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Talkin' Trade: Early Off-Ramps from ITC Section 337 Investigations?

Talkin’ Trade: Early Off-Ramps from ITC Section 337 Investigations? On this episode of Ropes & Gray’s ITC-focused podcast series, Talkin’ Trade, IP litigators Matt Rizzolo, Matt Shapiro, and Brendan McLaughlin are joined by summer associate Ava Kamb to examine the development and history of the ITC’s so-called “100-day program,” as well as the more recent interim initial determination pilot program.

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Podcast: Talkin’ Trade: What Remedies Can The International Trade Commission Impose?

Time to Listen: 25:28 Practices: ITC Proceedings / Section 337, Intellectual Property, Intellectual Property Litigation, Litigation, Patent Litigation

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, which is part one of a three-part discussion on ITC remedies, Ropes & Gray intellectual property litigators Matt Rizzolo, Matt Shapiro, and Rebecca Gentilli discuss the various types of remedies that the ITC can impose when it finds a violation of Section 337 of the Tariff Act, and the unique aspects of these differing remedial orders that ITC litigants and practitioners should be aware of.


Matt RizzoloMatt Rizzolo: Happy New Year! And 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 and Rebecca Gentilli. Glad to have you guys here. Becca’s a first-timer on the podcast, having joined Ropes & Gray a few months ago after clerkships at the Federal Circuit and at the District of Massachusetts.   

With today’s episode, we begin a three-part series to start the new year, focusing on what happens after the Commission finds a violation of Section 337. Today’s episode, in particular, will provide a general overview on different types of remedial orders that the ITC can issue, with a particular emphasis on limited exclusion orders (commonly known as LEOs) as well as cease and desist orders (which you may have heard referred to as CDOs). In part two, we’ll explore the third common—or somewhat uncommon—remedy, general exclusion orders (or GEOs). And then, we’ll wrap up in part three with a look at Customs’ enforcement of exclusion orders, and how litigants and parties can deal with issues related to unadjudicated products.

But before we get to our main topics today—Becca, what’s new at the Commission over the last month or so?

Rebecca GentilliRebecca Gentilli: Thanks, Matt. First, during the ITC Trial Lawyers Association annual meeting, it was announced that after serving for nearly two decades as an ALJ and more than a decade as Chief ALJ, Judge Charles Bullock will be retiring. There’s no specific timetable for his retirement, but that means in the new year we will likely see not just a new ALJ, but a new Chief ALJ. We will provide updates in future episodes as we learn more about his replacement as Chief and the new ALJ.

Turning now to the usual, after a noticeable decrease in the number of new complaints since the summer, the Commission is experiencing a pre-holiday rush with a whopping ten new Section 337 complaints since our last episode (at least as of the recording of this episode, which is right before Christmas). Things have been slower in the investigation sphere—the Commission has only instituted two new investigations: the -1287 investigation and the -1288 investigation. The -1287 investigation is based on a complaint filed by NXP Semiconductors, alleging that several companies, including Amazon, import and sell integrated circuits, chipsets, and electronic devices that infringe on several of their patents. The -1288 investigation is based on a complaint filed by Graco Children’s Products and Wonderland Nurserygoods Co., alleging that several companies import and sell playards and strollers that infringe their patents.

Finally, the Commission has issued several new final determinations, and I wanted to flag a few interesting ones:

  • First, in Certain Percussive Massage Devices (the -1206 investigation), the Commission affirmed the ALJ’s summary determination finding that the complainant lacked standing to assert a design patent where a co-inventor had been added after the investigation had been instituted. What’s noteworthy here is that the respondents had defaulted, but the ITC Staff Attorney disputed complainant’s standing and brought the summary determination motion herself. This is a good example of how fundamentally different litigating in the ITC can be, when you also have to account for the Office of Unfair Import Investigations litigating alongside private parties.
  • In Certain Light-Emitting Diode Products, Fixtures, and Components Thereof(or the -1213 investigation), the Commission affirmed the ALJ’s finding that the claims of two patents directed to high-efficiency LED lighting devices were invalid under Section 101. The Commission had previously announced that it would not review the ALJ’s finding of a violation on two other asserted patents, and issued an LEO and CDO against the respondent RAB Lighting. Listeners may recall that we discussed this investigation in a prior Talkin’ Trade episode addressing the ITC’s Section 101 jurisprudence.
  • And in Chemical Mechanical Planarization Slurries and Components Thereof (the -1204 investigation), we saw another instance of the role that the public interest factors can play. The Commission determined that respondent Rohm & Haas violated Section 337 by importing and selling certain chemical mechanical planarization (CMP) slurries in the U.S. For those that don’t know what that means, at a high-level, CMP slurries are dispersions used to remove small volumes of surface material from hard surfaces. Interestingly, the Commission found that the public interest factors warranted delaying implementation of the remedial orders on the Section 337 violation for a year for any entities currently using these products to produce semiconductor chips—this was a big issue for Intel, to whom Rohm & Haas supplied these materials.

Matt, any further thoughts?

Matt Rizzolo: Yes, regarding Chief ALJ Bullock—on one hand, it’s a shame to hear he’s leaving the bench because he’s been a respected pillar of the ITC bar for the past two decades, but on the other hand, it’s a very, very well-deserved retirement for him. In searching for a replacement, it’ll be interesting to see whether the Commission follows the same criteria that it used to hire ALJ Bhattacharya a few months back. As we’ve discussed in previous episodes, the Commission had opened up the applicant pool to accept a wider variety of candidates who specifically had IP law knowledge/IP litigation experience that it had in the past where it had limited its candidate pool only to prior ALJs. We’ll follow that story as it develops.

Now, let’s turn to our main topic for today: A deeper dive into what happens after an investigation concludes at the ITC, and the ITC finds a violation of the statute. Matt, why don’t you start by giving an overview of the remedies that the ITC can and can’t issue?

Matt ShapiroMatt Shapiro: Sure. As we’ve mentioned to a degree on past episodes, one difference between the ITC and district courts is that, unlike district courts with jurisdiction over the parties, the ITC has what’s called “in rem jurisdiction”—in other words, jurisdiction over the imported articles. As a result, the remedies available in an ITC investigation are a little different from those available in district court. The ITC, for example, cannot award monetary damages in an investigation. And while it can award attorneys’ fees and costs as a sanction for particularly egregious bad behavior, or impose civil penalties for violating a cease and desist order, these are uncommon. Instead, the focus of the ITC litigation is typically on prospective injunctive relief. And this injunctive relief falls into two categories:

  • First, the ITC can issue an exclusion order, which instructs the U.S. Customs and Border Protection to exclude the alleged infringing products from entering the United States. These orders are directed to the products themselves, rather than to any respondent. In legal terms, it’s what’s called “in rem jurisdiction” rather than “in personam.”
  • Second, the ITC can issue a cease and desist order to a respondent in an investigation to stop future importation and sale of infringing products into the United States—along with other ancillary activities—with severe monetary penalties for non-compliance. Unlike exclusion orders, a cease and desist order is directed to a specific named respondent.

Matt Rizzolo: Thanks, Matt. Now that we’ve gone through the types of relief available and the purpose of each type of order, let’s discuss exclusion orders, in particular, in a little more depth. Becca, would you like to start?

Rebecca Gentilli: Sure. The most common type of exclusion order is a limited exclusion order. As the name implies, a limited exclusion order is limited in scope. It provides for the exclusion only of the infringing products of the respondents specifically named in the investigation. It will not extend to the products of unnamed entities, nor will it extend to the downstream products of a company not party to the investigation. The ITC used to issue LEOs that extended to non-party products in certain situations, but the Federal Circuit put a stop to this practice in 2008 with the case of Kyocera v. ITC.

Matt Rizzolo: Yes, this is a critical point. If you ask the ITC for a limited exclusion order, it’s essential that you name the correct parties—those that are doing the importing into the United States. Otherwise, you may not get the relief that you’re seeking. You can’t reach a respondent’s competitors or commercial customers if you don’t name those parties in the complaint.

Matt Shapiro: That’s true—but that being said, you do not need to anticipate underhandedness by a respondent when drafting your complaint. An adjudicated infringer generally cannot circumvent the scope of the exclusion order by contracting for a third party or an affiliated company to import the infringing products instead. The limited exclusion order may not cover similar products of unnamed entities, but it does generally encompass “any of [Respondent’s] affiliated companies, parents, subsidiaries, agents, or other related business entities, or its successors or assigns.” 

Matt Rizzolo: And the Federal Circuit has noted that the ITC under the statute does have wide discretion to set the scope of its exclusionary relief, so that practice by the ITC has been upheld time and again. So, now that we know that exclusion orders don’t extend to other non-affiliated companies, do they cover other products manufactured by the same company named in the investigation, even if those products weren’t expressly adjudicated in the case?

Rebecca Gentilli: We’ll discuss this in much more depth in part three of this series, but the answer is that classic lawyer-speak: it depends. In clear cases—particular those where certain products at issue in the investigation were found to be non-infringing—Customs may accept a respondent’s self-certification that these products are outside the scope of an exclusion order. But in less clear cases, Customs likely will make an independent determination as to whether these products fall within the scope of the exclusion order, i.e., whether they infringe the asserted patents. 

Matt Rizzolo: So, Becca, does every limited exclusion order issued by the Commission cover the exact same conduct?

Rebecca Gentilli: While LEOs generally follow a common format, each one is tailored to the facts of the investigation, and the parties can each propose language to be used in it. For example, the Commission has sometimes exempted repair and replacement articles for use in replacing parts in already imported articles or to satisfy warranty claims, and sometimes it chooses to delay the effective date that the exclusion order goes into effect. And in cases of bad faith or spoliation of evidence, the Commission has declined to apply what otherwise might be a reasonable exception in light of the petitioner’s limited opportunity to adequately develop the factual record.

Matt Rizzolo: Okay, so now that we’ve covered a couple examples of unique provisions in LEOs, Matt, are there any other exceptions that can allow the ITC to alter the scope of an exclusion order, even when they’ve found a violation of the statute?

Matt Shapiro: Yes, Matt, there are. First, as we discussed in a prior episode, the issuance of any exclusion order, whether general or limited, is subject to the application of the public interest factors. These public interest factors are not the eBay factors that many may be familiar with for injunctive relief in a district court—instead, they are found in the statute itself. And they include “the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers.”

Matt Rizzolo: Public Interest is a really complex topic that we’ll address in a dedicated episode in the future, I’m sure. For now, it’s worth noting that it’s pretty rare for public interest factors to overcome the interest that the Commission and the public have in the enforcement of intellectual property rights, but it has been known to happen—Becca gave us an example just a little while ago of a delay in the -1204 investigation. Matt, can you give our listeners any other examples that come to mind?

Matt Shapiro: Sure. Another example that comes to mind is from January 2020—the Certain Microfluidic Devices investigation (that’s the -1068 investigation). In this case, the allegedly infringing product was a microfluidic device, which researchers used in a wide variety of laboratory settings—this included using the devices to isolate cell samples in biopsies. On review, the Commission determined that the interest in public health overcame the interest in enforcing intellectual property rights because of the important scientific research into cancer and cardiovascular health that was being conducted using these devices. However, even in the face of this finding, the Commission did not forgo exclusion entirely. Instead, it tailored the scope of the order to carve out space for products that would otherwise by covered by the order, specifically excluding form the order products that are “imported…for use by researchers…who have a documented need to continue receiving the devices for a specific current ongoing research project for which that need cannot be met by any alternative product.” This exception allowed those researchers already using the product for scientific research purposes to continue doing so. And there’s another example—more recently, in the Lithium-Ion Batteries trade secret investigation (that’s the -1159 investigation), the Commission issued an exclusion order, but exempted batteries bound for certain large car companies for several years. Now, that case settled just before the exclusion order actually went into effect.

Matt Rizzolo: Yes, that case got a lot of headlines, and as you mentioned, settled right before the exclusion order went into effect right at the end of the Presidential review period. Permit me a brief digression on the issue of Presidential review—I think that’s worth talking about here for a second. Under the statute, the President has the authority to vacate or veto any exclusion order within 60 days of its issuance, and he can do so or she can do so on any grounds really—it’s typically for a policy reason. Now, this so-called “Presidential veto” has really been delegated to the office of the U.S. Trade Representative, and it rarely happens in practice. The last one was in 2013, where an exclusion order was vacated—it involved a dispute between Apple and Samsung in a case involving standard-essential patents. Now, in the Lithium-Ion Batteries case that was just mentioned, the lobbying during Presidential review was extremely active, with the parties meeting almost daily with various members of a variety executive agencies. It was really so high-profile because of the nascent electric vehicle industry in the United States and a lot of jobs potentially at risk in Georgia, so it was a rare instance of an ITC settlement getting featured in a press release from the White House when it happened.

Turning back to the topic of exclusion orders, what happens if a limited exclusion order won’t provide enough protection to a complainant? So, what happens if, for example, you have a few dozen companies all importing infringing products and it’s just not realistic to name all of them in a complaint—what do you do then?

Rebecca Gentilli: In that case, you can seek—and the ITC may issue—a broader general exclusion order. As the name implies, a general exclusion order generally prevents the importation of covered products into the United States. This means that a general exclusion order applies even to companies that aren’t party to the underlying investigation. We will cover GEOs in depth in the next episode. For now, just note that, given their wide scope, general exclusion orders are generally disfavored and difficult to obtain.     

Matt Rizzolo: Thanks. So, let’s turn to the other type of exclusionary relief that the ITC can issue: cease and desist orders. Matt, what can you tell us about these?

Matt Shapiro: Well, for starters, cease and desist orders (or CDOs) enjoin a named party from importing infringing products into the U.S. or selling infringing products here. They also usually prohibit marketing or advertising the infringing product in the U.S., soliciting U.S. agents or distributors for the product, and aiding and abetting other entities in the importation or sale of the product in the U.S. CDOs generally will also impose some sort of annual reporting requirement and a record-keeping and inspection requirement to ensure compliance with the terms of the order. And these requirements are not just nominal—it’s important to note that companies will face severe penalties for including any false information in their reports or records, and this can include criminal prosecution. And that ties nicely to another feature of CDOs: CDOs allow the Commission to impose civil penalties for violating these orders, and to file suit in federal district court to recover the penalty if it becomes necessary. This may not be a huge boon for a complainant, but it still helps ensure compliance because, as was the case with the reporting and record-keeping provisions, the penalties under this section are severe—they can be up to the greater of $100,000 or twice the value of the infringing articles for each day the respondent is in violation of the order. In some cases, past CDO penalties have totaled in the tens of millions of dollars, so be careful.

Matt Rizzolo: Becca, what are the benefits of obtaining a CDO?

Rebecca Gentilli: So, the benefits are twofold. First, a CDO creates the prospect of a monetary penalty imposed on the respondent itself, which is a powerful incentive to stay in compliance. And second, an exclusion order can only do so much, given that it applies to the products at the time of importation and depends on Customs’ ability to police importations. Because CDOs extend to domestic conduct and enforcement issues can be policed by the complainant through the filing of an enforcement action at the ITC, they allow for a complainant to play a continuing role in keeping the infringing conduct at bay.

Matt Rizzolo: Now, CDOs often provide a belt-and-suspenders approach to getting full and effective relief at the Commission, but what about some of the downsides or risks with CDOs?

Rebecca Gentilli: CDOs are discretionary, and don’t issue as a matter of course. Usually, they will be issued only against domestic entities, not foreign ones. And the ITC generally will only issue a cease and desist order against a respondent who maintains a “commercially significant” domestic inventory of infringing products—though in more recent cases, the Commission has also issued CDOs where the respondent has “significant domestic operations.” The logic behind this requirement is that either a significant domestic inventory or significant domestic operations could undercut the relief provided by an exclusion order. If the product is already in the U.S., it cannot be subject to exclusion by Customs.

In recent years, some Commissioners have expressed doubt that the statute authorizing the issuance of CDOs requires any showing of “commercially significant” domestic inventory or domestic operations. The disagreement amongst Commissioners as to whether this showing is a necessary prerequisite to a CDO or merely prudential, however, has had little effect on the issuance of CDOs in practice. They still continue to be issued almost exclusively where there is a significant domestic inventory or significant domestic operations.

Matt Rizzolo: Thanks, Becca. Now, let’s return to our general discussion about remedial orders and focus on their terms. So, for an exclusion order or a cease and desist order, Matt, how long do they typically remain in effect?

Matt Shapiro: In a patent case, both types of orders remain in effect until the patent term expires—it doesn’t matter whether that expiration date is ten days away or ten years away, the order will cover that remaining time. In other types of cases, such as with trade secrets, the Commission may link the term to certain case-specific factors. Exclusion orders and cease and desist orders can, however, be modified or revoked prior to the end of a patent term to make exceptions for certain products or to stay any enforcement with respect to certain products. Now, for respondents considering any sort of modification process, this does take time. It typically can take between three to six months on average, so if you want to start importing a different or modified product into the United States, it may be more efficient to seek a ruling from Customs, which is a process that we’ll discuss more in part three of the series.

Matt Rizzolo: Yes, and we’ll get further into the different types of rulings you can request from Customs and how you do it during that episode, as well. But keeping us on track and to close out today’s episode, there’s one last topic that I want to touch on: the issue of bonding. Matt, what can you tell our listeners about posting bonds at the Commission?

Matt Shapiro: Sure. And to answer that question, I think we need to backtrack a little. As we discussed earlier in today’s episode, all decisions of the Commission are subject to a 60-day Presidential review period before they become final—this is when the President (or, if we’re going to be technical and completely accurate, the U.S. Trade Representative to whom the President has delegated this duty) has a chance to vacate the order on policy grounds. Bonding addresses the importation during this 60-day review period. Once the Commission finds a violation of Section 337, it must determine the amount of money the respondent must post as a bond if it wishes to continue importing the adjudicated infringing products into the United States before the decision becomes final. The purpose of this bond is to offset any harm caused to the complainant by the importation of products that have been adjudicated as infringing. Now, the amount can be calculated in a few different ways—usually it’s calculated as a percentage of the value of the infringing products, ranging anywhere from 0% to several times the worth of that product (so, for example, in one case, the Commission set the bond as high as 460%). The Commission may, however, instead opt to base a bond amount either on the price differential between the product sold by the complainant and the infringing product sold by the respondent or to base it on a reasonable royalty rate for use of the patented technology, to the extent these measures can be determined with any accuracy. Assuming the bond is set at some sum above $0, regardless of the means of calculating that amount, the complainant can move at the end of the review period for what’s called “forfeiture of the bond.” A respondent is also free to move for return of the bond, but as a practical matter, this almost never happens, especially if the respondent continues to engage in importation during that 60-day period. Usually, this would happen only where the respondent has paid the petitioner in some other manner, such as through a settlement agreement.

Matt Rizzolo: Thanks, Matt—and thanks Becca, as well, for joining me today. That’s all the time we have for this episode of Talkin’ Trade. Stay tuned for next time, when we’ll talk about the rarely issued, but overwhelmingly impactful, GEO—the dreaded general exclusion order. You can find this and other Ropes & Gray podcasts on Apple PodcastsSpotify, or ropesgray.com/podcasts. I’m Matt Rizzolo, and on behalf of Matt Shapiro and Becca Gentilli, thank you all for listening.

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