Articles

Highlights of ITC Investigations

China IP News
December 2008

Article

Introduction

The International Trade Commission (“ITC”) is a U.S. government agency.  Under 19 U.S.C. § 1337 (“Section 337”), the ITC has the power to order U.S. Customs officials to exclude products from the U.S. market if they infringe a valid and enforceable U.S. patent.  This is an extremely powerful remedy.

A Section 337 Investigation involves the same kind of substantive technical and legal issues as patent litigation in a U.S. federal court.  The forum, however, is unique and presents additional challenges to companies named as “respondents.”  If a company from the Greater China region is named a respondent in a Section 337 Investigation, there are some things it can do to improve its chances for a successful defense.

First, the respondent needs to candidly and quickly evaluate its risks.

Second, the respondent should educate itself about the forum, the governing procedures, and the relevant time table.

Third, the respondent needs to select experienced, reliable counsel who understands the forum and the respondent’s risks.

Fourth, the respondent needs to maintain open communications with its counsel.

Assessing Risk

Each respondent in an ITC investigation must understand which products are at risk of being excluded from the U.S. market and how that may impact the respondent’s business.  The scope of an ITC investigation and the potential scope of any exclusion order are defined by the title of the investigation.  For example, Inv. No. 337-TA-656, titled Certain Integrated Circuits and Products Containing Same, potentially implicates all integrated circuits manufactured or sold by the respondent, although the complaint only specifically identifies an “LSI SAS 1068 Controller.”  If an exclusion order were to issue, it would exclude “integrated circuits” found to infringe a valid and enforceable patent claim.  Although some products may be specifically identified in the underlying Commission decision, an exclusion order does not generally specify the products covered by the exclusion order.  In fact, an exclusion order may cover products that have not yet been developed or sold, if they are covered by the claims of the patent.

Additionally, the ITC may exclude from the U.S. market certain “downstream” products.  An investigation title that includes “products containing same,” usually indicates the complainant is also seeking to exclude certain downstream products.  In the 656 Investigation referenced above, the downstream products that may be excluded are products that incorporate the accused integrated circuits.  The complaint in the 656 Investigation broadly identifies “motherboards, host bus adapters, computer peripherals, servers, work stations and hard disk drives,” as downstream products sought to be excluded.  Any final exclusion order, however, could be much broader or possibly narrower.

Companies often think of the ITC as potentially affecting only direct imports into the U.S.  An order that prevents a respondent’s products from being imported into the U.S. can easily impact worldwide sales.  If a respondent sells a product that is interchangeable with competing products, a customer may prefer to purchase a competitor’s product that can be incorporated into a downstream product and safely exported anywhere in the world, including the U.S.  If it is easier for the customer to simply switch suppliers than to track who supplied each component in a downstream product, the respondent will likely lose those sales to a competitor.

When assessing risk, a respondent should also evaluate its products that it believes are well outside the scope of any asserted patent.  The respondent should consider producing discovery regarding those products and seeking a specific determination of non-infringement.  For example, in Inv. No. 337-TA-541, the respondent produced documents regarding certain products that did not arguably infringe the asserted patents.  After exchanging some briefs regarding those products, the administrative law judge (“ALJ”) issued an order protecting those products from any subsequent exclusion order.  Although an exclusion order eventually issued in that investigation, the respondent continued to have the right to import into the United States the products identified in that order.  Had the respondent not produced discovery regarding those products, those products may have been included in the exclusion order and banned from importation.  Arguing after issuance of the exclusion order that those products could be safely imported into the United States would have been an uphill battle.

Many factors go into evaluating risk, but a candid assessment of risk is essential.  A risk analysis is needed to choose an appropriate defense and to inform management of the stakes.  In some instances, the accused products may account for an insignificant fraction of the respondent’s business.  In other instances, the accused products may account for the entire product line.  A respondent with little to lose will make different litigation decisions, and be willing to incur different litigation costs, than a respondent with everything to lose.  Most respondents are somewhere between those extremes, but each respondent needs to know where it sits along that continuum.  Management also needs to appreciate the risks in order to accurately inform shareholders and choose the best direction for the company to ensure continued success.

The Forum, Procedures, and Relevant Schedule

The ITC is located in downtown Washington, D.C.  There are currently five ALJs who preside over the investigations pending before the ITC and who solely hear Section 337 cases.  Patent-infringement based cases account for approximately 90% of the 337 cases brought to the ITC.  Consequently, the ALJs are very familiar with patent law.

Because the ITC is an administrative agency, there is a third party involved in the litigation:  The Office of Unfair Import Investigations (“OUII”).  OUII is employed by the ITC, but does not work for the ALJ, is not affiliated with any of the private parties, and does not directly advise the Commission.  OUII is a party representing the public interest.  As such, OUII participates in all aspects of the investigation and will take positions on all substantive issues, including making recommendations to the ALJ and the Commission through briefs and motions.

An ITC trial generally occurs 9 or 10 months after institution.  The precise trial date is largely a result of the Target Date—the date by which the Commission must issue its final determination.  Shortly after institution, the ALJ will set the Target Date.  The Commission has four months to review the ALJ’s final decision—called an “Initial Determination”—which is the ALJ’s decision on who wins and why.  The trial will occur roughly two months before the final Initial Determination issues.  For example, if a case has a 16 month Target Date, the ALJ’s final Initial Determination would be due 12 months after institution, and the trial would occur roughly 9–10 months after institution.

Respondents should be aware that most costs associated with an ITC investigation are incurred during that 10-month period.  Although ITC investigations are rumored to cost approximately the same as a district court litigation, parties in a district court generally have the advantage of spreading out the costs over several years.

Shortly after institution, the ALJ will set the Target Date and issue a procedural schedule.  The dates on the procedural schedule tell the parties all critical due dates.  Each respondent should understand what is involved in each due date.  For example, all procedural schedules will include dates for exchange of expert reports, discovery cut-off, submission of prehearing statements, and exchanging proposed exhibits.  Most schedules will have additional dates, but they will vary depending on the ALJ and the needs of the investigation.  Each of these dates, however, is significant for the parties in the investigation and involve increased litigation activity and costs.

“Expert reports” are reports prepared by experts in a given field and generally serve as a roadmap to the expert’s anticipated testimony at trial.  All parties submit a prehearing statement, which must include a parties arguments and positions on essentially all the contested issues.  Exchange of proposed exhibits requires each party to identify before trial each exhibit it may rely on for any purpose at trial.  A respondent may not have to directly assist counsel in preparing these materials, but there will be increased costs during these portions of the investigation.

Regarding discovery cut-off dates, each respondent will have to ensure that it has both received and produced all the necessary information to prove its case before that date.  If there are any deficiencies, they should be corrected before the date passes.  In any event, each respondent should be familiar with the dates on the schedule and be prepared to respond quickly as critical dates approach.

Because ITC investigations are fast paced, the Commission and ALJs have procedures to ensure the parties remain on track to complete the investigation in the set time period.  For example:

• Shortly after the case is instituted, the ALJ will issue a Protective Order.  An ITC Protective Order grants access to information produced by the parties and designated as confidential only to outside counsel who have specifically subscribed to and agreed to be bound by the terms of the Protective Order.  This prevents parties from withholding information based on confidentiality concerns.
• Responses to discovery and motions are generally due 10 days after service (compared to 30 days in district court).
• ALJs often conduct telephonic hearings to more quickly address discovery disputes.

ALJs are experienced at ensuring that the case proceeds on schedule and that the parties can obtain the information needed to prepare for trial.

Selection of Counsel

Because the ITC is a fast-paced forum, it is important to have counsel familiar with ITC practice and procedure.  Although cost is generally an important factor in selection of counsel, a respondent should equally consider an attorney’s ITC experience.

Counsel should be able to quickly and accurately calculate response dates to motions or discovery requests.  Counsel should also have a clear sense of the appropriate scope of discovery.  Discovery in the ITC is extremely broad.  That does not mean there are no limits to discovery, and a party should have a sense of which information is discoverable and which information is not.  That knowledge allows parties to choose battles with a high likelihood of success and avoid unnecessary discovery disputes.

It is equally important that counsel appreciate the respondent’s risks so that it can make appropriate recommendations.  If the respondent has a great deal at risk, there may be motions or discovery worth seeking.  If the respondent has very little at risk, the costs associated with those motions or discovery may not be worth pursuing.  Counsel familiar with the unique aspects of a Section 337 Investigation are more likely to appreciate the costs and benefits of a particular course of action.

Maintaining Communications

Throughout an investigation, it is important to maintain open communications with counsel.  Although it is time consuming for the respondent, it serves multiple purposes. 

First, because of the breadth of an ITC Protective Order, a respondent will never see many of the documents.  Consequently, the respondent will rely entirely on outside counsel’s evaluation of the case to assess the chances of winning.  Having regular contacts can give the respondent a better sense of whether the investigation is progressing well or poorly. 

Second, it will help remind the respondent of upcoming due dates and provide an opportunity to evaluate the amount of work that may be required for a particular project.  This assists the respondent anticipate costs in the short term and long term.  If the respondent knows that the parties’ “expert reports” are to be exchanged the following month, the respondent will know that there will be an increase in costs related to those reports.

Third, outside counsel often will need information from the respondent quickly to respond to discovery.  Regular communications provides the outside counsel with frequent opportunities to identify needed information and to answer any questions about the scope of discovery.  This also may help to focus the search for responsive information.

Conclusion

Although each case is different, there are common challenges that face all respondents.  A candid assessment of the one’s financial exposure is key to choosing how to proceed.  There are no guarantees of success, but there many opportunities to maximize one’s likelihood of success.

Copyright ©Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.