The International Trade Commission (“ITC”) offers broad injunctive relief in the form of exclusion orders, which exclude infringing articles from importation into the United States. While the Federal Circuit’s recent decision in Kyocera Wireless Corp. v. Int’l Trade Comm’n (545 F.3d 1310 (Fed. Cir. 2008)) only addressed one specific exclusion order practice, its reasoning has led the Commission to undertake a broader re-examination of its framework for awarding remedies. Thus, managing litigation in the ITC requires an understanding of the ramifications of Kyocera and crafting strategies for responding to the new – and still evolving – landscape.
Relief in the ITC
The Commission is authorized by statute to issue exclusion orders, which are injunctions against unfair importation into the United States, and cease-and-desist orders against domestic entities engaged in unfair methods or acts. 19 U.S.C. § 1337(d) & (f) (2006). There are two basic types of exclusion orders – a limited exclusion order (“LEO”) and a general exclusion order (“GEO”). An LEO is enforceable against the parties named in the investigation, while a GEO is enforceable against anyone. LEOs are the default remedy. The far-reaching relief afforded by GEOs is only available if a complainant can establish: “(A) [it] is necessary to prevent circumvention of an exclusion order limited to products of named persons; or (B) there is a pattern of violation of [the section] and it is difficult to identify the source of infringing products.” Id. at § 1337(d).
Pre-Kyocera Remedy Determinations
Before Kyocera, a few seminal ITC decisions guided the Commission’s remedy determinations. The seminal opinion setting forth the analytical framework for whether to award a GEO was Certain Airless Paint Spray Pumps and Components Thereof (“Spray Pumps”). Inv. No. 337-TA-90, USITC Pub. No. 1199, 216 U.S.P.Q. 465 (Nov. 1981). In Spray Pumps, the Commission explained that a complainant must prove (i) “a widespread pattern of unauthorized use of its patented invention” and (ii) “certain business conditions from which one might reasonably infer that foreign manufacturers other than the respondents to the investigation may attempt to enter the U.S. market with infringing articles.” Id. at 473. The Commission also detailed the kinds of evidence which would be probative of whether a GEO was justified.
In practice the Spray Pumps test proved difficult to satisfy, and complainants sought to maximize the relief they could obtain under an LEO, without having to meet the Spray Pumps test. Complainants sought LEOs that would cover manufacturers of “downstream products” – that is, products incorporating articles found to infringe in the ITC proceeding. For example, a complainant might seek to exclude computers that incorporate infringing memory chips. In Certain Erasable Programmable Read Only Memories, Components Thereof, Products Containing Such Memories, and Processes for Making Such Memories (“EPROM”), the Commission decided that downstream products manufactured by a named respondent could be excluded under an LEO and set forth several factors to govern whether such relief should be granted. Inv. No. 337-TA-276, USITC Pub. No. 2196, 1989 ITC LEXIS 122 (May 1989). In other words, a respondent manufacturing infringing memory chips could be excluded from importing computers it manufactured containing those memory chips.
The Commission later extended the use of these EPROM factors to situations where the downstream products were manufactured by third parties not named as respondents in the investigation. This meant that, even if the computer were manufactured by a non-respondent, it could be excluded because it contained the infringing memory chips made by a respondent.
Kyocera v. Int’l Trade Comm’n
In Kyocera, the central issue was whether the Commission actually had the authority to issue LEOs that cover downstream products of non-respondents. Broadcom had filed a complaint against Qualcomm, accusing Qualcomm’s semiconductor chips of infringement, but Qualcomm imported very few chips into the United States. Broadcom sought an LEO that would cover downstream products containing those chips, such as cell phones, which were manufactured by third parties. Qualcomm and a number of intervenors (various cell phone manufacturers and service providers) argued that the statute did not permit an LEO to cover downstream products made by third parties who were not named as respondents. Both the ALJ and the Commission rejected this argument, and, consistent with its established practice, the Commission issued an LEO covering downstream products.
On appeal, the Federal Circuit agreed with Qualcomm and the intervenors, and vacated the exclusion order. The court based its decision on the statutory language, which provides “[t]he authority of the Commission to order an exclusion from entry of articles shall be limited to persons determined by the Commission to be violating this section unless the Commission determines that [a GEO is warranted].” 19 U.S.C. § 1337(d)(2) (emphasis added). The Federal Circuit interpreted this language as only granting the Commission authority to exclude products of named respondents, unless the complainant met the higher statutory burden required to obtain a GEO. Kyocera, 545 F.3d at 1356. Accordingly, the court held that the Commission overstepped its statutory authority by awarding an LEO that covered downstream products, such as cell phones, manufactured by non-respondents.
Since Kyocera, the Commission has begun a broader re-examination of its analytical frameworks for awarding both LEOs and GEOs, casting aside its own precedent in favor of a singular focus on the statutory text. At first, the Commission elevated the significance of the statute without entirely abandoning its precedent. In Certain Hydraulic Excavators and Components Thereof (“Hydraulic Excavators”), (Inv. No. 337-TA-582, Comm’n Op., slip op. (Fed. 3, 2009)) even though the Commission primarily focused its analysis on the statutory language, it also indicated that its Spray Pumps test for awarding a GEO could still provide useful guidance. However, subsequently in Certain Ground Fault Circuit Interrupters and Products Containing the Same (Inv. No. 337-TA-615, Notice of Comm’n Final Determination of Violation of Section 337; Termination of Investigation; Issuance of Limited Exclusion Order and Cease-and-Desist Orders (March 9, 2009). The authors represented the complainant in this investigation.), the Commission made clear its intent to divorce itself completely from its Spray Pumps framework, and instead focus exclusively on the statute. There, the Commission found infringement of four patents by seven different products, violations by four foreign manufacturers and 10 domestic distributors and resellers, a history of name changes by the foreign manufacturing respondents, and the use of shell companies by respondents to import into the United States. Despite all these factual findings, which traditionally weighed heavily in favor of granting a GEO, the Commission refused to follow the ALJ’s recommendation to issue a GEO, and instead granted an LEO.
The unavailability of an LEO against downstream manufacturers and the uncertainty surrounding the new analytical framework for GEOs has led the Commission to consider some novel issues. In Certain Semiconductor Chips with Minimized Chip Package Size and Products Containing the Same (Inv. No. 337-TA-605, Notice of Comm’n Decision to Request Additional Briefing on Remedy and to Extend the Target Date (March 26, 2009). Goodwin also represented the complainant in this investigation), the Commission requested that the parties address the complainant’s request for a “tailored GEO,” which, unlike a standard GEO which is effective against everyone, would reach only certain downstream products manufactured by non-respondents. The Commission also requested that the parties address whether the Commission has authority to issue exclusion orders at different times, i.e., to issue an LEO immediately and then take more time to assess whether to award a GEO.
Litigation Strategies Post-Kyocera
Kyocera has highlighted the need to consider carefully which parties should be named as respondents because it may now be more difficult, or impossible, to obtain relief against unnamed parties. Complainants who previously would have sought an LEO covering downstream products of non-respondents must choose between naming all known manufacturers of downstream products or endeavoring to meet the higher burden required to obtain a GEO. Often the manufacturers of the downstream products are customers or potential customers, presenting challenges to naming them as respondents.
Even if a complainant would prefer not to name the downstream entities, complainants who forgo naming them and instead decide to pursue a GEO may nevertheless face an uphill battle. The Commission has long believed that complainants should name all infringers, and may refuse to grant a GEO on the basis that the complainant should have named the downstream entities and thus would have been able to obtain effective relief under an LEO. Furthermore, both the identities of and the number of named respondents can factor into the Commission’s impressions of the state of the market. In addition, it will take some time for the uncertainty regarding the ITC’s new analytical framework for GEOs to be resolved, and some complainants may find themselves caught by sifting sands in the transition period.
One strategy complainants may consider to alleviate the inherent tension in suing its customers (or potential customers) is to offer to enter into consent orders with them at an early stage. This would allow complainants to terminate the investigation of its customers quickly, if the customers agree to be bound by the result of the ITC investigation. Thus, a complainant may increase its chances of obtaining effective relief while sparing its customers or potential customers the expense of litigating. This would not only ameliorate the hard feelings that may result from naming a customer or potential customer in a lawsuit, but also reduce the complexity of the investigation.
ConclusionThe Commission’s renewed focus on the statutory text and broader re-examination of its analytical framework for remedies requires ITC practitioners to re-assess their litigation strategies, from their pre-filing evaluations of which parties to name as respondents to their post-trial arguments concerning the appropriate remedy. Creative new approaches, such as naming customers or potential customers simply to secure consent orders, are likely to be required to adjust to the evolving post-Kyocera landscape.