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Hi-Tech’s New Best Friend

Hi-Tech’s New Best Friend: Section 337 and the Enforcement of U.S. Intellectual Property Rights Against Importers of Hi-Tech Merchandise
By V. James Adduci II and Michael L. Doane

Published in the North American Free Trade & Investment Report (February 15, 2000)

With the advent of the Internet, computers and other information technology, a noteworthy battle has ensued over hi-tech goods manufactured by overseas operations that infringe the intellectual property rights of U.S. businesses. As a result, U.S. businesses have frequently sought to utilize Section 337 of the Tariff Act of 1930 to protect their intellectual property rights. Section 337 protects a U.S. business from foreign infringement of intellectual property rights, as well as other unfair acts, perpetrated by those importing products into the U.S. Many large and small U.S. companies in the information technology industry, among them Intel, have mounted Section 337 investigations to obtain relief from infringing imports.

The explosion of e-commerce and the Internet also has effected Section 337 investigations in a manner beyond just the influx of hardware related investigations. For example, offers for sale over the Internet may be construed as an offer for the sale of a product for importation into the United States, thus establishing jurisdiction under Section 337. Indeed, several complainants in recent Section 337 investigations have specifically referenced respondents’ Web sites as evidence of sales for importation. Although an infringing product of foreign manufacture may be bought and sold by a customer in the United States over the Internet, it still must at some point be shipped to the United States, thus violating Section 337.

The U.S. International Trade Commission

Section 337, which prohibits the importation of a product that infringes on a valid and enforceable U.S. patent, copyright, trademark or registered semiconductor mask work, has proven to be very attractive to U.S. businesses, particularly companies in the information technology industry, with significant investments in their intellectual property portfolios. As a result, the U.S. International Trade Commission (“ITC”) has instituted Section 337 investigations involving a wide range of information technology products, including SDRAMs, DRAMs, ASICs, CD-ROM Controllers, Coated Optical Waveguide Fibers, Digital Satellite System Receivers, Self-Powered Fiber Optic Modems, Screen Printing Machines and Facsimile Machines.

ITC Proceedings Offer Advantages Over U.S. Federal Court

For U.S. businesses facing imports of infringing products, Section 337, as administered by the ITC, has many attractive features not available in U.S. federal court. In addition to such procedural advantages as national jurisdiction over imported products and worldwide discovery, Section 337 investigations generally are completed within one year from the date of institution, as compared to three or more years in federal court, thus providing the intellectual property owner with comparatively expeditious relief. In addition, the requirements for obtaining jurisdiction over a foreign defendant and the limited ability of a federal court to compel discovery abroad greatly restrict a U.S. intellectual property owner’s ability to enforce its rights against foreign infringers in federal court. Furthermore, Section 337 hearings are conducted by Administrative Law Judges experienced in complex intellectual property issues.

Perhaps the most notable advantage of a Section 337 investigation from a complainant’s perspective is that, if a violation is established, the ITC will issue an exclusion order, with the U.S. Customs Service acting as the enforcement arm. A federal court injunction against further infringement has no such enforcement. Under certain circumstances, cease and desist orders against domestic parties, i.e., U.S. distributors of the infringing imports, and exclusionary relief against entities not party to the proceedings are also available. Although no money damages are recoverable before the ITC, because of these advantages over federal court litigation, Section 337 has become an extremely popular tool for the enforcement of intellectual property rights.

Since 1993, over 90 percent of the investigations instituted by the ITC have been based on patent infringement with over 40 percent of the investigations since 1995 involving information technology. The ITC has developed useful expertise in many fields of technology as well as in the area of intellectual law. This expertise has given the ITC a significant record of success on appeal with over 65 percent of its decisions in Section 337 investigations affirmed by the U.S. Court of Appeals for the Federal Circuit. Although such statistics are no guarantee of success before the ITC, they demonstrate the value of the ITC as a forum resolving intellectual property disputes.

The effectiveness of Section 337 investigations in protecting intellectual property rights has caused such leaders in the information technology industry as Intel Corporation and Samsung Electronics Co., Ltd. to use Section 337 to pursue infringers of their patent rights. Intel sought relief from imports from Taiwan that it alleged were infringing certain of its patents relating to DRAM controllers and multiplayer integrated circuits. Samsung sought relief from allegedly infringing imports of RAMs from Japan and Singapore.

In both Intel and Samsung cases, the investigations were terminated based on a settlement agreement. This fact underscores another important aspect of a Section 337 investigation, its value as leverage for achieving settlement. A Section 337 investigation can be filed concurrently with a patent infringement action, although the patent infringement action may be stayed pending the outcome of the Section 337 investigation, and is frequently used as added pressure to attain settlement. In fact, since 1995, over 40 percent of all Section 337 investigations instituted by the ITC have resulted in settlement. The threat of an expedited hearing, broad discovery and potential exclusion from the U.S. marketplace is frequently enough to bring infringing parties to the bargaining table.

U.S. Companies Equally Subject to Section 337 Investigations

The fact that Samsung was able to use Section 337 to defend its U.S. patent rights raises another interesting point. It is not required that the complainant in a Section 337 investigation be a U.S. entity nor, indeed, is it required that the respondent be a foreign entity. In fact, the entities accused of infringing Samsung’ U.S. patent rights were Texas Instruments, Inc., Texas Instruments Singapore (PTE), Ltd. and Texas Instruments Japan, Inc. All that is required of complainant is that it be the owner of a U.S. intellectual property right and that it maintain a “domestic industry” relating to that intellectual property right or be in the process of establishing such a “domestic industry.”

A U.S. entity can find itself a respondent in a Section 337 investigation if it is importing articles that allegedly infringe a U.S. intellectual property right. The ITC has noted that “[t]he statute, by its terms, does not limit coverage to articles for foreign manufacture.” Consequently, the ITC has applied Section 337 to domestic producers whose products are manufactured offshore and then brought into the United States. The fact that a company may be a member of the “domestic industry” does not shield it from liability. Section 337 also applies to domestically produced goods that are shipped abroad for assembly and re-imported into the United States. Domestic manufacturers with offshore assembly operations, therefore, should be aware of their potential exposure to Section 337 and a resulting exclusion order. Section 337 thus provides intellectual property rights owners with an effective procedure to use against both foreign and domestic infringers.

As the marketplace becomes increasingly international and technology based, the importance of obtaining effective protection of intellectual property rights against infringing imports can only grow. Section 337 offers a fast, efficient and most importantly effective tool for obtaining this protection. For all these reasons, intellectual property rights owners and their counsel should consider Section 337 as a part of any strategy to address imported products that infringe their intellectual property rights.

James Adduci (adduci@adduci.com) is a partner at Adduci, Mastriani & Schaumberg, L.L.P. in Washington, D.C. The firm specializes in international trade, intellectual property, government contracts and federal litigation. Michael Doane (doane@adduci.com) is an attorney in the firm where his practice focuses on international trade (particularly Section 337 investigations) and intellectual property litigation.

Reprinted with permission from North American Free Trade & Investment Report . Copyright 2000 WorldTrade Executive, Inc. All rights reserved.

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