Talkin' Trade: Examining the Interplay Between the ITC and District Courts

In many cases, ITC investigations are not stand-alone proceedings—Section 337 complaints are often accompanied by complaints filed in federal district court. These parallel complaints often are based upon the very same unfair acts underlying the alleged Section 337 violation, such as patent infringement, trademark infringement, or trade secret misappropriation. In this episode of Talkin’ Trade, Ropes & Gray IP litigators Matt Rizzolo, Matt Shapiro, Brendan McLaughlin, and Meredith Foor explore the issues created by such parallel complaints, including the potential for litigation on two fronts and the possible preclusive effect—or lack thereof—of Commission determinations.

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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 making her Talkin’ Trade debut today, Meredith Foor. How’s everybody doing today? Glad to have everyone here. First and foremost, I’d like to take a brief moment to gloat for a second about my New York Jets having a winning record so far—these opportunities are few and far between, but after beating Josh Allen and the Bills, who knows, anything’s possible. Turning back to the ITC though, today’s episode is going to zoom out a bit from just focusing on the Commission to looking at overall litigation strategy and how the Commission comes into play. Specifically, we’re here today to talk about the intersection of ITC investigations and parallel district court cases. But before we get to that: Brendan, what’s been new at the Commission?

Brendan McLaughlin: Thanks, Matt. So, activity at the Commission has been moderate of late—since the beginning of October, there have been eight new complaints, the Commission has issued three new opinions, and the ALJs have issued three final initial determinations, including ALJ Moore’s first Final Initial Determination in the -1281 investigation. Interestingly, the Commission’s opinion in the -1236 investigation continues a trend that we have discussed previously—the Commission’s willingness to find patents invalid under Section 101. There, even though the claims were directed to a physical “polycrystalline diamond compact,” the Commission found the claims were directed to an abstract idea and that there was nothing inventive recited in the claims. However, the decision was not unanimous—Commissioner Schmidtlein penned a lengthy dissent from the Commission’s Section 101 analysis, stating that she would have found the claims valid.

We’ve also noticed that in several investigations, including -1323, -1332, and -1340, ALJ Elliot has started issuing some very interesting orders requiring only the complainants to “file a corporate disclosure statement identifying any parent corporation . . . and any publicly held corporation possessing an ownership interest in the complainant, or state that there is no such corporation.” While this is very similar to a Federal Rule of Civil Procedure 7.1 statement that’s required in district court, the ITC does not have a similar requirement, and to our knowledge, no ALJ has ever required such a showing before. It’ll be worth keeping an eye on these cases to see how this might develop.

In other news, the Commission has resumed in-person hearings and has reopened to the public as of the end of September, which is a welcome step back to normalcy.

And finally, just a quick reminder for our listeners who are also ITCTLA members: This year’s annual meeting is on December 5 at the National Press Club. Matt, Matt, and I will be there and will be happy to sign any autographs—just please, no flash photography. Matt, any other thoughts?

Matt Rizzolo: Sure—thanks, Brendan. A couple things. The corporate disclosures statement orders from ALJ Elliot were very interesting and noteworthy because he didn’t issue them in all of his cases—he only issued them in these three that Brendan pointed out, and it’s unclear exactly why. It may be because in those cases, the complainants are non-practicing entities and he’s taking a closer look to see who’s really behind the curtain there. But, as Brendan said, we’ll see what happens in other investigations going forward.

Also, the trend that I think is worth paying attention to, in particular, relates to the partial non-institutions, in Investigation Nos. -1332 and -1340. In both of those investigations, the Commission declined to institute as to particular respondents, finding that the complaints and the exhibits attached thereto did not sufficiently describe specific instances of importation or sale by those proposed respondents. And what’s especially interesting is that in neither one of those cases did the respondents actually identify that issue to the Commission—the Commission appears to have done so sua sponte. So, these cases stand as a warning to complainants that you really need to have your evidentiary ducks in a row when you file a complaint with the Commission. And, of course, if at all possible, you should be taking advantage of the confidential pre-complaint review process that the Office of Unfair Import Investigations offers.

Now, with that, onto today’s main topic: Issues that arise when you have parallel ITC and district court litigations. We’ve obviously talked a lot in the past about various aspects of the ITC, but we haven’t really talked about how they play off parallel district court proceedings, and that’s definitely a question that we get from clients: “Why am I seeing the same issue being litigated in both district court and the ITC at the same time?” So, with that, Matt, can you start by giving us a quick overview of the ITC and district court proceedings?

Matt Shapiro: Sure. And that’s exactly right, Matt—almost any time that an ITC complainant files a Section 337 complaint, that complainant will also file a U.S. district court case asserting the same underlying claims that form the basis of the alleged violation. For example, if an ITC complainant asserts a Section 337 violation based upon patent infringement, the complainant will almost always assert the same patent in a district court action at the same time. And the reason for this, like so many things in this world, is money. Because the ITC is unable to issue monetary damages, an ITC complainant (who’s also the district court plaintiff) is interested in obtaining both prospective exclusion order relief at the Commission and past damages, and to do so, would need to file both the ITC complaint and a parallel district court action to reserve its rights.

Matt Rizzolo: But that doesn’t mean that an ITC respondent who’s also a district court defendant needs to litigate in parallel in both forums at the same time, right? How does a respondent/defendant avoid litigating on multiple fronts simultaneously?

Matt Shapiro: One way to do that in the typical way is the district court defendant may file a motion under 28 U.S.C. Section 1659, which requires that the district court stay the action while the ITC action is pending. This stay applies to any claim that involves the same issues in the ITC action.

Now, unlike stays pending parallel PTAB proceedings, which many may be familiar with, there is no discretion by the district court judge here—the only requirements are that the request for the stay must be made within 30 days after the commencement of the district court proceeding or 30 days after a party is named as a respondent in an ITC action, whichever is later.

Matt Rizzolo: Is it necessary for a defendant/respondent to seek a stay at a district court case? Can they decide to litigate in parallel in both forums?

Matt Shapiro: No, it’s certainly not a requirement. While most defendants will take advantage of this automatic stay, others may choose not to do so for strategic reasons. For example, if the ITC investigation involves numerous parties, one of the respondents may make the choice to forego the automatic stay and force the complainant to litigate on two fronts at the same time. Or, if the alleged infringer thinks they may be able to get a quick favorable ruling from the district court on certain issues—think, for example, a Section 101-based motion to dismiss—they may choose to proceed in both fora at the same time.

Matt Rizzolo: Now, that said, in the vast majority of cases, we do see that defendants take advantage of the automatic stay. Now, if they do so, and there are additional patents, claims, or parties involved in the parallel district court proceedings that are not involved in the ITC case, what happens?

Matt Shapiro: This is where the situation gets a little bit more complex. The automatic stay of the district court does not necessarily extend to proceedings concerning other patents or claims, even if those other patents or claims are related to the ITC investigation. Now, this is where the Court’s discretion comes into play. A district court may, but unlike the automatic stay provision, is not required to, stay a case in its entirety.

Now, as for what happens when the district court action has additional defendants who are not parties to the ITC proceeding, that also falls within the court’s case management discretion. Here, the court’s primary focus is how to ensure fair treatment of those defendants in the district court proceeding who are not respondents in the ITC action.

For example, in the Proxim v. 3Com case (and that’s from the District of Delaware), one of the defendants, who was also a respondent in an ongoing ITC proceeding, had requested a stay in the district court. Another defendant who was not part of the ITC proceeding opposed that stay. The court decided to stay the case, but initially decided that damages would not accrue against the defendant that opposed the stay and was not involved in the Investigation as a means to ensure that that defendant was treated fairly. Then, Judge Robinson ultimately reversed her decision though after she learned that the defendant had entered into an indemnity agreement.

Matt Rizzolo: So, stepping back, once the stay is entered, how long does it last?

Matt Shapiro: Per the statute, the district court case shall be stayed “until the determination of the Commission becomes final”—this has been interpreted by the Federal Circuit to mean that the district court case will remain stayed through any appeals. And once it becomes final, either party may then move to lift the stay.

Matt Rizzolo: Okay, so let’s say that the Commission decision becomes final after all appeals, and the district court stay is then lifted. One of the questions we often get from our clients is: “What effect does the Commission’s final decision have on those same claims that are now at issue in district court?”

Meredith Foor: It’s a good question, Matt—final decisions made in federal district court, such as judgments on patent or trademark validity, are typically given preclusive effect on subsequent cases. But that’s not the case for the ITC—the preclusive effect of ITC rulings depends on the type of underlying claims involved.

So, to start, the Federal Circuit has long held that ITC patent-based determinations do not have preclusive effect on other tribunals. That said, district courts will often consider and treat these ITC determinations as persuasive authority, and it may be incredibly challenging for a party to convince the district court to reach a different conclusion from the ITC. As we’ve discussed in previous episodes, the ITC and its ALJs deal with patent issues on a much more frequent basis than the average district court judge, and the district court judges will often recognize and defer to this expertise.

Matt Rizzolo: Now, I feel like you’re going to tell me that the Federal Circuit is treating patents differently than how other claims are treated…

Meredith Foor: That’s right, Matt. Several other courts—the First, Second, and Fourth Circuits, as well as some district courts—have held that non-patent related ITC determinations actually can have preclusive effect on other tribunals. This means that non-patent based decisions, such as those on trademark and antitrust matters, can have preclusive effect on district courts.

Matt Rizzolo: So, that seems like an interesting distinction that the courts have made. Can you talk a bit about the reasoning as to why patent-based ITC determinations do not have preclusive effect, but other non-patent determinations can have preclusive effect?

Meredith Foor: Sure. So, the Federal Circuit actually went all the way back to the 1970s, and based this distinction on Congressional intent. In 1974, Congress amended Section 337 to allow for respondents to raise all legal and equitable defenses, including patent invalidity. The Federal Circuit found it important that when Congress did so, there were statements in the legislative history explaining that the ITC is not empowered to set aside a patent as being invalid or to render it unenforceable, its findings cannot be regarded as binding interpretations of the U.S. patent laws in particular factual contexts.

The legislative history also noted that in light of that, “it seems clear that any disposition of a Commission action by a Federal Court should not have a res judicata or collateral estoppel effect in cases before such courts.”

Matt Rizzolo: Wouldn’t a similar rationale apply to non-patent based determinations?

Meredith Foor: So, this is actually where things get more interesting. Because the Federal Circuit has exclusive jurisdiction over any actions related to patents, the Federal Circuit has the exclusive authority to define how ITC determinations may be preclusive on patent related issues. But for other causes of action that may form the basis of a Section 337 investigation, such as trademark infringement or trade secret misappropriation, the Federal Circuit does not have that exclusive jurisdiction, and other circuits are able to reach their own decisions on how to address the effect of collateral estoppel.

And courts in some circuits have made a distinction for ITC determinations under Section 337 that pertain to the non-patent based determinations. These courts have found that the jurisdictional bar on res judicata for patent-based ITC determinations does not apply to these other determinations that more directly relate to unfair trade practices because these other determinations more closely align with the ITC’s purpose of administering the trade laws. Also, there are no limiting statements in the legislative history for other claims like there are for the patent claims. And, as a result, courts have generally found the ITC rulings in these non-patent ITC proceedings can have preclusive effect on the parallel district court proceedings.

Matt Rizzolo: It’s a fascinating topic for sure. One question to consider is: What, if any, effect the Supreme Court’s 2015 decision in B&B Hardware may have on the Federal Circuit’s longstanding precedent? The Supreme Court made clear in B&B that courts should give preclusive effect to adjudicatory agency proceedings as long as the ordinary elements of issue preclusion are met. Now, given that many on the high court are disinclined to use legislative history (to put it mildly) to overrule the plain language of the statute, it wouldn’t be surprising to see a litigant challenge the Federal Circuit’s different treatment for patent-related claims given that most of these cases precede the B&B Hardware decision.

Now, turning to a more nuts-and-bolts question: What about the record from an ITC proceeding (all of the different rulings and the evidence that’s been put in)? Is that just out the door when the investigation ends, and a new record must be made in a parallel district court case once that restarts?

Meredith Foor: Luckily, no. The same statute that we discussed earlier, 28 U.S.C. Section 1659, also provides that the ITC must transmit its record to the district court, and this record is admissible in the district court case. But this leads to one potential issue—the parties may not want the Commission to just release information designated as confidential business information for use in the district court proceeding. To help reduce any private party concerns, Section 1659 finally provides that the district court must subject the CBI “to such protective order as the district court determines necessary.” This statutory provision may not require the same restrictions that the parties see in an ITC protective order, but it allows parties to at least argue that stricter than typical protective order provisions may be necessary.

Matt Rizzolo: Thanks, Meredith. Let’s say the Commission’s decision has now become final, the ITC has transmitted its record to the district court, all potential collateral estoppel issues have been settled, and all substantive decisions now rest in the district court’s hands. Can we just completely forget that the ITC investigation ever happened?

Brendan McLaughlin: Nope—or at least not necessarily. So, as we’ve become accustomed to doing on this podcast, this is the part of the episode where we just shamelessly plug an article of ours. A couple months ago, we published an article in Law360 exploring the potential to seek attorneys’ fees at district court under 35 U.S.C. Section 285 for things that happened during the Section 337 investigation.

We know that U.S. patent litigation in district courts proceeds under the American Rule—the parties generally pay their own fees, but the Patent Act specifically provides that in exceptional cases, district courts may award attorneys’ fees to the prevailing party under Section 285. However, this exception does not apply to ITC litigation.

As we’ve talked throughout this episode, though, there’s significant overlap between the ITC and district court proceedings—if a Section 337 investigation has reached a final decision on the merits, that proceeding will likely have covered substantially similar ground as the district court proceeding. So, as a result of this overlap, at least one district court has awarded attorneys’ fees under Section 285 for work that had dual use purposes at the ITC and district court. In Monolithic Power Systems v. O2 Micro, the Northern District of California ordered payment of millions of dollars in attorneys’ fees, noting that it “ordered all discovery obtained through the ITC parallel investigation that pertains to [the parallel district court] case.”

The patent owner challenged this ruling as an abuse of discretion, but the Federal Circuit disagreed. So, we learned from this case that ITC-related attorneys’ fees may be recoverable to the extent they are “dual use” for both the ITC proceeding and the district court proceeding. But it is also worth noting that the district court and Federal Circuit explicitly discounted any fees that were related to only ITC expenses, such as domestic industry.

Matt Rizzolo: That was a really interesting case—but also potentially an outlier—and it clearly shows that in certain situations, statutory attorneys’ fees may be available at the district court, even if the conduct leading to the award happened in the course of the ITC investigation, not the district court. But it is worth noting, as Brendan you just mentioned, that those fees are available only for work that has a dual purpose. If it is ITC-specific, like the domestic industry issue, you’re not going to be able to get those fees in district court.

So, we’ll leave you all with one final question: Is there any sign that the fee-shifting provision will be added to Section 337, so that work related to ITC-specific issues might be recoverable?

Brendan McLaughlin: So, nothing seems certain at this point. Some members of Congress have recognized that a fee-shifting provision could help deter non-practicing entities from filing or maintaining meritless cases—but nobody has proposed actually amending Section 337 to add a provision similar to Section 285. But who knows, maybe someday.

Matt Rizzolo: We shall see, I guess. So, 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 ropesgray.com/podcasts. I’m Matt Rizzolo, and on behalf of Matt Shapiro, Brendan McLaughlin, and Meredith Foor, thank you all for listening.