Contributed by Daniel E. Yonan, Jeremiah B. Frueauf, and Christopher M. Gallo of Sterne Kessler Goldstein and Fox PLLC
The United States International Trade Commission ("the Commission") has become a favored venue for patent holders to fend off competition from foreign, infringing entities. Such proceedings arise before the Commission where an act of unfair competition in the import trade occurs, as defined under 19 U.S.C. § 1337 ("Section 337"). Figure 1 below demonstrates the dramatic increase in the number of Section 337 investigations over the past decade and reflects an increased awareness by patent holders of the advantages of Section 337 investigations, such as quick adjudication time and broad power to exclude infringing articles from entry into the United States. Figure 1. Number of Section 337 Complaints Instituted per Fiscal Year Between 1976-2011 Compared to the Number of Complaints Instituted for Non-Manufacturing Entities Despite an increased general awareness of the forum, the requirements for filing a well-pled complaint at the Commission may not be so readily apparent. That is, complaints filed with the Commission require strict ‘fact-pleading’ allegations1 and, therefore, a great deal of planning and strategy. As such, a patent holder must invest a significant amount of time and resources in gathering and preparing the facts to support his complaint. The following list identifies the top ten considerations for a patent holder complainant ("patent holder") to keep in mind when preparing a complaint under Section 337.
Specific "Acts" of Unfair Importation
By statute, an investigation under Section 337 requires an importation, sale for importation, or sale after importation into the United States by the owner, importer, or consignee of an article that infringes the claims of a patent. 19 U.S.C. § 1337(a)(1)(B). Thus, to meet these in rem jurisdictional requirements, the patent holder must identify the article and the specific act(s) related to its importation into the United States. Often, the article is a commercial good, such as a mobile phone2 or video game controller,3 which is sold or offered for sale in a retail store or on-line store. In such cases, the patent holder should confirm that the product is offered for sale in the United States and, if it is, purchase the product, keeping careful records of the transaction as evidence to file with the complaint. However, an article may not be readily available, e.g., the sale requires a significant payment to acquire,4 or the good is subject to federal regulation.5 In this case, the patent holder should look for alternative ways to demonstrate specific instances of importation, which include using U.S. Customs records, public submissions to regulatory agencies such as the Securities and Exchange Commission, or sales and product information available in the product literature. Evidence gathered as to the importation of the accused article, along with its Harmonized Tariff Schedule number,6 must be included in the complaint, and is typically supported by reference to exhibits.7
Specific "Targets" of the Investigation
Once the article and specific acts of importation have been identified, the patent holder must next identify all the actors in the importation chain to effectuate proper relief. The identification of each party8 that manufactures, distributes, incorporates, and sells the article has become a critical step in filing an effective complaint. Prior to 2008, a patent holder needed only to name the entity responsible for the manufacture of the accused product(s) in the investigation. In so doing, the patent holder could obtain relief that included a limited exclusion order ("LEO") to exclude downstream products that incorporated the article, despite not naming each party in the importation chain. However, the Federal Circuit’s decision in Kyocera9 changed this practice, requiring that a patent holder must name all parties involved in the importation when filing a complaint that requests an LEO. In Kyocera, after a finding of induced infringement of patents assigned to Broadcom by Qualcomm, the Commission issued an LEO that excluded "[h]andheld wireless communication devices . . . containing Qualcomm baseband processor chips or chipsets . . . covered by [the claims of Broadcom’s patent], wherein the chips or chipsets are manufactured abroad by or on behalf of Qualcomm Incorporated."10 Several non-respondents to the investigation that incorporated, or used products that incorporated, Qualcomm’s chips appealed the LEO because it excluded their products. These non-respondents argued that LEO’s could only exclude products of the named respondents in an investigation.11 Looking to the statutory language of 19 U.S.C. § 1337(d), which provides two different types of exclusion orders the Commission may grant,12 the Federal Circuit interpreted the statute to limit the application of LEOs to those entities named as respondents to an investigation.13 Thus, the court held that the LEO issued by the Commission could only exclude chips that were directly imported by Qualcomm.14 As a result, where any other party is not identified in the complaint, the patent holder must meet the heightened requirements for obtaining a general exclusion order ("GEO"),15 which excludes importation of infringing articles regardless of the source of entry (see Request Relief section infra). In the aftermath of Kyocera, the patent holder must now understand the complete importation and distribution chain before filing his complaint. If not, the patent holder risks leaving out parties that might otherwise be the subject of a requested LEO, and thus, may lose the ability to effectuate the full scope of any desired exclusionary relief.
Allegations of Infringement
Unlike notice-based allegations of infringement in district court, before the Commission, the patent holder must demonstrate that it has a good-faith, factual basis for the accused infringement. This is satisfied by preparing and filing claim charts with the complaint, that compare the article(s), or the process under which the article was produced, with the claims of the asserted patent(s).16 Specifically, claim charts must map out all the elements of every asserted independent claim17 and compare them to the accused article for each party named as a respondent.18 The claim chart must also reference any drawings, photographs, or other visual representations of the accused article,19 or process under which that article is produced, which are clearly marked for correspondence to the claim chart. As a result, through the efforts of preparing a claim chart, the patent holder can test the sufficiency of its accusations of infringement.
Samples of the Accused Products
At the time of filing the complaint, the patent holder should also submit samples of the accused articles,20 if practicable.21 Easily obtainable goods, such as mobile phones22 and video game controllers,23 are especially amenable to this aspect of filing a complaint with the Commission. These samples allow the Commission to appreciate the tangible nature of the accused article(s) and how they compare to the patented domestic article(s).
The Domestic Industry Requirement
In order to avail himself of a Section 337 investigation before the Commission, patent holder must fulfill the unique standing requirement of domestic industry.24 This statutory provision requires evidence of the existence of, or current process of establishing, a United States industry related to articles protected by the asserted patent. This can be demonstrated through various prescribed efforts. For example, the patent holder can provide evidence of the patent holder's significant investment in plants and equipment, or in a significant employment of labor or capital.25 Proof of domestic industry on these grounds requires that the patent holder rely on a patented manufactured article and a showing of all expenditures made on labor, capital, plants, or equipment to manufacture that protected article. Typically, this is accomplished by submitting a corporate declaration monetizing the activities over the years to develop and manufacture the protected article.26 The patent holder can also provide evidence of a substantial investment in the exploitation of the patent(s) of interest through engineering, research and development, or licensing.27 The 1988 addition of licensing as a means by which to demonstrate domestic industry has made it easier for patent holders who rely on licensing for revenue, such as startup biotech companies, to satisfy this requirement.28 In addition, the ability to satisfy the domestic industry requirement by only demonstrating "a substantial investment" in licensing activity has opened up the Commission to non-manufacturing entities ("NMEs"). See Figure 1. While the Commission and Federal Circuit continue to interpret the scope of a substantial investment in licensing activity, a showing based on licensing activities has been demonstrated thus far through a multitude of factors such as:
More recently, the Commission has also considered pre-issuance activities,35 investments in licensing a patent portfolio that specifically includes the patent(s) being asserted,36 and litigation activity that results from lost licensing and/or product development opportunities because a competitor brought an infringing product to market.37 All of the above factors are usually presented by submitting corporate declarations linking the asserted patent(s) to the activities and related expenses.
The Revised Public Interest Requirement
Very recently, the Commission has instituted a rule requiring that the complaint address the possible effect on the public interest of issuing an exclusion order and/or a cease and desist order.38 While this effect has always been a core component of a Section 337 investigation, it was not considered until after violation of Section 337 had been found. To satisfy the new rule, the patent holder must now file, concurrently with the complaint, a separate statement:
This revised public interest requirement will affect those patent holders that rely on licensing to satisfy domestic industry most directly, e.g., NMEs. In the absence of any manufacturing capabilities, such patent holders will need to rely on their licensees to produce enough volume of the product of interest to replace the infringing products "in a commercially reasonable time"—something that is likely to be out of the patent holder’s immediate control.
As with a complaint filed in district court, complaints filed with the Commission must contain a request for relief. However, unlike in district court where a plaintiff can request monetary compensation for injury resulting from acts of infringement, relief at the Commission comes by way of an exclusion order and/or a cease and desist order. As mentioned above, the Commission issues two types of exclusion orders—limited exclusion orders and general exclusion orders—both of which cover the accused articles and any downstream products that incorporate the accused articles.40 GEOs function to exclude all infringing articles, regardless of their source. However, to obtain a GEO requires the patent holder to demonstrate extraordinary circumstances that warrant its issue. Because of the heightened requirements for obtaining a GEO, an LEO is more typical relief. LEOs exclude only those infringing articles directly connected to the named respondents of the investigation (see the Specific "Targets" of the Investigation section supra). While an exclusion order operates to stop the importation of infringing articles into the United States, a cease and desist order ("CDO") directs a respondent in the investigation to cease its unfair acts, including selling infringing imported articles from U.S. inventory.41 In addition, unlike exclusion orders, which are enforced by the U.S. Customs and Border Protection, CDOs are enforced by the Commission.42 If the patent holder seeks temporary relief before the Commission will reach a final decision on the investigation, a request must be filed either with the complaint or in a motion filed before the Commission determines whether to institute the investigation.43 The standard applied by the Commission for deciding whether to grant temporary relief is the same as that of the Federal Circuit for granting preliminary injunctions.44 However, the patent holder must in addition submit a statement as to whether it should be required to post a bond to obtain the requested temporary relief, including the required amount of the bond.45
The patent holder should also consider the effect that filing a complaint with the Commission will have on any ongoing district court litigation or agency proceedings46 involving the asserted patent(s) and the likely respondents to the complaint.47 For example, a respondent in a Section 337 investigation can request to stay district court litigation with respect to any claim that involves the same issues as those brought in the complaint for, and that involve the same patent(s) being asserted in, the investigation.48 Once the investigation is resolved, however, the stay in district court can be lifted and the record of the proceedings before the Commission can be transferred to the district court.49
Consultation with the Office of Unfair Import Investigations
The Office of Unfair Import Investigations ("OUII") plays an integral role in the determination of whether a Section 337 investigation is instituted. For example, within 30 days after the complaint has been filed, the OUII examines the complaint for compliance with the rules set forth in 19 C.F.R. § 210.12 and the standards set by the Commission.50 The OUII may also consult with the patent holder and respondent(s) during this period to help the OUII obtain the facts necessary to make a fair assessment as to whether to recommend that the Commission institute an investigation.51 Ultimately, the OUII acts as a neutral surrogate for the public interest when making such decision. Given the OUII’s role in the institution process, before a complaint is formally filed with the Commission, the patent holder should meet with OUII to review its draft of the complaint. Such a meeting is advantageous because it allows, inter alia, the patent holder to rely on the expertise of the OUII in assessing the non-substantive aspects of any draft complaint prior to institution of an investigation. Importantly, so long as no documents are left with the OUII, the content of these meetings may be kept private.52
Knowing the Rules: Logistics for Filing
Finally, in addition to knowing the statutory bases for preparing and filing a complaint, as well as the substantive requirements, it is important to understand the mechanics of filing a complaint. 19 C.F.R. §§ 210.8 and 210.12 and the Commission’s Handbook on Filing Procedures53 enumerate the filing requirements, which include, e.g., the number of paper copies needed for filing a complaint (8),54 the handling of confidential and non-confidential information,55 and the number of copies required for each patent, prosecution history and technical reference.56 The patent holder must follow these filing requirements very closely in order to avoid rejection of the filing.
The fast pace at which Section 337 investigations are conducted requires the patent holder to be one step ahead during all stages of the investigation. The filing of a proper complaint is the first step in that preparation, and following the Commission’s rules, specifically 19 C.F.R. § 210.12, is essential to a successful investigation outcome before the Commission.
Daniel E. Yonan is Of Counsel with intellectual property specialty law firm Sterne, Kessler, Goldstein & Fox P.L.L.C. He focuses his practice on intellectual property litigation before federal district courts and fast-track investigations before the U.S. International Trade Commission, serving as ITC trial counsel in more than 15 patent based Section 337 actions. He can be reached at firstname.lastname@example.org.
Jeremiah B. Frueauf is an associate with intellectual property specialty law firm Sterne, Kessler, Goldstein & Fox P.L.L.C. Mr. Frueauf has experience in various inter partes matters, including district court litigation, interference work before the U.S. Patent and Trademark Office, and Section 337 investigations before the U.S. International Trade Commission. His work includes preparing strategy and analysis, motions practice, and case management for these matters. He can be reached at email@example.com.
Christopher M. Gallo, Ph.D. is a student associate with intellectual property specialty law firm Sterne, Kessler, Goldstein & Fox P.L.L.C. He assists in the preparation and prosecution of U.S. and foreign patent applications, in patent reexaminations, and in patent litigation matters. His areas of technical expertise include genetics, molecular biology, biochemistry, and cellular biology. He can be reached at firstname.lastname@example.org.
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