Section 337 Offers Significant Advantages when Facing Unfair Competition From Imports
By V. James Adduci II and Tom M. Schaumberg
Published in The American Corporate Counsel Magazine (June 1996)
Maintaining fairness in import trade has become an important business consideration in the international marketplace. U.S. intellectual property rights ("IPR") owners have discovered that Section 337 investigations before the U.S. International Trade Commission ("ITC"), which is empowered to exclude unfairly traded imports from entry into the United States, are an efficient and cost-effective mechanism for protecting these rights. The Uruguay Round Agreements Act ("URAA") of 1994 amended certain aspects of Section 337 assuring that it will remain a potent tool for resolving intellectual property disputes. Perhaps for that reason, there has been a spate of new filings, particularly in the first quarter of 1996.
Section 337 of the Tariff Act of 1930 is designed to address unfair methods of competition and unfair acts in the importation of merchandise into the United States, primarily products that infringe U.S. intellectual property rights.(1) The procedures and remedies available under Section 337 offer significant advantages over district court proceedings. The ITC provides a forum in which proceedings under the Administrative Procedure Act are conducted by administrative law judges experienced in complex intellectual property issues. Although the URAA eliminated the specific time limit for completing an investigation, the ITC has continued the practice of completing most cases in twelve months. As Section 337 essentially operates in rem, aggrieved IPR owners can join as respondents importers of infringing goods in any of the 50 States, as well as producers from any country, without concern about long-arm statutes or the technicalities of international service of process.
The discovery process in Section 337 investigations has proven to be more efficient than in most district court actions, with swift resolution of discovery disputes. Foreign discovery, including plant inspections, is obtained with relative ease. 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. Under certain circumstances, cease and desist orders against domestic parties and exclusionary relief against entities not party to the proceedings are also available.
Recent federal court and ITC decisions have broadened the scope of Section 337 to cover certain activities of domestic producers. In 1993, the Court of Appeals for the Federal Circuit ("CAFC") upheld an ITC determination applying Section 337 to domestic producers whose products are manufactured offshore and then brought into the United States. The respondent asserted that members of the domestic industry are immune from Section 337. The CAFC disagreed, concluding that such an interpretation would permit members of the domestic industry to "commit unfair trade acts against other law-abiding members of the domestic industry with impunity. Such a result would make section 337 a less, not more, effective remedy."(2)
A domestic producer engaged in import trade, therefore, is not shielded from Section 337 liability.
Section 337 also applies to domestically produced goods which are shipped abroad for assembly and re-imported into the United States.(3) The ITC has noted that "[t]he statute, by its terms, does not limit coverage to articles of foreign manufacture."(4) Section 337 thus provides IPR owners with an effective procedure to use against both foreign and domestic infringers. Furthermore, domestic manufacturers with offshore assembly operations should be aware of their potential exposure to Section 337 and a resulting exclusion order. For example, there is a pending ITC investigation of Texas Instruments initiated by a foreign IPR owner.
The URAA amended Section 337 to bring it into compliance with U.S. international obligations. These changes do not alter the essential functions and advantages of Section 337. For example, temporary relief, which is equivalent to a preliminary injunction, continues to be available under a 90 day statutorily mandated deadline in normal cases and 150 days for those deemed "more complicated." The recent amendments also provide that bond forfeitures may rebound to the benefit of the opposing party rather than to the U.S. Treasury. The one benefit bestowed on respondents is the ability to stay related district court litigation involving the same parties and issues during the ITC investigation.(5) Once the investigation is concluded and the stay is lifted, the ITC record is available for use in the district court.(6) The amendments thus make it possible for the same record to be used in both proceedings. While these amendments altered some of the procedures, on balance, the benefits of Section 337 remain intact.
The use of Section 337 investigations against the importation of products infringing U.S. intellectual property rights has proven to be an advantageous source of relief for IPR owners. For example, Ideations Design, Inc., a small company, was able to respond successfully to infringement by a Taiwanese manufacturer in a comparatively inexpensive and effective manner under Section 337.(7) Effective discovery, swift adjudication, in rem jurisdiction and enforcement by the U.S. Customs Service are only some of the advantages of Section 337. Investigations under that statute can cost about half as much as district court litigation due to the speed of the cases and the prompt resolution of discovery disputes. Consequently, the ITC has become an increasingly attractive forum for resolving international intellectual property disputes.
With respect to district court, regardless of the outcome of Markman v. Westview Instruments, Inc.,(8) there will continue to be tension between the roles of judge and jury not present in administrative proceedings. While juries might benefit plaintiffs in winning damage awards, their unpredictability could lessen the likelihood of favorable decisions regarding the underlying patent issues. For all these reasons, IPR owners should consider Section 337 as part of any strategy to address imported products which infringe their intellectual property rights.
Published in The American Corporate Counsel Magazine (June 1996)
1. 19 U.S.C. § 1337 (1994).
2. Texas Instruments v. U.S. International Trade Commission, 988 F.2d 1165, 1181 (Fed. Cir. 1993).
3. Certain Sputtered Carbon Coated Computer Disks, Inv. No. 337-TA-350, USITC Pub. 2701 (Commission Opinion) (Nov. 1993).
4. Id. at 4-5.
5. 28 U.S.C. § 1659(a) (1994).
6. 28 U.S.C. § 1659(b) (1994).
7. Dave Hancock, "Protecting Your Patented Product Through the U.S. International Trade Commission," Dive Report 13 (August 1995).
8. 52 F.3d 967 (Fed. Cir. 1995), cert. granted, 116 S. Ct. 40 (Sept. 27, 1995) (No. 95-26).
Messrs. Adduci and Schaumberg are partners at Adduci, Mastriani & Schaumberg, L.L.P. in Washington, D.C. The firm specializes in international trade, intellectual property, government contracts and federal litigation.