exclusion order. That's exactly what the Commission did in the 1194 investigation. So, Matt, how does a respondent seek a determination that its products are not covered by an exclusion order?
Matt Shapiro: That's a really good segue into our next episode, where we'll cover how an importer handles the importation of products that may fall within the scope of the exclusion order. There are a number of concepts here, including certification, which allows a respondent to state that they are familiar with the terms of the exclusion order, that they have made an appropriate inquiry, and thereupon state that, to the best of their knowledge and belief, the products being imported are not excluded from entry under the exclusion order. Now, that's a mouthful, but that's typically the language that's used in a certification provision. In other circumstances, certification is not appropriate, and a party may need to seek a determination from either Customs and Border Protection, or an advisory opinion from the ITC. They can even ask for the ITC to modify the exclusion order to provide for an express carve-out if necessary. Stay tuned for more details on these proceedings on our next episode.
Matt Rizzolo: I don't think we want this episode to go on for an hour, so we're going to punt on that topic until next time. So, with that, that's all the time we have for this episode of Talkin' Trade. Thanks, Matt, and thanks, Nicole. As always, we appreciate the feedback from our listeners, so if there's a topic you'd like to hear more about or you have ideas for ways that we can improve this podcast, please let us know. You can find Talkin' Trade and other Ropes & Gray podcasts on Apple Podcasts, Spotify or ropesgray.com/podcasts. Until next time, I'm Matt Rizzolo, and on behalf of Matt Shapiro and Nicole Pobre, thank you all for listening.