Responding to a Section 337 Complaint at the ITC

A party that owns intellectual property can file a Section 337 complaint with the International Trade Commission (ITC) alleging that some importer is engaged in the “unfair trade practice” of importing infringing goods. The complaint could be based on trademark infringement or use of trade secrets but is usually based on patent infringement.  If the rights holder prevails, the ITC will issue an order to the Bureau of Customs and Border Protection (CBP) to exclude infringing goods it can also issue a cease and desist order barring domestic sales and marketing.

Thirty Days to Institute. When a complaint is filed, the ITC has 30 days to evaluate it and determine whether it will institute an investigation. The fact that the complaint is filed, however, is publicly known. This means that the first notice a named respondent gets may be from a law firm hoping to be retained to defend the respondent. When a respondent learns of a Section 337 complaint, it should begin planning its course of action right away.

Initial Analysis. A party named as a respondent should decide, at the outset, whether it is worthwhile to defend against the allegations in the complaint. If a respondent doesn’t appear and defend it will be found in default and, in most cases, will have its accused goods excluded. But the ITC doesn’t usually issue an exclusion order until after the investigation is resolved on the merits. If other parties appear and defend, there may be a gap of 6 to 12 months (or even longer) between the finding of default and the exclusion order.

The decision whether to appear and defend is an economic decision, if the accused product is profitable, it probably makes sense to defend.

Timeline. Things happen quickly in an ITC investigation. The evidentiary hearing, similar to a trial, will usually occur about one year after the complaint is filed. In that one year (or less) a respondent must evaluate infringement, search for prior art, engage in claim construction, participate in discovery, designate its exhibits and witnesses, defend summary determination motions, and prepare for trial. The Administrative Law Judge’s decision normally comes about 2 months after trial and then the losing party can appeal to the Commissioners. If the complainant prevails, a bonding period will begin about 19 months after the complaint is filed and exclusion of infringing goods will occur about 21 months after the complaint is filed.

Retaining Counsel. The first thing a respondent should do after deciding to defend against the allegations in the complaint is to retain counsel to represent it in the investigation. There are a number of firms that specialize in such representation. The size and cost of the law firm should be proportionate to the scope of the case. A respondent should not spend two million dollars to defend a one million dollar product. In general, the bigger the case, the bigger the law firm that should be retained. For smaller cases, consider a firm that is versed in both patent law and ITC procedure to avoid the need to retain two separate firms.

A law firm should be retained as soon as possible so that it can begin infringement analysis, prior art searching, and identifying expert witnesses.

The Protective Order and the Procedural Schedule. Early in the investigation, the Administrative Law Judge will issue a protective order and a procedural schedule. The protective order provides for the handling of confidential business information. Normally, such information can be seen by the opposing party’s outside attorneys but not by its corporate employees. The procedural schedule sets out the schedule for litigation events (e.g., expert discovery, hearing date) and is usually issued after input from the parties is considered.

The Discovery Process. Parties to a Section 337 case can serve discovery on each other seeking relevant documents and information. A respondent should anticipate that the complainant will request, at least, technical documents regarding the accused products, import documents, and information regarding U.S. customers. One should begin gathering such information even before discovery requests are served. Later, the respondent will probably be required to designate at least one of its employees to serve as a witness at a deposition (a recorded question and answer session).

Design Around. A “design around” is a product similar to the accused product but designed in such a way that it does not infringe the asserted right (e.g., an asserted patent claim). It is to a respondent’s advantage to produce a prototype design around before the discovery period ends so that the Administrative Law judge can make a finding as to whether it infringes. If one can obtain a favorable ruling, importation of the design around may continue uninterrupted even if the original accused product is found to infringe.

Expert Witnesses. Normally respondents retain at least two expert witnesses: a technical expert and an economic expert. In a patent case, the technical expert can offer an opinion regarding patent infringement and validity and the economic expert can offer an opinion regarding whether the complainant satisfies the economic requirements of the domestic industry requirement (“the economic prong”). While it is not an absolute necessity to retain expert witnesses, it is certainly helpful to a respondent’s case. For example, it is very difficult to offer proof that a patent claim is obvious if there is no expert to testify about the scope and content of the prior art. A technical expert is generally more necessary than an economic expert, but both are valuable. If there are multiple defendants, they can pool their resources and share expert witnesses.

The Hearing. After the discovery period ends, there will be a live hearing before an Administrative Law Judge in Washington, D.C. This typically lasts five business days but can vary. At the hearing, each side will have the opportunity to put on fact and expert witnesses and to cross-examine the other side’s witnesses. Unlike a jury trial, there is no verdict immediately given to the parties.

Post-Hearing Briefing and the Initial Determination. After the hearing, the parties will have the opportunity to submit a post-hearing brief and then a response to the other side’s post-hearing brief. The Administrative Law Judge will then draft a lengthy Initial Determination giving a written decision on all disputed issues. This is typically several hundred pages in length.

Commission Review. Parties may appeal the Initial Determination to the ITC Commissioners on an issue-by-issue basis. Thus, both the prevailing and non-prevailing parties will often seek Commission review as to issues decided adverse to them in the Initial Determination. The Commission review process typically takes four months.

Presidential Review Period and Exclusion. If the Commission determines that there is an unfair trade practice it may order exclusion of the infringing goods and may also issue a cease and desist order. Before such remedies go into effect, however, there is a 60-day Presidential Review Period. This permits the President 60 days to disallow the remedy for policy reasons. During this period, the infringing imports may continue but are subject to a bond requirement calculated to protect the complainant from injury from infringement. If the remedy goes into effect (which is normal), then the bond may be forfeited to the complainant.