Steve McDaniel and John Hurt, Contributing Editors10.20.14
You have decided to expand your coatings business globally. Good idea. You have dutifully read all the iPaint articles published in Coatings World for the last two years regarding building a Wall around your company’s intellectual property. Thus, you have exercised reasonable and prudent business care surrounding your IP. You’ve papered up your transactions and disclosures, you’ve prevented employee misappropriation, and you are seeing the fruits of your labor in increased revenue and market share over competitors whose products lack the advantages that consumers love about yours. Basking in the glow of this success, you begin serious strategic interactions with a foreign corporate entity to manufacture and distribute your product outside the U.S., and under the proper written agreements, you crank it up. But, the relationship sours shortly thereafter and there suddenly appears in the U.S. market a foreign knock off product that rapidly cuts into your market share, demonstrably erasing the competitive edge you had achieved with your innovations.
Of course, if you have issued U.S. patents, you sue for patent infringement based on those patents. The U.S. patent laws afford protection over importation of infringing articles of manufacture. But, there is an alternative, and it has a nice “hometown” feel to it. It’s called the ITC, or the International Trade Commission.
Under Section 1337 in Chapter 19 of the United States Code (the ITC legal beagles shorten this to “Section 337”), you can seek have unfair trade practices used to illegally produce imported articles investigated and the importation of them stopped on the loading docks. The ITC is the place to go to get the process started. Established in 1912, the ITC answers to both the legislative and executive branches of government, and can act to enforce any U.S. intellectual property right. And, that includes rights you may have in your trade secrets. Cool, huh?
Specifically, Section 337 provides for investigations to prevent importation, sale for importation or sale after importation of articles that infringe or misappropriate trade secret, patents, copyrights, trademarks and trade dress of U.S. companies. Additionally, articles that use false advertising, whose sale monopolizes trade, restrains trade or prevents the establishment of, injure or destroy a domestic industry are also subject to action by the ITC. For example, dumping a product onto U.S. markets (i.e., selling a product below the cost of production or the price in the home country) or export of a foreign government-subsidized product to the U.S. could qualify as injury to a domestic industry.
In most cases, you’re looking to stop a particular product imported in which your company has intellectual property protection. To make a successful ITC case as the complainant you need to show importation of the article in question, that it infringes your U.S. intellectual property, and that you meet the “domestic industry” criteria. For example, you need to show that you have patents practiced in the U.S. and that substantial investment activities related to the patented articles occur in the U.S. such as R&D, licensing, engineering, labor, and capital expenditures (e.g., equipment, plants), . . . yada, yada. Infringing articles may include those that will be immediately sold or imported into the U.S., as well as those already sold for importation, imported or sold after importation.
Things that typically happen when a Section 337 investigation is invoked include: investigations by you prior to filing a complaint; discovery; trial; U.S. Customs proceedings; and Appeals to the Federal Circuit. An administrative law judge handles the investigation and resolution of complaints – a critical distinction of Federal District Courts (where litigators like to say the judges were “appointed by the President but anointed by God . . . at least in their own minds”).
The ITC moves fast . . . very, very fast (especially in relation to your typical patent infringement case in a U.S. Federal District court). So, you gotta be ready and armed for bear (and, since you have read about IP audits in this column in Coatings World, you are!). The ITC will decide within 30-days whether to institute an investigation. Deadlines for discovery can be as quick as 10 days after a complaint is filed, and includes the power to issue subpoenas nationwide and against foreign respondents. The discovery process can occur outside the United States, and may inundate parties with requests for documents and testimony, and can extend up to and in some instances occur during the hearing.
If it’s you filing an ITC complaint, you want to get your ducks in a row during your investigations prior to filing the complaint – so the other guys can be caught with their pants down with a short discovery process to prepare a rebuttal. If you are on the receiving end of a complaint, it is best to have an attorney familiar with ITC practice on speed-dial. Respondents also don’t get counter-claims heard at the ITC (they get transferred to a district court), though they can file an ITC complaint if they meet the previously mentioned requirements, and can seek to stay a counterpart district court case.
The ITC’s is not to be trifled with (just like your hometown sheriff). If you meet the “domestic industry” criteria such as the investment activities described above (e.g., investment in product exploitation, R&D, engineering, licensing, etc.), the ITC can stop infringement of your U.S. based intellectual property. The ITC can issue temporary exclusion orders of devices that will be blocked from import (impounded) into the United States by U.S. Customs. A temporary cease-and-desist order regarding any commercial actions surrounding the infringing product (e.g., selling or distributing from inventory) may also be issued and enforced by the ITC. Once the ITC completes a Section 337 investigation, which can move quickly (i.e., 6-24 months; but, 12-18 months most typically), permanent exclusion and cease and desist orders can be issued. These orders generally last the life span of the IP (e.g., the remaining years a patent is valid) or some other period set by the ITC.
The standard for injunctive relief in the ITC is arguably lower than in district court. In a U.S. Federal District court, the plaintiff must first show: that there will be irreparable harm, that there are no adequate remedies in law, that a remedy is warranted in light of the balance of hardships between plaintiff and defendant, and that public interest would not be disserved by a permanent injunction. In contrast, the ITC may issue an exclusion order preventing product import after finding of trademark violation with only consideration of the public interest element that the District Court weighs in its deliberations. Upon a showing that a limited exclusion order would be circumvented or a pattern of violation and difficulty in identifying the infringing product’s source, a general exclusion order may be issued. Such orders can block foreign products even if the entity producing them is unknown, which is particularly helpful in dealing with “fly-by-night” counter-fitters.
Violate an ITC order . . . ooohhh that’s gonna leave a mark! Violation of ITC orders can results in fines of twice the imported goods value or $100,000 per day!
It’s not all a bed of roses at the ITC sheriff’s office though. For example, rulings in recent years at the Federal Circuit and ITC levels have indicated that getting a general exclusion order may be more difficult in the case of down-stream products that have the infringing technology as only a PART of the article. Take home message: name as many infringers (e.g., importers, manufacturers) as possible in the complaint. Additionally, if U.S. foreign policy will be detrimentally affected, as determined by the U.S. Trade Representative over a 60-day review, then ITC orders may be over-ridden (rarely, as in 25 year gaps from one White House over-ride to the next). But, if the ITC’s decision does not go your way, you can appeal to the Court of Appeals for the Federal Circuit.
And, there are things you won’t get using the ITC route, like monetary damages. You need to file a complaint in a U.S. district court to seek those types of damages, the same as you must do when dealing with infringers that are domestically producing the article. District court is also an alternative venue to get injunctive relief for either foreign or domestic infringers, which may be custom tailored to address specific issues of the case. District court also offers the opportunity for a jury trial, in case you’re not jazzed about dealing with ITC commissioners.
The ITC’s “rocket docket” speed is its strong advantage in stopping profit-eating infringers. But, keep in mind that the cost of an ITC case will likely be similar to a multi-year district court case, with the invoices being piled together in short order. This is a double-edged sword, as one edge of the rapidly piling bills bites you while the other edge of the accelerated legal expenses is also cutting the other guy. Unlike district court, you don’t have the opportunity to recover legal fees from the other guy if you win.
If you have deep pockets, your attorney (or team of attorneys) probably should have a combination of relevant intellectual property and scientific/technical expertise; ITC rules, practice and procedures knowledge; international trade law knowledge; and Administrative Procedures Act familiarity . . . meaning, call in the Ghost Busters. Moreover, unlike district court cases where less than 10 percent go to trial, over 40 percent of ITC cases are plead before the Administrative Law Judge – so it’s best you have someone who knows the rules of this game. If you are a small business like some of us (i.e., on a tight budget), consider seeking guidance on preparing a complaint to the ITC from the Trade Remedy Assistance Office.
Regardless of whether you are the complainant or respondent, be prepared to find a reasonable business solution outside the court-room. In the end, this is about cutting deals and making money, not racking up legal bills. But, having Marshall Dillon with his meaty paw resting on his holstered Colt six-shooter, belted on by his shiny buckin’-bronco buckle, and crisp white ten-gallon Stetson, steely-eyed in the background, silently mouthing Clint Eastwood’s “Make My Day”. . . well, that never hurt nuthin, did it?
Of course, if you have issued U.S. patents, you sue for patent infringement based on those patents. The U.S. patent laws afford protection over importation of infringing articles of manufacture. But, there is an alternative, and it has a nice “hometown” feel to it. It’s called the ITC, or the International Trade Commission.
Under Section 1337 in Chapter 19 of the United States Code (the ITC legal beagles shorten this to “Section 337”), you can seek have unfair trade practices used to illegally produce imported articles investigated and the importation of them stopped on the loading docks. The ITC is the place to go to get the process started. Established in 1912, the ITC answers to both the legislative and executive branches of government, and can act to enforce any U.S. intellectual property right. And, that includes rights you may have in your trade secrets. Cool, huh?
Specifically, Section 337 provides for investigations to prevent importation, sale for importation or sale after importation of articles that infringe or misappropriate trade secret, patents, copyrights, trademarks and trade dress of U.S. companies. Additionally, articles that use false advertising, whose sale monopolizes trade, restrains trade or prevents the establishment of, injure or destroy a domestic industry are also subject to action by the ITC. For example, dumping a product onto U.S. markets (i.e., selling a product below the cost of production or the price in the home country) or export of a foreign government-subsidized product to the U.S. could qualify as injury to a domestic industry.
In most cases, you’re looking to stop a particular product imported in which your company has intellectual property protection. To make a successful ITC case as the complainant you need to show importation of the article in question, that it infringes your U.S. intellectual property, and that you meet the “domestic industry” criteria. For example, you need to show that you have patents practiced in the U.S. and that substantial investment activities related to the patented articles occur in the U.S. such as R&D, licensing, engineering, labor, and capital expenditures (e.g., equipment, plants), . . . yada, yada. Infringing articles may include those that will be immediately sold or imported into the U.S., as well as those already sold for importation, imported or sold after importation.
Things that typically happen when a Section 337 investigation is invoked include: investigations by you prior to filing a complaint; discovery; trial; U.S. Customs proceedings; and Appeals to the Federal Circuit. An administrative law judge handles the investigation and resolution of complaints – a critical distinction of Federal District Courts (where litigators like to say the judges were “appointed by the President but anointed by God . . . at least in their own minds”).
The ITC moves fast . . . very, very fast (especially in relation to your typical patent infringement case in a U.S. Federal District court). So, you gotta be ready and armed for bear (and, since you have read about IP audits in this column in Coatings World, you are!). The ITC will decide within 30-days whether to institute an investigation. Deadlines for discovery can be as quick as 10 days after a complaint is filed, and includes the power to issue subpoenas nationwide and against foreign respondents. The discovery process can occur outside the United States, and may inundate parties with requests for documents and testimony, and can extend up to and in some instances occur during the hearing.
If it’s you filing an ITC complaint, you want to get your ducks in a row during your investigations prior to filing the complaint – so the other guys can be caught with their pants down with a short discovery process to prepare a rebuttal. If you are on the receiving end of a complaint, it is best to have an attorney familiar with ITC practice on speed-dial. Respondents also don’t get counter-claims heard at the ITC (they get transferred to a district court), though they can file an ITC complaint if they meet the previously mentioned requirements, and can seek to stay a counterpart district court case.
The ITC’s is not to be trifled with (just like your hometown sheriff). If you meet the “domestic industry” criteria such as the investment activities described above (e.g., investment in product exploitation, R&D, engineering, licensing, etc.), the ITC can stop infringement of your U.S. based intellectual property. The ITC can issue temporary exclusion orders of devices that will be blocked from import (impounded) into the United States by U.S. Customs. A temporary cease-and-desist order regarding any commercial actions surrounding the infringing product (e.g., selling or distributing from inventory) may also be issued and enforced by the ITC. Once the ITC completes a Section 337 investigation, which can move quickly (i.e., 6-24 months; but, 12-18 months most typically), permanent exclusion and cease and desist orders can be issued. These orders generally last the life span of the IP (e.g., the remaining years a patent is valid) or some other period set by the ITC.
The standard for injunctive relief in the ITC is arguably lower than in district court. In a U.S. Federal District court, the plaintiff must first show: that there will be irreparable harm, that there are no adequate remedies in law, that a remedy is warranted in light of the balance of hardships between plaintiff and defendant, and that public interest would not be disserved by a permanent injunction. In contrast, the ITC may issue an exclusion order preventing product import after finding of trademark violation with only consideration of the public interest element that the District Court weighs in its deliberations. Upon a showing that a limited exclusion order would be circumvented or a pattern of violation and difficulty in identifying the infringing product’s source, a general exclusion order may be issued. Such orders can block foreign products even if the entity producing them is unknown, which is particularly helpful in dealing with “fly-by-night” counter-fitters.
Violate an ITC order . . . ooohhh that’s gonna leave a mark! Violation of ITC orders can results in fines of twice the imported goods value or $100,000 per day!
It’s not all a bed of roses at the ITC sheriff’s office though. For example, rulings in recent years at the Federal Circuit and ITC levels have indicated that getting a general exclusion order may be more difficult in the case of down-stream products that have the infringing technology as only a PART of the article. Take home message: name as many infringers (e.g., importers, manufacturers) as possible in the complaint. Additionally, if U.S. foreign policy will be detrimentally affected, as determined by the U.S. Trade Representative over a 60-day review, then ITC orders may be over-ridden (rarely, as in 25 year gaps from one White House over-ride to the next). But, if the ITC’s decision does not go your way, you can appeal to the Court of Appeals for the Federal Circuit.
And, there are things you won’t get using the ITC route, like monetary damages. You need to file a complaint in a U.S. district court to seek those types of damages, the same as you must do when dealing with infringers that are domestically producing the article. District court is also an alternative venue to get injunctive relief for either foreign or domestic infringers, which may be custom tailored to address specific issues of the case. District court also offers the opportunity for a jury trial, in case you’re not jazzed about dealing with ITC commissioners.
The ITC’s “rocket docket” speed is its strong advantage in stopping profit-eating infringers. But, keep in mind that the cost of an ITC case will likely be similar to a multi-year district court case, with the invoices being piled together in short order. This is a double-edged sword, as one edge of the rapidly piling bills bites you while the other edge of the accelerated legal expenses is also cutting the other guy. Unlike district court, you don’t have the opportunity to recover legal fees from the other guy if you win.
If you have deep pockets, your attorney (or team of attorneys) probably should have a combination of relevant intellectual property and scientific/technical expertise; ITC rules, practice and procedures knowledge; international trade law knowledge; and Administrative Procedures Act familiarity . . . meaning, call in the Ghost Busters. Moreover, unlike district court cases where less than 10 percent go to trial, over 40 percent of ITC cases are plead before the Administrative Law Judge – so it’s best you have someone who knows the rules of this game. If you are a small business like some of us (i.e., on a tight budget), consider seeking guidance on preparing a complaint to the ITC from the Trade Remedy Assistance Office.
Regardless of whether you are the complainant or respondent, be prepared to find a reasonable business solution outside the court-room. In the end, this is about cutting deals and making money, not racking up legal bills. But, having Marshall Dillon with his meaty paw resting on his holstered Colt six-shooter, belted on by his shiny buckin’-bronco buckle, and crisp white ten-gallon Stetson, steely-eyed in the background, silently mouthing Clint Eastwood’s “Make My Day”. . . well, that never hurt nuthin, did it?
