Section 337
As practice under Section 337 of the Tariff Act Tariff Act of 1930 has grown, so has development of the law. Many precepts once taken for granted have been overruled and others have arisen that will survive until challenged in the future. Once little known as a statute affecting IP practice, Section 337 has become mainstream as imports have come to play an ever-more significant role in the US economy. The following excerpt from A Lawyers Guide to Section 337 Investigations Before the U.S. International Trade Commission will, hopefully, assist those who wish to learn more about the use of Section 337 and practice before an active administrative agency entrusted with its administration.
"A primary concern for intellectual property rights holders is protection from unfair foreign competition. Since the advent of the patent as a method of publicly disclosing novel inventions, it has been imperative that those inventions, and thus those patents, be protected during their period of exclusivity. This is no different in the United States from anywhere else in the world. Indeed, globalization of the marketplace has made intellectual property protection and international trade inextricably linked. Critically then, enforcing U.S. patent and other IPR is one way of protecting domestic industry from unfair competition emanating from outside the United States.
In the United States, owners of U.S. IPR, primarily patent owners, have used Section 337 of the Tariff Act of 1930 to protect their rights against infringing imported products. While originally written to prevent “unfair methods of competition and unfair acts,” this statute now also makes it specifically unlawful to import into the United States any article that infringes a patent, trademark or copyright that is valid and enforceable in the United States. Although not widely used at its inception, over the past 30 years Section 337 has become increasingly popular, as rights holders have learned how to take advantage of the protection afforded by the statute. The United States International Trade Commission has sole authority to investigate alleged Section 337 violations. The ITC is becoming an increasingly popular forum for a multitude of reasons: the effective remedies it offers IPR holders, its ability to conduct expedited hearings, the forum’s broad jurisdiction and the Commission’s specialized knowledge of patent law. The number of complaints filed increased from an annual average of twelve investigations during the years 1990 to 2000 to 28 investigations for the years 2001 through 2008.
Under the statute, the ITC has the power to exclude infringing products from entry into the United States. This exclusion is based on the existence of an unfair method of competition, which is either presumed or proven to cause injury to a domestic industry. Traditionally, the “domestic industry” criterion was satisfied by demonstrating that facilities, equipment and labor in the United States were utilized to produce a patented item. However, in 1988, amendments to the law relaxed the domestic industry requirement. As the law stands now, importing infringing articles is unlawful if “an industry in the United States” exists “relating to” articles protected by the patent, trademark or copyright. That industry is defined to “exist” if there is: (i) significant investment in plant and equipment; (ii) significant employment of labor or capital; or (iii) substantial investment in the exploitation of the patent, trademark or copyright as evidenced by expenditures on research, development or licensing. The third prong of this definition means it is no longer necessary that the complainant have production facilities located in the United States. However, the meaning of “significant” and “substantial” is not apparent from the statute itself or its legislative history and is being developed on a case-by-case basis.
The 1988 amendments also eliminated the need to show injury to a domestic industry in patent, trademark or copyright cases. Seeking to make Section 337 “a more effective remedy for the protection of U.S. intellectual property rights,” Congress determined that requiring proof of injury beyond that presumed by proof of the infringement itself was not necessary. The elimination of this requirement has had an important practical effect: prior to the amendment, over half of the total expense litigating a Section 337 case was incurred in establishing injury, making such claims inaccessible to many prospective complainants. Without the burden of proving injury, many more IPR owners can afford to bring a claim.
The speed at which Section 337 investigations are heard is remarkably expeditious—an important advantage for companies seeking immediate relief. The actual hearing generally occurs seven to nine months from the date of institution of the investigation, as opposed to the typical two to three years in federal district court. The majority of Section 337 investigations are completed in approximately twelve to sixteen months, which is quicker than even the fastest dockets in the Eastern District of Virginia and the Eastern District of Texas. A Section 337 investigation involves six main players: the Commission itself, the Administrative Law Judge, an investigative attorney from the Office of Unfair Import Investigations, the complainant(s), the respondent(s), and possible third parties. The arguments and decisions of these players ultimately determine the outcome of a case.
Although the ITC offers complainants a number of distinct advantages over a federal district court, there are a few drawbacks. First, a prospective complainant must make extensive preparations before filing a Section 337 complaint, as it requires more documentation than does notice pleading in federal district court. Secondly, there is a public interest aspect resulting from Section 337’s origin as a trade statute. Perhaps most importantly, a Section 337 investigation cannot result in a monetary award, whereas an infringement action in federal court can. However, a monetary award may not be critical to the IPR owner, particularly when the infringing goods have just begun entering the market and protection of the market is the owner’s paramount concern. Nevertheless, the options need not be mutually exclusive, since an IPR owner may seek institution of a Section 337 investigation in conjunction with initiating an infringement action in federal court. That is, parallel litigation is possible. However, 28 U.S.C. § 1659(a) gives the district court defendant a right to a stay if it is also named as a respondent in a Section 337 investigation.
During the period between 2000 and 2008, forty-six percent of investigations were settled before the case proceeded to trial. Of the cases that went to trial during this period, as might be expected in proceedings governed by due process, a violation was found about half the time; in the other half, there was either no violation found, or the complaint was withdrawn.
There are four primary remedies available under the statute: temporary exclusion order, general exclusion order, limited exclusion order and a cease and desist order. When an exclusion order becomes effective, United States Customs and Border Protection, which is part of the Department of Homeland Security, will bar the infringing products from entering the country. If there is evidence that infringing products are still entering the United States in violation of an exclusion order, an enforcement proceeding with monetary penalties may take place at the ITC. Any party adversely affected by a Commission decision under Section 337 may appeal the decision to the U.S. Court of Appeals for the Federal Circuit."
Published with permission by the American Bar Association (ABA Code 5370171)