The Injury Requirement in ITC Section 337 Investigations

This practice note provides guidance on the ITC’s “injury” requirement, an element of proof required for Section 337 ITC investigations of unfair acts concerning non-statutory causes of action, such as misappropriation of a trade secret, trademark dilution, trade dress, breach of contract, or false advertising. 19 U.S.C. § 1337(a)(1)(A). In particular, Section 1337(a)(1)(A) addresses non-statutory unfair acts, declaring unlawful “[u]nfair methods of competition and unfair acts in the importation of articles... into the United States, or in the sale of such articles . . ., the threat or effect of which is:

• To destroy or substantially injure an industry in the United States
• To prevent the establishment of such an industry –or–
• To restrain or monopolize trade and commerce in the United States

By contrast, sections 1337(a)(1)(B)-(E) separately declares unlawful statutory unfair acts such as patent infringement (alleged in most investigations), copyright infringement, trademark infringement, infringement of a mask work, and infringement of a design. Notably, statutory unfair acts do not require proof of an injury (instead, a complainant need only establish importation, infringement, and a domestic industry).

With a specific focus on trade secret misappropriation, this note will provide information on:

• Distinguishing between Section 337’s statutory and non- statutory causes of action.
• Pleading the requisite
• Demonstrating injury and the threat of

For more resources on investigations at the ITC, see ITC Complaint Filing Checklist, Pre-suit Considerations for ITC Section 337 Investigations Checklist, ITC Section 337 Investigations in Patent Infringement: Pre-suit Considerations, ITC Section 337 Investigations in Patent Infringement: Overview.

Non-statutory versus Statutory Causes of Action Under Section 337

The International Trade Commission (ITC or Commission) is an administrative agency that has the power to hear cases involving unfair practices in import trade under Section 337 of the Tariff Act of 1930. Section 337 permits a party to bring both statutory (i.e., civil causes of action created through legislation, such as patent infringement) and non- statutory causes of action (i.e., common law causes of action). The statutory causes of action include infringement of the following federally registered rights:

• Patent Infringement
• Copyright Infringement
• Trademark Infringement
• Mask Work Infringement
• Hull Design Infringement

See 19 U.S.C. § 1337(a)(1)(B)-(E). In contrast, the non-statutory causes of action are not specifically identified in the Statute and may include, for instance, trade secret misappropriation, unregistered trade dress infringement, or antitrust violations. See 19 U.S.C. § 1337(a)(1)(A). Section 337 requires the existence of a domestic industry relating to the articles protected by the asserted right of the complainant, or that such an industry is in the process of being established, and both statutory and non-statutory causes of action require that a Complainant prove the economic prong of the “domestic industry” requirement, satisfied by submitting proof of:

• Significant investment in plant and equipment
• Significant employment of labor or capital
• Substantial investment in exploitation of the asserted patent, including engineering, research and development, or licensing

19 U.S.C. § 1337(a)(3)(A)–(C). Although the requisite “domestic industry” is explicitly defined in the statute for statutory causes of action, it is not defined for non-statutory causes of action. But complainants should note that a domestic industry is nonetheless required for non-statutory causes of action. Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA-849, 2014 ITC LEXIS 1249, *9 (Feb.

26, 2014) (“Therefore, there is a requirement not only that the complainant demonstrate the existence of a domestic industry, but also that there be actual substantial injury or the threat of substantial injury to a domestic industry.”) (emphasis added). Although technically not required, a Section 337 complainant asserting trade secret misappropriation, for instance, should rely on the same factors to show the existence of an industry as a patent holder, that is, the significant or substantial investments noted above.

In contrast to a complainant bringing a statutory cause of action, a complainant seeking relief based on one of the non- statutory causes of action must meet another requirement, in addition to the domestic industry requirement—substantial injury or substantial threat of injury to a United States industry. Compare, for example,

19 U.S.C. § 1337(a)(1)(B)(prohibiting the importation, sale for importation, or sale within the U.S. after importation of articles that “infringe a valid and enforceable United States patent or a valid and enforceable United States copyright”) with

• 19 U.S.C. § 1337(a)(1)(A)(i)(prohibiting “[u]nfair competition and unfair acts in the importation of .., the threat or effect of which is—(i) to destroy or substantially injure an industry in the United States...”).

See also, e.g., Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA-849, 2014 ITC LEXIS 1249, *9. Thus, while trade secret misappropriation has long been recognized under Section 337 as a cognizable “unfair act,” it can be more challenging to prove due to the additional injury requirement.

Pleading Substantial Injury/ Threatened Substantial Injury

To plead the injury requirement, complainant must “state a specific theory and provide corroborating data to support the allegation(s) in the complaint concerning the existence of a threat or effect to destroy or substantially injure a domestic industry...”. 19 C.F.R. 210.12(a)(8). Thus, any injury allegations should be supported with factual information, unlike with notice pleading typically followed in district court. The information that would “ordinarily be provided” with the complaint includes:

• The volume and trend of production, sales, and inventories of the involved domestic article.
• A description of the facilities and number and type of workers employed in the production of the involved domestic
• Profit–and–loss information covering overall operations and operations concerning the involved domestic
• Pricing information with respect to the involved domestic
• Volume and sales of
• Other pertinent

19 C.F.R. § 210.12(a)(8). This information should be provided in the context of showing how the accused imported products have substantially injured the alleged domestic industry. For instance, the “volume and trend of production, sales, and inventories of the involved domestic article” could be provided over a time period, starting with a time well before the alleged unlawful importation through a time after the importation to ideally show that complainant’s industry was stable or thriving until after the accused products were imported into the United States. Such a trend may aid in establishing that the accused product substantially injured complainant’s domestic industry.

Proving Your Case

Analyzing Substantial Injury Factors Typically Weighed by the Commission

Although the injury determination is fact specific, you should be sure to analyze the explicit “broad range of indicia” provided by the Commission in making this determination, including:

• The volume of imports and their degree of penetration
• Complainant’s lost sales
• Underselling by respondents
• Reductions in    complainants’   declining   production, profitability of sales
• Harm to complainant’s good will or reputation

Certain Electric Power Tools, Battery Cartridges and Battery Chargers, Inv. No. 337-TA-284, 1991 ITC LEXIS 909, *327–328 (1991). The above-identified factors are not requirements, per se. Thus, a complainant without lost sales, for instance, may still demonstrate the requisite substantial injury based on underselling and reduced profitability. See, e.g., Rubber Resins and Processes for Manufacturing Same, Comm’n Op., 2014 ITC LEXIS 1249, *81–82 (February 26,

2014). Complainants should consider tailoring the injury component of its case-in-chief around these factors, if possible, as at least one ALJ has held that a complainant failed to prove substantial injury because the litigant “failed to present any evidence” in the form of lost sales, underselling, or reduction in profits.” DC-DC Controllers and Products Containing the Same, 2010 ITC LEXIS 1650, *11 (July 13, 2010).

Showing That Any Injury or Threat of Injury Is Substantial

Any injury alleged by complainant must be “substantial.” See 19 U.S.C. § 1337(a)(1)(A)(i) (indicating that “the threat or effect” of any “[u]nfair methods of competition and unfair acts” is required to “substantially injure an industry in the United States”) (emphasis added).

To determine substantiality of injury, a complainant should consider comparisons in which the complainant’s sales of the domestic industry product is compared to the number of imported products.

See Industrial Automation Systems and Components Thereof, Init. Det., 2018 ITC LEXIS 1454, at *145 (April 8, 2018). If the number of imported products is low, then the Commission may determine that the injury is “de minimis.” Id. If the number of imported products is high, in contrast, then the Commission may determine that the injury is substantial. Id. The fact that the Commission has not required that the substantiality of injury be demonstrated in a particular manner may suggest that the Commission would consider a variety of ways of showing substantiality. In accordance with the guidance provided above, the Complainant should work with its economic expert witness in an attempt to find ways to establish substantial injury.

In some instances, complainant may not be able to show actual substantial injury. But even if the facts don’t support actual substantial injury, a complainant may be able to persuasively show that the alleged domestic industry is threatened with injury, depending on the factual background. See, e.g., Certain Electric Power Tools, Battery Cartridges and Battery Chargers, Init. Det., Inv. No. 337-TA-284 (June 2, 1989). Complainants should be mindful that although the statutory language regarding actual substantial injury and the threat of substantial injury is written in the disjunctive, the Commission has recognized that a domestic industry can suffer actual substantial injury and the threat of substantial injury. See 19 U.S.C. § 1337(a)(1)(A)(i) (reciting “the threat or effect” of injury); Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA-849, 2014 ITC LEXIS 1249, *1 (“The Commission has determined... that there is actual injury and the threat of injury to a domestic industry...”) (emphasis added). In determining whether a threat to substantially injure a domestic industry exists, the factors typically considered by the Commission are slightly different than the factors considered for actual substantial injury. These factors include the following:

• Substantial foreign manufacturing
• Ability of imported product to undersell the domestic
• Explicit intention to enter into the S. market.
• The inability of the domestic industry to compete with the foreign products because of vastly lower foreign costs of production and lower prices.
• The significant negative impact this would have on the domestic

See, e.g., Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA-849, *87–88. And the Commission has noted that the threatened injury must be “substantive and clearly foreseen, with a causal connection between the action of the respondents and the threatened injury.” Id., 2014 ITC LEXIS 1249, *88.

Showing the Causal Connection Between the Alleged “Substantial Injury” and the Importation or Sale of Goods

In addition to the above factors for demonstrating substantiality of the alleged injury, a complainant must show what is known as a “causal nexus” between the importation of respondent’s products and the requisite substantial injury. See Certain Floppy Disk Drives and Components Thereof, Comm’n Op., 1985 ITC LEXIS 134, at * 11 (August 29, 1985) (“The [ALJ’s] statement is correct in conveying the idea that a causal nexus must exist between imports or sales and economic injury.”). The Commission, at other times, has described the causal nexus as a relationship “between the unfair acts of the respondents and the injury.” Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA- 849, 2014 ITC LEXIS 1249, *82 (“When the complainant alleges actual injury, there must be a causal nexus between the unfair acts of the respondents and the injury”).

Establishing the “causal nexus” can sometimes be difficult. See, e.g., Industrial Automation Systems and Components Thereof, Init. Det., 2018 ITC LEXIS 1454, at *158 (April 8, 2018) (“[Complainant] has not shown substantial injury to a domestic industry in connection with the alleged tortious interference”)). However, complainants should be mindful that the causal nexus can be inferred. See, e.g., Certain Bearings and Packaging Thereof, Comm’n Notice, 2004 ITC LEXIS 962, at *231 (Dec. 2004). Regarding lost profitability and underselling, two of the suggested factors for demonstrating actual injury, one helpful manner for establishing the requisite nexus is showing that a respondent’s actions directly affected complainant’s sales. See, e.g., Certain Rubber Resins & Processes for Mfg. Same, Inv. No. 337-TA-849, 2014 ITC LEXIS 1249 at *84. For instance, a complainant may show that respondent had interaction with complainant’s customers and negotiated a lower product price, thereby placing pricing pressure on complainant such that complainant was forced to enter into a contract at a lower level of profitability. Id.

Another helpful method of showing the causal nexus is ruling out natural market causes. See Certain Bone Cements and Bone Cement Accessories, Init. Det., Inv. No. 337-TA-1175 (February 11, 2021) (Commission recognizing certain market changes as “a natural progression of the nature of the business”). Thus, in the example above, complainant should present evidence that shows, for instance, that market share fluctuations have historically been relatively stable (e.g., no improvements in economies of scale, same players, same types of products, etc.), and that nothing out of the ordinary happened around the time of the market shift from the standpoint of a natural competitive effect. See, e.g., Certain Large Video Matrix Display Systems, Comm’n Order, 1981 Pat. App. LEXIS 44, *37 (Int’l Trade Admin. June 19, 1981). Such an approach may support a conclusion by the process of elimination that the unlawful sales or importation caused complainant’s injury.

By contrast, a respondent arguing the absence of a sufficient causal nexus should include evidence showing that the alleged injury resulted from the market’s competitive effects instead of unfair competition from the respondent. Respondent’s experts should carefully analyze complainant’s business history and interactions to “poke holes” in complainant’s proof of “causal nexus.”

Consequences of Failing to Adequately Plead Injury for Non-statutory Cases

All allegations in the complaint must be adequately pled to avoid undesirable consequences, including possible delay of institution and/or having the investigation placed into an early disposition proceeding.

First, an adequately pled complaint helps to avoid delay in instituting the investigation. After a complaint is filed, the ITC has 30 days to decide whether an investigation will be instituted. Although a complaint may be amended at any time prior to the institution of the investigation, supplementing the complaint to enhance a weakly pled injury component of complainant’s case may result in complainant having to request that the Commission postpone its determination on whether to institute the investigation.

Second, a weakly pled injury allegation may cause a respondent to question whether a complainant can actually prove the injury component of its case, and to file a request asking the ITC to place the investigation into its early disposition program. See 19 C.F.R. § 210.10(b)

(3). Although the Commission rarely grants requests to place an investigation into the 100-Day program, the risk is nonetheless present and should be avoided to prevent the possibility of early disposition. Under the 100-Day Program, the ITC can order the ALJ to issue an Initial Determination within 100 days of institution on any dispositive issue (e.g., the injury portion of complainant’s case-in-chief) in the investigation, compressing the time for complainant to prove injury from several months to 100 days. See Certain Selective Thyroid Hormone Receptor-Beta Agonists, Processes for Manufacturing and Relating to Same, and Products Containing Same, 2023 ITC LEXIS 94, *3–4, Inv. No. 337-TA-1352, Notice of Institution of Investigation (Feb. 3, 2023) (Commission sua sponte placing “injury” into the 100-Day program). Similarly, in addition to the 100-Day program, on May 12, 2021, the Commission implemented a new pilot program allowing its administrative law judges to issue interim initial determinations on case-dispositive issues to resolve its investigations. The new ALJ pilot program, like the Commission’s 100-Day program, is rarely utilized, but nonetheless presents a risk of terminating complainant’s case early and should thus be avoided (i.e., complainant should ensure that its injury allegations are well pled).

Conclusion

Although demonstrating an actual or threatened substantial injury can be challenging, complainants should be sure to keep the following in mind to maximize their chances for a favorable ruling regarding injury:

• Adequately plead allegations directed to injury for non-statutory IP investigations, in accordance with the Commission’s rules
• In proving its injury case:
  • Thoroughly analyze the factors typically weighed by the Commission in determining substantial injury
  • Demonstrate the requisite causal connection between the alleged substantial injury and the importation or sale of goods.

By contrast, respondents should be sure to keep the following in mind to maximize their chances of defeating a complainant’s injury case and obtain a favorable ruling regarding injury:

• Thoroughly rebut complainant’s assertions regarding the factors typically weighed by the Commission in determining substantial injury
• Show that any alleged substantial injury was caused by factors other than the importation or sale of the accused articles (e.g., the economy or natural market conditions)