For the past 10 years, U.S. International Trade Commission investigations have been on the rise. Between 2006 and 2016, the number of complaints and active investigations nearly doubled.1 And during the first quarter of 2020 alone, 14 complaints and ancillary proceedings have been filed or initiated, and 90 investigations are underway.2

And adverse judgments issued by the ITC can lead to harsh results, including the inability for a company to import their products into the United States.

Considering the increasing number of complaints and potential threat of exclusion orders, prudent companies should be aware of the methods used to terminate Section 337 investigations early. Commission Rule 210.21 outlines four methods of terminating investigations: settlement or licensing agreement, arbitration agreement, consent order, and withdrawal of the complaint.3

Certain requirements must be met to use each method, and each presents its own advantages as well as disadvantages. This article explores the potential risks associated with each termination method.

Advantages and Disadvantages of Termination Options



Settlement


First, parties can terminate Section 337 investigations by entering into licensing or settlement agreements.4 The administrative law judge must make an initial determination that the settlement agreement fulfills the requirements set out in Commission Rule 210.21. In particular, the ALJ must decide that the settlement agreement is not contrary to the public interest, which rarely occurs.5

Confidentiality is often an issue that arises with termination by settlement. Parties are required to provide both confidential and public versions of the settlement agreement. If the public version is too heavily redacted, the ALJ will reject the agreement.6 Attorneys with the Office of Unfair Import Investigations, who participate as third-parties in 337 investigations, will review any settlement agreement closely to ensure that it is not overly redacted.

Another concern with confidentiality is that the complainant may oppose sharing the confidential financial information with other respondents still in the investigation.7 This opposition typically stems from concerns that the disclosure of settlement terms will provide the remaining nonsettling respondents an unfair advantage in settlement negotiations.

In some investigations, ALJs have agreed to limit disclosure of financial information to settling respondents if the complainant can establish prejudice.8 The commission has also fairly recently amended the ITC rules to permit the ALJ to limit service of the settlement agreement for "good cause."9

Termination based on a settlement agreement can be advantageous because it offers parties the opportunity to negotiate their own terms. Also, if parties enter into settlement agreements early into the proceeding, they can avoid accruing the legal fees associated with Section 337 investigations. However, settlement agreements may not always be favorable. Smaller companies without the financial resources needed to defend a Section 337 suit may agree to unfavorable terms in hopes of avoiding litigation. Nonetheless, termination by settlement remains the most popular avenue for terminating Section 337 investigations.10

Arbitration


Second, respondents can terminate Section 337 investigations based on an arbitration agreement.11 To terminate based on an arbitration agreement, the ALJ must first determine whether the parties delegated arbitrability decisions to an arbitrator.12 If so, the judge should perform a "limited inquiry" to determine whether the assertion of arbitrability is "wholly groundless."13 If the assertion is not "wholly groundless," the judge should stay the action pending a ruling on arbitrability by an arbitrator.14

Termination based on an arbitration agreement is an attractive option for respondents wishing to avoid litigation before the ITC. However, to successfully terminate an investigation based on an arbitration agreement, obviously an agreement delegating arbitrability must exist. Therefore, if named as a proposed respondent in an ITC investigation, a company should immediately determine whether any such agreements exist. In Certain Wafer-Level Packaging Semiconductor Devices, for example, the ALJ granted Samsung Electronic Co. Ltd.'s motion to terminate based on an arbitration agreement entered into by the parties over 10 years earlier.15

Successfully terminating based upon an arbitration agreement requires persuading the ALJ that the relevant arbitration agreement applies to the ITC investigation. This may present a challenge.

For instance, in Certain Luxury Vinyl Tile and Components Thereof, parties disputed whether an arbitration provision contained in a licensing agreement, which required the licensed products to be labeled, governed the complainant's patent infringement claims against the respondent's unlabeled products.16 Because the agreement did not apply to unlabeled products, the ALJ held that the respondent failed to demonstrate that the arbitration agreement warranted termination.17

To contrast, in Certain Nickel Metal Hydride Consumer Batteries, the parties disputed whether an arbitration provision in a licensing agreement, which the respondent failed to pay royalties under, applied to the ITC investigation.18 The ALJ held that the arbitration agreement applied, noting that "the parties' dispute first arose when [the respondent] stopped paying royalties" under the agreement.19

Consent Orders


Third, respondents wishing to terminate Section 337 investigations can agree to a consent order.20 With consent orders, the ITC will terminate an investigation if the respondent agrees not to sell before import, import, sell to import, or sell after importation certain "subject articles" specified in the consent order stipulation.

Termination based on a consent order is an attractive option because it can be achieved early in the investigation and without consent of the complainant.21 Parties willing to discontinue importation and sale of certain products in the United States may find termination based upon a consent order appealing, especially considering the costs of settlement and potential legal fees associated with litigating before the ITC. Consent orders present some downsides, however, which companies should be aware of.

Specifically, the ITC requires that consent orders be written broadly - in many instances applying to current and future products not previously contemplated by the consent order.

For instance, in Certain Carburetors and Products Containing Such Carburetors, the administrative law judge denied the respondent's motion to terminate based on a consent order for limiting its proposed consent order to products not already imported into the United States.22 Similarly, in Certain Water Filters and Components Thereof, the administrative law judge denied the respondent's motion to terminate based on a consent order for limiting its consent order to the accused product names.23

For each case, the consent orders applied not only to accused products but also to current and future products falling within the terms of the agreement. Thus, a proposed respondent filing a unilateral consent order should be aware of the potential impact on products in development that the company intends to import and sell in the United States.

In addition, violations of consent orders come with serious penalties. Section 337 specifies that respondents shall forfeit and pay a civil penalty for each day on which an importation of articles, or their sale, occurs in violation of the order of "not more than the greater of $100,000 or twice the domestic value of the articles entered or sold on such day in violation of the order."24 In Certain Dimmable Compact Fluorescent Lamps, the ITC imposed a penalty of $10,000 based on the inadvertent sale of 20 lightbulbs - all in one day - with a market value of $200.25

Finally, unilateral termination based upon a consent order leaves open the possibility of liability at the district court for past damages. Parallel district court litigation is common before the ITC.26 And even if respondents obey unilateral consent orders, complainants are free to pursue past damages before the district court.

For patent cases, for example, plaintiffs are free to pursue damages for infringement occurring up to six years before complaint filing.27 When past damages are substantial, complainants may remain motivated to litigate before the district court after termination of the counterpart Section 337 investigation.

Complaint Withdrawal


Finally, investigations can be terminated based on withdrawal of the allegations in the complaints. Despite occurring well into the investigation in most cases, motions for withdrawal are granted without prejudice - leaving open the possibility of the complainant refiling the complaint at a later date.

In Certain Bar Clamps, Bar Clamp Pads, and Related Packaging, Display, and Other Materials, the ALJ granted the complainant's motion for withdrawal but required the imposition of prejudice to "prevent unfairness and injustice at the Commission in the future."28 The commission, however, disagreed and held that the imposition of prejudice for a motion for withdrawal was inappropriate.29

Similarly, in Certain Spiral Grilled Products, the ALJ granted the complainant's motion for withdrawal without prejudice, noting that the respondents "essentially agreed that they have not been prejudiced."30 Accordingly, respondents should be aware that withdrawal may not always mean an end to ITC litigation because complainants could refile their complaint at some later date.

Conclusion

In conclusion, proposed respondents should be aware of the available methods for terminating Section 337 investigations. ITC investigations move much faster than district court litigation.31 Consequently, respondents should explore potential avenues of terminating the investigation early in the process and should carefully consider the potential business and legal implications of each option.

Footnotes



1. Section 337 Statistics, U.S. Int'l Trade Comm'n, https://www.usitc.gov/intellectual_property/337_statistics_number_new_completed_and_active.htm (last visited Mar. 4, 2020).

2. Id.

3. 19 C.F.R. § 210.21 (2018).

4. Id. at § 210.21(b).

5. Id. at §210.50(b)(2); see also Certain Portable Electronic Devices and Related Software, Inv. No. 337-TA-797, Order No. 73, at 4 (Nov. 27, 2012) (noting consideration of agreement terms is "fundamental" to ALJ's ability to consider the effect of the proposed settlement on the public interest).

6. See, e.g., Certain Child Carriers and Components Thereof, Inv. No. 337-TA-1154, Order No. 11, at 3 (May 23, 2019) (denying motion to terminate "due to the excessively redacted public version of the settlement agreement").

7. See Certain Portable Electronic Devices and Related Software, Inv. No. 337-TA-797, Order No. 73, at 4 (Nov. 27, 2012) (rejecting Complainant's request to redact confidential version filed on the record).

8. See Certain Microperforated Packaging Containing Fresh Produce, Inv. No. 337-TA-1096, Order No. 19 (Apr. 20, 2018).

9. 19 C.F.R. 210.21(a)(1) (2018).

10. See, e.g., Section 337 Statistics: Settlement Rate Data, U.S. Int'l Trade Comm'n, https://www.usitc.gov/intellectual_property/337_statistics_settlement_rate_data.htm (last visited Mar. 9, 2020) (noting 48% of investigations terminated by settlement or consent orders in 2016).

11. 19 C.F.R. § 210(d) (2018).

12. 718 F.3d 1336, 1340 (Fed. Cir. 2013).

13. Id. (citing Qualcomm Inc. v. Nokia Corp. , 466 F.3d 1366, 1371 (Fed. Cir. 2006)).

14. Id.

15. Certain Wafer-Level Packaging Semiconductor Devices and Products Containing Same (Including Cellular Phones, Tablets, Laptops, and Notebooks) and Components Thereof, Inv. No. 337-TA-1080, Order No. 26 (May 21, 2018) at 1-16.

16. Certain Luxury Vinyl Tile and Components Thereof, Inv. No. 337-TA-1155, Order No. 10 (Sept. 9, 2019).

17. Id. at 8-9.

18. Certain Nickel Metal Hydride Consumer Batteries, Components Thereof, and Consumer Electronic Products Containing Same, Inv. No. 337-TA-579, Order No. 4 (May 30, 2007).

19. Id. at 7.

20. 19 C.F.R. § 210(c) (2018).

21. See, e.g., Certain Two-Way Global Satellite Communication Devices, System and Components Thereof, Inv. No. 337-TA-854, Order No. 20 (Mar. 15, 2013)

22. Certain Carburetors and Products Containing Such Carburetors, Inv. No. 337-TA-1123, Order No. 19, at 2-3 (Sept. 12, 2018).

23. Certain Water Filters and Components Thereof, Inv. No. 337-TA-1126, Order No. 7 at 2-3 (Sept. 4, 2018) (holding that restriction by product name "could complicate any enforcement of a consent order, and is, moreover, inconsistent with the scope of the investigation").

24. 19 U.S.C. § 1337(f)(2) (2018).

25. Certain Dimmable Compact Fluorescent Lamps and Products Containing the Same, Enforcement/Modification Proceeding, Inv. No. 337-TA-830, Comm'n Op., at 4, 27 (Apr. 25, 2014).

26. Bill Watson, Year in Review 2018: Duplicative Litigation, ITC Policy Project (2019) (noting approximately 77% of Section 337 complaints filed in 2018 were accompanied by a parallel district court litigation).

27. 35 U.S.C. § 286 (2018).

28. Certain Bar Clamps, Bar Clamp Pads, and Related Packaging, Display, and Other Materials, Inv. No. 337-TA-429, Order No. 5, at 14 (Oct. 2, 2000).

29. Certain Bar Clamps, Bar Clamp Pads, and Related Packaging, Display, and Other Materials, Inv. No. 337-TA-429, Comm'n Op., at p. 2 (Jan. 4, 2001).

30. Certain Spiral Grilled Products Including Ducted Fans and Components Thereof, Inv. No. 337-TA-426, Order No. 6, at 7 (Jun. 16, 2000).

31. See Oscar Yang, Surviving International Trade Commission's Section 337 Exclusion Orders, 25 U.C. Davis J. Int'l L. & Pol'y 139, 146 (2019) ("The investigations usually last less than 13 months in the ITC. In contrast, patent litigations in the federal district court may take up to 5 years.").

Article orignally published by Law360, 23 April 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.