Q&A: ITC disputes
December 2018 | SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION
Financier Worldwide Magazine
December 2018 Issue
FW moderates a discussion on ITC disputes between Christine Lehman at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Blaney Harper at Jones Day, Paul Brinkman at Kirkland & Ellis LLP, and Jamie B. Beaber at Mayer Brown.
FW: Reflecting on the last 12 months or so, how would you characterise the level and nature of disputes being brought to the International Trade Commission (ITC)? Are there any common trends?
Harper: The trend is certainly increasing. The number of Section 337 cases involving electronics continues to be strong and a significant part of the International Trade Commission (ITC) docket is largely due to the nature of the remedy which matches well with the manufacturing and distribution chain for these products. Also, there is a significant and growing fraction of the ITC docket which relates to other technology areas – such as mechanical structures – and property rights other than patents, such as trade dress. The nature of these disputes continues to be mainly strategic business advantage in defining and capturing US market share for the products at issue.
Beaber: Last year marked a six-year high for ITC filings: more cases were filed in 2017 than any year since the staggering 71 filings in 2011. We are also seeing more diversity in the types of technology at issue. So far in 2018, cases have extended beyond the typical consumer electronic products to include fuel pump systems, cholesterol test strips, water filters, human milk oligosaccharides, and even jump ropes. New companies and new industries are looking to the ITC as part of their intellectual property (IP) enforcement strategies, and patent-savvy parties with substantial district court experience are now finding themselves in the unfamiliar territory of an ITC dispute. The increase in activity before the ITC is at least in part due to the TC Heartland Supreme Court decision and a more stringent venue standard in district court litigation.
Lehman: The level of activity has been very high within the last 12 months. According to the ITC’s own statistics, there were 74 new complaints and ancillary proceedings in its fiscal year 2018, which ended at the end of September. The data compiled by the ITC shows that it was one of the highest years for new filings, and 2018 had the highest number of active investigations, at 130, in at least the last 12 years. The nature of the disputes varies greatly in all respects for 2018. There are cases involving a wide array of technologies, different types of intellectual property, such as non-patent cases, and a range of different countries impacted as respondents. If anything, the filings are notable in that they do not appear to be driven by any one industry, such as cellular communications.
Brinkman: The number of cases held at historically high levels, but there were more big competitor cases, including not only the typical smartphone and semiconductor cases, but also some competitors you would not expect at the ITC, such as Annheuser-Busch InBev v. Heineken.
FW: In your opinion, why are a growing number of domestic and foreign companies choosing the ITC as a forum for resolving their disputes? What distinctive features does it offer?
Beaber: For years, the ITC has been an attractive forum for patent holders. In our view, the three most attractive features are the speed of the forum, the streamlined nature of the proceedings, and the expansive remedies available. The ITC’s fast-paced determinations make even the ‘rocket dockets’ seem slow by comparison. From 10-day discovery turnarounds, to moving to trial in as few as nine months, the ITC’s speed allows patentees to put pressure on accused infringers as the case flies by. Also, the streamlined nature of the hearings before administrative law judges (ALJs) means less wasted energy on evidentiary issues, jury instructions, and the other time-consuming – but often inconsequential – disputes that arise leading up to jury trials. In addition, only two of the five ALJs currently hear live direct testimony, making ITC trials largely an exercise in rapid-fire cross-examinations that cut to the core of the disputed issues. Finally, the ITC offers patent owners the chance to obtain what amounts to an injunction without the hurdles of winning that remedy in district court. And because the ITC exercises jurisdiction over accused products, not accused infringers, its general exclusion orders (GEOs) can cover infringing products imported by parties not even named at the ITC. All of these features make for an attractive battleground for bringing IP disputes. This is particularly true following the TC Heartland Supreme Court decision and a more stringent venue standard applicable to the district court ‘rocket dockets’.
Lehman: The ITC’s popularity has been growing over several years due to its unique features, but also because its growing popularity has led more companies to become aware of those features. The ITC offers a number of advantages over other forums that are very attractive right now. One notable advantage is the fact that the ITC has not been willing to stay investigations in light of Patent Trial and Appeal Board (PTAB) proceedings, while many districts courts are. Patentees are also limited in what jurisdictions they can bring patent infringement actions, due to the TC Heartland decision. Combined with the ITC’s speed, and the ability to name multiple parties in a single investigation, the advantages are significant if the infringing products are imported.
Brinkman: The ITC is often the first strike in a global patent war. It is chosen primarily due to its speed – being able to get a resolution prior to a patent nullification effort at the patent office – and the ITC’s strong injunctive remedy. These days, it is not unusual for a determined plaintiff to file suit in multiple global jurisdictions, but the ITC’s speed, size and intensity dwarf the other actions while it proceeds.
Harper: Essentially, parties are seeking a strategic business advantage and this is a main reason for choosing the ITC as a dispute forum. The advantage here stems from a combination of the exclusion order remedy and the speed of the proceeding. Because at least significant parts of many products sold in the United States are manufactured or imported from abroad, the default remedy of an exclusion order puts direct and substantial pressure on the business of the respondent company. In addition, the speed of the process in which a hearing can be undertaken within 10 months of institution compounds the business pressure. In effect, an ITC proceeding can put a respondent company in survival mode and can invoke significant leverage for settlement of the business issues. These pressure points are particularly effective when applied to products having a long lead time – such as cars – or a well-defined distribution chain – such as TVs. Disrupting these business relationships can cause as much damage as disrupting the product supply itself.
FW: To ensure a smooth process, how important is it for parties to understand the ITC’s unique procedural rules, body of law, evidentiary hearings, administrative law judges, as well as its interaction with agencies such as US Customs?
Lehman: It is extremely important for parties to understand the ITC’s rules, as well as the ground rules for the individual judges, in order to successfully pursue a Section 337 investigation. Many aspects of ITC proceedings are the same as district court litigation, but the unique aspects can trip up the unfamiliar practitioners, and the speed of the investigations makes familiarity with the rules even more important. Understanding the substantive law is also crucial, because the ITC has some unique law on issues such as domestic industry (DI), but also on infringement of method claims, 271(g) issues, and other aspects of patent law that someone unfamiliar with the ITC might not be aware of. Filing an ITC investigation can be a large investment for a complainant, and if it fails to meet the particular legal requirements of the ITC, it can be a disappointing one. The ITC’s interaction with Customs is also important, because exclusion orders are enforced by Customs. In order for a remedy to be effective, the complainant has to know how the remedy will be enforced.
Harper: There is no ensuring a smooth process in the ITC. The ITC remains an adversarial process in which the advantage of ‘smooth’ for one side is a disadvantage for the other side. For this reason, it is very significant to understand the ITC procedures and ground rules, as they will be used against the party which does not demonstrate mastery of them. The ITC is not tolerant of any party – or for that matter, non-party – which appears before it in a non-procedurally appropriate way. Otherwise appropriate relief will be denied to a party which does not comply with applicable processes. This includes, in particular, failing to abide with individual ALJ ground rules. Beyond the procedures and ground rules, precedent on particular issues unique to the ITC must be consulted. Failure to appreciate individual ALJ decisions on issues such as adding parties, witness testimony, motion practice, admission of evidence and a host of others, can mean the difference between success or rejection. Moreover, it is critical to understand the roles of Customs and the ITC because effective relief can be wholly undercut by failing to admit the appropriate evidence at the ITC on which Customs needs to rely.
Brinkman: Understanding the various aspects of the ITC is not only important to ensure a smooth process, but a successful one. Going to the ITC with jury trial lawyers is a mistake repeatedly made by sophisticated companies. What works in Texas frequently does not in the ITC. There are local counsel boutiques in Washington to aid out-of-town lawyers with the logistics and help with some of the special ITC challenges, but it is hard to replace a well-integrated legal team with substantial ITC experience.
Beaber: A robust knowledge of the ITC’s idiosyncrasies is crucial. The ALJs’ ground rules vary considerably from judge to judge, yet each expects litigants to master her particular provisions. In addition, the threshold showing of a DI is a dynamic, ITC-unique issue that even seasoned patent practitioners may have little in-depth knowledge of. ITC proceedings also often involve a third party: the staff attorneys at the Office of Unfair Import Investigations (OUII). Knowing how to work with – or argue against – the OUII’s attorneys is another critical strategic consideration often neglected by budding ITC practitioners. Even after the Commission issues an exclusion order, understanding the processes for challenging product seizures by US Customs or attempting to clear redesigned products in view of an exclusion order requires unique considerations and a familiarity with the esoteric aspects of advocating to the IP centres at Customs.
FW: In your experience, are there any pitfalls or downsides for parties bringing their dispute to the ITC? What steps should parties take to overcome common challenges or obstacles?
Brinkman: The ITC is not a good place to assert a weak patent. ITC judges are patent specialists and not afraid to provide a thorough invalidity analysis. It may not be the best place to bring a claim with strong jury appeal, as the ITC judges are far more dispassionate than a typical jury. And, of course, there is the DI requirement, which does not exist in regular court, to ensure that parties asserting their rights make domestic investments in practicing them as well.
Beaber: The biggest pitfall is a lack of preparedness. The ALJs have little sympathy for parties – particularly complainants – who are unprepared for the speed of the forum. Patent holders filing complaints at the ITC should have their case in chief fully fleshed out – including detailed infringement theories well supported by product tear-downs, publically available information, and expert declarations where necessary. Complainants must also lay out a solid, well-thought-out DI case prior to filing. The prep work for filing an ITC complaint extends far beyond mere ‘Rule 11’ investigations. Before filing a complaint, patent holders should prepare claim charts, affidavits from technical and economics specialists and knowledgeable party witnesses, and all anticipated document productions. Accused infringers are not off the hook either. Respondents are now expected to develop their invalidity contentions early, often submitting claim charts to the patentee on a rolling basis before the close of fact discovery. Respondents cannot count on sitting idle for the first few months of the case, hoping for a nuisance-fee settlement. From complaint to target date, ITC investigations are a race from one deadline to the next. A failure to prepare for fast-approaching deadlines or to begin substantive work early in the investigation is the most commonly sprung trap for the unwary or the inexperienced.
Harper: There are a series of challenges for a party bringing a dispute to the ITC. The first is jurisdiction. Not every dispute, not even all patent disputes, lend themselves to the ITC. One requirement that differentiates the ITC from district court is the presence of a DI. The complainant must plead and show expenditures in the US to demonstrate either an ongoing industry or one that is being established. To make this showing requires correlating expenditures with specific categories, such as labour, capital and R&D. And the DI requirement is not generally met by sales and marketing expenditures. Moreover, for certain categories, the expenses must be correlated to the patents-at-issue. Another feature of the ITC is that the complainant must do substantial preparation of its case before the case is instituted. Due to the speed of the ITC, mere reliance on discovery for case development is likely to severely handicap the complainant. In a number of areas important to an ITC remedy, such as taking foreign discovery, adding a party or even identifying accused instrumentalities, significant – and generally expensive – pre-filing investigation is critical to a complainant being able to effectively use the broad discovery in the ITC to develop its case.
Lehman: The expedited schedule of the ITC poses a significant challenge for all parties. For complainants planning to bring a case to the ITC, advance planning is extremely important to overcoming this key obstacle. Complainants should prepare their cases in detail, including collecting documents, retaining experts and having the DI part of the case as complete as possible. The discovery deadlines, including for contentions and expert reports, come very quickly, and the judges will not allow supplementation if the party had the information in its possession at the beginning of the case. Planning out the case early, including how the remedy should be crafted, is key to ultimate success. Complainants have the ability to plan ahead, something that potential respondents typically do not have, and they should maximise that advantage. As awareness of the ITC has increased, we have seen more interest from clients in making sure they have ITC counsel and understand the process before they are named as a respondent. Once a complaint is filed, a respondent needs to focus on preparing for the litigation, not spending time interviewing counsel and learning about the ITC for the first time.
FW: In the context of a large intellectual property (IP) dispute, what makes recourse to ITC proceedings a particularly advantageous option for multinational companies?
Beaber: The ITC’s control over US Customs gives it the power to halt importation of all infringing products. This is a scary prospect for accused infringers, as it directly disrupts business operations in a way that monetary awards do not. The ability to effectively knock a competitor out of the US market is a huge advantage for multinational companies and is powerful leverage for competitor cases.
Harper: There are three features which make the ITC attractive for multinational company IP disputes: exclusion order remedy, short timetable to a decision, and jurisdiction. Jurisdiction in the ITC is dependent on the product or thing imported, not on the location of the particular company that does the importation. This is particularly significant in multinational IP disputes because a complainant does not have to contend with chasing a respondent into multiple different – and unknown – forums. The primary relief the ITC provides is an exclusion order keeping broad categories of products from being imported into the US. Typically, such remedies are not available in US district courts. Because the US generally is a primary market for many products, exclusion from this market has significant commercial effects which can make or break a company. Finally, speed. An ITC action can be taken from institution to hearing in 10 months, with an initial final determination four months later and Commission review two months after that. Having a final appealable decision in 16-18 months generally places significant commercial pressure on an IP dispute and can be a deciding factor in getting the matter resolved.
Lehman: Multinational companies often seek a forum that will resolve a global dispute quickly, including ordering the discovery necessary to reach such a resolution. Litigation in other forums may drag on for years, but the speed and impact of the ITC can force a resolution. Multinational companies may also have a presence in the US which can substantiate a DI, one of the required elements.
Brinkman: ITC proceedings offer speed, discovery and talented judges. Speed, because ITC cases move faster than anything your opponent may file in retaliation. Discovery, because no matter where your opponent is located, you will be able to take extensive discovery, including in places where discovery is unheard of. Talented judges, because you hopefully would not be starting a dispute without a strong belief in your IP, and leaving interpretation to less skilled judges or juries is risky.
FW: Could you outline the main benefits of the ITC’s Section 337 investigations? What are the primary remedies available?
Brinkman: The ITC is empowered to issue two primary remedies: exclusion orders and cease-and-desist orders (CDOs). Exclusion orders instruct US Customs not to permit entry of infringing merchandise from abroad. CDOs require an infringer to cease not only importation, but also sale or transfer of product that has already been imported. Violation of CDOs can be enforced with strong monetary penalties.
Lehman: The main benefits of Section 337 investigations are the speed, the ability to pursue multiple defendants in one case, and the power of the remedy. The primary remedy is exclusion of infringing goods from the US directed to the respondents found in violation. This is the standard remedy that is required by statute if violation is found, subject to rare public interest exceptions. Respondents found in violation are allowed to import for the first 60 days after an exclusion order goes into effect by posting a bond, which allows for presidential review of the exclusion order. A different type of exclusion order, called a GEO, can be sought in cases where there is widespread infringement and multiple, difficult to identify, sources of the products. Complainants must provide specific evidence as to these factors in order to obtain a GEO, but once obtained, such an order can be extremely powerful in blocking infringing products that seek to hide their origin, or may pop up from different sources. In addition, the ITC can issue CDOs, in which the ITC orders respondents to cease various activities related to the violation. CDOs are not issued in every investigation, but they are very powerful because violation of a CDO can result in an award of civil penalties.
Harper: The primary remedies under the ITC are a limited exclusion order (LEO), a GEO and a CDO. The exclusion orders are sent to Customs and Border Protection (CBP) to prevent importation into the US of infringing products. The key here is that infringing products is considered broadly, not limited to just the products specifically identified in the ITC investigation, and CBP does not act as a second forum for litigating the infringement issues. This enforcement scheme creates broad and effective implementation of the ITC exclusion orders. The difference between an LEO and GEO is that an LEO applies only to respondents named in the complaint, while a GEO operates generally on the products identified in the investigation without regard to the identity of the importing party. However, the evidentiary standard to show entitlement to a GEO is significantly higher than for an LEO and, as a result, is often not pursued because it is not usually necessary where the distribution chain for specific products is well understood.
Beaber: The speed of the forum, the streamlined nature of the proceedings and the expansive remedies available are all key benefits to bringing Section 337 investigations. In addition, patent holders enjoy the ability to name numerous – often dozens – of unrelated parties in a single investigation, which is a strategy no longer possible in district court patent cases due to changes stemming from the America Invents Act (AIA). The AIA has largely left ITC investigations unchanged, and clients appreciate that consistency. Also, most ALJs at the ITC are reluctant to grant dispositive motions, called ‘summary determination’ motions in ITC parlance. This makes the ITC akin to forums like the Eastern District of Texas in its preference for letting disputes proceed to trial. The primary remedies obtained from Section 337 investigations are LEOs, which cover only the parties and accused products specifically named in the investigation, and GEOs, which cover all infringing products, even those manufactured or imported by parties not named in the investigation. The ITC also issues CDOs and, in rare cases, can award fees. All make for powerful leverage for patentees.
FW: How do you envisage ITC dispute resolution proceedings developing in the years ahead? Are there any notable changes on the horizon?
Lehman: The ITC has a mediation programme that is available to all parties, and some of the judges require the parties to participate, but settlement rates of ITC investigations are still significantly lower than district court litigation. There are a number of factors that contribute to the low settlement rate, including the speed of the investigation and the inability of clients and in-house counsel to review many of the pleadings and decisions that are filing confidentially. There has been a push from the ITC recently to have the parties and the judges file public versions of pleadings very quickly, which may increase transparency and assist clients in evaluating their cases. The ITC remains a forum where some of the most contentious, and least likely to settle, cases are brought, making a single solution for dispute resolution difficult.
Harper: The ITC is a creature of statute. That is, substantial changes in ITC practice are unlikely unless the statute is changed legislatively. The ITC has been and continues to be an effective tool for individual parties to resolve a specific class of trade disputes. While not impossible, it is unlikely the statue will be significantly changed in the near future. Nevertheless, ITC practice will evolve over time as creative parties, and new factual circumstances, arise to address evolving disputes. The ALJs which administer the process will continue to become more efficient and will adjust ground rules and procedures which will address efficiency and effectiveness of the process – for example, the recently introduced 100-day programme for early determination on dispositive issues. Also, the ITC will evolve with the substantive law developments as, for example, demonstrated on the issues related to statutory subject matter. These changes are likely to be incremental in nature and, as is conventional with the ITC, adopted in an evolving manner.
Beaber: As companies in growing economies like China begin to increase their presence in the US market, more IP holders will see the value in Section 337 investigations at the ITC. Companies that, for years, found themselves on the receiving end of ITC complaints are now beginning to see the forum as an attractive alternative to resolve their own disputes. The past few years have seen a rise in foreign complainants at the ITC, including from Japan and China, and that trend will almost surely increase moving forward. As for changes on the horizon, we look forward to more clarity on ITC-specific issues like DI and the standards for obtaining GEOs. As more and more foreign complainants flock to the ITC, these issues will become increasingly important. In addition, in May 2018, the ITC added new rules that allow for 100-day ‘fast track’ investigations to decide case-dispositive issues – such as lack of a DI – and that allow ALJs to serve complaints into multiple investigations. Prior to this change, there were relatively few 100-day proceedings and no ability to chop complaints into multiple investigations. It will be interesting to see how respondents make use of these new rule changes.
Brinkman: I do not see large changes on the horizon. There have been several bills circulating in Congress to limit the ITC’s powers, but they have not made it very far as there are powerful forces on both sides of the issue. Some big issues, like the availability of the ITC to enforce disputes over standard essential patents, or whether the ITC should decline to issue relief on public interest grounds, pop up from time-to-time but probably will not be resolved without Congressional instruction.
Christine Lehman leads Finnegan’s litigation section. Her practice focuses on patent litigation in US district courts and the US International Trade Commission (ITC), as well as the coordination of international litigation and patent office proceedings. She represents clients before the US Court of Appeals for the Federal Circuit and provides counselling on a wide range of patent matters. She can be contacted on +1 (202) 408 4270 or by email: email@example.com.
Blaney Harper’s practice focuses on strategic patent litigation representing electronics, software and information technology companies in matters such as patent enforcement in United States district courts and the International Trade Commission (ITC). Mr Harper also represents and counsels clients concerning patent portfolio development and patent prosecution and appeal, including Inter Partes Review, in the USPTO. He co-chairs the firm’s ITC practice and is the IP practice coordinator for the Washington Office. He can be contacted on +1 (202) 879 7623 or by email: firstname.lastname@example.org.
Paul Brinkman is an intellectual property partner in the Washington, DC office of Kirkland & Ellis LLP. Mr Brinkman focuses his practice on Section 337 litigation before the US International Trade Commission (ITC). He has won 17 of 19 trials at the ITC and won or favourably settled many more prior to trial. His work for plaintiffs has led to orders excluding competitors’ products from the US and high-value settlements and licence agreements. He can be contacted on +1 (202) 879 5033 or by email: email@example.com.
Jamie B. Beaber is a partner in Mayer Brown’s Washington DC office, is a member of the Intellectual Property practice and leads the Section 337 Litigation practice. Mr Beaber’s practice is focused on patent litigation matters before the US International Trade Commission (ITC) under Section 337 of the Tariff Act of 1930 and before US district courts across the country. He is a vigorous and well-respected first-chair trial attorney and advocate for his clients with numerous accolades and honours. He can be contacted on +1 (202) 263 3153 or by email: firstname.lastname@example.org.
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