U.S. Administrative Procedures For Protection From Unfair Import Competition: THE REVITALIZATION OF SECTION 337
By Louis S. Mastriani
Since the passage of the Tariff Act of 1930, numerous companies have turned to the United States International Trade Commission (the "Commission" or "ITC") and its predecessor agency, the U.S. Tariff Commission, to protect their patents, trademarks, copyrights and other intellectual property rights from infringement by imported products. The ITC provides especially effective remedies because it can issue an in rem exclusion order that is nationwide in scope, and which is enforced by U.S. Customs to prevent the importation of infringing goods. U.S. companies may also seek similar protection at the ITC from other types of unfair competition caused by imported goods. The statutory authority for granting such broad and effective relief flows from Section 337 which has undergone substantial amendments in 1974 and in 1988, and which has now undergone further amendments.
In 1988, the U.S. Congress passed the Omnibus Trade and Competitiveness Act, which became effective on August 23, 1988. In order to allow domestic industries to further protect themselves from unfair competition, Congress eliminated certain outdated aspects of Section 337 to make it easier for companies to gain affirmative relief from unfair trade practices and specifically expanded the law to cover infringement of semiconductor mask works.
As part of the U.S. legislation to implement the Uruguay Round Agreement, Section 337 has been amended in a manner which complies with the findings of a 1988 GATT Panel Report, while at the same time preserving the integrity and effectiveness of the statute. The text of the statute, as amended by the new legislation so that it complies with the GATT, is included as Appendix A.
This article provides a brief discussion of the features of the statute, the normal procedures for the conduct of an investigation, and the background and highlights of the very recent legislative amendments relating to Section 337.
A. ELEMENTS OF A SECTION 337 VIOLATION
Section 337 is intended to protect the petitioning domestic industry from unfair acts and unfair methods of competition involving imported goods. The Commission relies upon three separate standards, depending on the nature of the unfair act or unfair method of competition, to determine whether a Section 337 violation exists.
The first standard -- usually referred to as the domestic industry standard -- applies to alleged infringement of a valid and enforceable U.S. patent, registered copyright, registered trademark, or registered mask work used in conjunction with a semiconductor chip product. Under this standard, the complainant must establish that a domestic industry for those articles exists or is in the process of being established. This can by shown by (1) significant investment in plant and equipment; or (2) significant employment of labor or capital; or (3) by substantial investment in the exploitation of the intellectual property, including engineering, research and development, and licensing.
A complainant must meet a second, and more stringent, standard when the allegedly unfair act is based on an intellectual property right, but the complainant does not have a U.S. patent or a federally registered trademark, copyright or semiconductor mask work. Typical cases falling under this standard involve common law trademark or trade dress infringement and unfair competition, false advertising, passing off, trade secret misappropriation and a variety of business torts. In these types of cases, the complainant must demonstrate that (1) the allegedly unfair act has the effect or tendency of substantially injuring or destroying a domestic industry; or (2) that unfair act is preventing the establishment of the industry. The more liberal domestic industry standard established by the 1988 Act for cases involving registered intellectual property rights (set forth in the first standard above) does not apply to investigations involving these latter types of unfair acts.
Finally, under a third standard, a Section 337 violation can also be based on allegations of antitrust violations such as restraint or monopolization of trade, as well as other types of unfair methods of competition. As under the second standard, these types of claims must also be supported by proof of substantial injury to the domestic industry.
In summary, as long as there is a valid intellectual property right recognized by federal statute and there has been significant activity in the United States with respect to the exploitation of that right, Section 337 may be invoked to protect the intellectual property right from infringement. Likewise, the statute is also available to remedy many other diverse types of unfair competition as long as substantial injury can be demonstrated.
Of great significance is that, with the 1988 amendments, U.S. companies, with or without foreign operations, are no longer the only entities that have benefitted from Section 337. The 1988 Trade Act amendments have liberalized the definition of "U.S. industry" to allow foreign owners of U.S. intellectual property rights to qualify as well. To do so, the foreign interests need only have the requisite amount of activity in the United States related to the intellectual property right. This activity is typically carried out by U.S. subsidiaries. To date, a number of foreign companies have sought relief under Section 337 against unfair competition in the U.S. market by other foreign competitors.
In those cases where the Commission finds a violation of Section 337, it is authorized to impose several remedies in order to protect the domestic industry.
A. Permanent Relief
The first and most common remedy granted by the Commission is an exclusion order, which provides for the exclusion of articles from entry into the United States. This remedy applies only to goods imported after the date the exclusion order becomes final. It does not apply to goods imported before or during the investigation. If an owner or importer violates an exclusion order the Commission will issue a written warning that any further attempt to enter the goods will lead to their seizure and forfeiture. If the owner or importer attempts any further importation after the written warning, the Commission can order seizure and forfeiture.
B. Temporary Relief
The second remedy is a temporary exclusion order ("TEO"), which provides for the exclusion of articles from entry, except under bond, on a temporary basis during an investigation. The TEO process was liberally amended in 1988 to make the procedure more similar to preliminary injunction actions in federal district court. A TEO would be operative only after a determination by the Commission that there is a reason to believe a violation of Section 337 exists. In the event of an affirmative determination, a TEO must be issued within ninety (90) days of the institution of an investigation. The Commission can grant a sixty (60) day extension in more complicated cases, but it must publish in the Federal Register its reasons for designating the case as more complicated.
Traditionally and prior to the 1988 Act, TEOs were not often requested because the Commission required a very high standard of proof before it would temporarily halt the importation of goods, except under bond, during an investigation. The Commission's standard for granting temporary relief requires initially determining whether there is a "reason to believe" that a violation of Section 337 exists. Following this determination, the Commission conducts a balancing test which weighs the following factors: (1) complainant's probability of success on the merits; (2) immediate and substantial harm to the domestic industry absent temporary relief; (3) adverse impact on the respondents should temporary relief be granted; and (4) the effect of temporary relief on the public health and welfare. These factors are balanced in the same manner as engaged in by a federal district court in preliminary injunction cases. Moreover, to discourage frivolous requests, the Commission has the authority to require complainants to post a bond as a prerequisite to receiving temporary relief.
C. Cease and Desist Orders
The third remedy is a cease and desist order, which can be issued in lieu of, or in addition to, an exclusion order or TEO. Cease and desist orders are designed to attack the specific unfair acts found in an investigation without excluding goods from the United States. These orders are directed to a respondent and require a change in some action or conduct found to be illegal. These orders may, under certain circumstances, apply to importations which occurred prior to the Commission's determination that a Section 337 violation exists. Examples of cease and desist orders are: orders that companies cease infringing intellectual property rights, orders to cease specific marketing practices, as well as orders to cease certain types of anti-competitive conduct.
The Commission has the authority to impose a civil penalty if a respondent fails to comply with a cease and desist order. The maximum amount of a fine may be the greater of either $100,000 for each day the unfair acts or imports occur, or twice the domestic value of the imported items. Since obtaining this authority in 1979, the Commission has infrequently exercised it. However, it has issued cease and desist orders which, if violated, would subject respondents to fines. The ability to impose monetary sanctions serves as a powerful tool for the Commission to ensure compliance with its orders.
The Commission also has the authority to issue an exclusion order and/or a cease and desist order against any respondent who defaults, under a default procedure similar to that employed by federal district courts.
III. PUBLIC INTEREST
When the Commission finds a violation of Section 337, it must consider the impact of relief upon the public interest before it can impose a remedy. In making this determination, the Commission must consider several factors, including the effect of the remedy on the public health and welfare, competitive conditions in the United States, the production of competitive articles in the United States and U.S. consumers.
In addition, if the Commission determines that goods are to be excluded from entry or if a cease and desist order is to be imposed, it must determine the amount of a bond under which imports are permitted entry into the United States. This bond is in effect for a 60-day period during which the Commission's determination is reviewed by the President of the United States.
IV. PRESIDENTIAL REVIEW
In those cases where the Commission determines that a violation exists and a remedy should be imposed, it must send the record of the investigation to the President. The President may only veto the Commission's remedy; he cannot substitute another remedy. Furthermore, a Presidential veto can issue only for policy reasons, not substantive reasons. Presidential vetoes have been very rarely issued, and even then were based upon extraordinary circumstances.
V. ADDITIONAL PROCEDURAL FEATURES OF SECTION 337
Another significant provision of Section 337 is that the investigations must be carried out by the Commission under the terms of the Administrative Procedure Act. This ensures that, in conducting an investigation, parties are entitled to certain rights relating to equal access to information. Section 337 investigations are presided over by an Administrative Law Judge ("ALJ"). Parties cannot communicate with decision-makers at the Commission on an ex parte basis. Parties, however, are free to have substantive discussions with the Commission Staff Attorney assigned to the case.
The record of the investigation before the Commission includes conferences, which are attended by all of the parties, and written submissions, which are served upon all parties. Each party also has a right to fully investigate the facts of the case. Parties can utilize the same discovery tools available in the courts, including written interrogatories, the taking of oral depositions, on-site inspections of manufacturing facilities, requests for production of documents and requests for admissions. The Commission can issue sanctions for abuse of discovery and abuse of process.
The facts gathered by the parties are presented at evidentiary hearings before an Administrative Law Judge. Hearings provide an opportunity for parties to cross-examine witnesses as in a typical district court proceeding. Decisions made by the judges and the Commission must have a sound basis both in fact and law.
Section 337 traditionally required that each investigation be completed within one year. Generally, the amount of time which could be spent in discovery and trial was limited to approximately seven months of this one-year period. The one-year statutory limit could be expanded to eighteen months, but only in cases designated by the Commission as more complicated. As discussed below, the new amendments to Section 337 to achieve compliance with the GATT remove these strict time limits, yet still provide for swift adjudication of the issues in a case.
VI. INVESTIGATION PROCEDURES
A Section 337 investigation may be instituted based either upon a complaint filed with the Commission or, in rare instances, by the Commission on its own motion.(1) The majority of past investigations have concerned allegations of patent infringement, but the Commission has instituted investigations of a very broad spectrum of alleged unfair acts and unfair methods of competition.
When a complaint is filed at the International Trade Commission, it is directed to staff attorneys (in the Office of Unfair Import Investigations ("OUII")) who investigate the background of the complaint and determine whether it meets certain procedural rules. The staff may also attempt to contact the respondents named in order to determine whether information would be available from them during the investigation and whether certain allegations in the complaint have any basis in fact.(2) During a 30-day period, a complaint is reviewed by the OUII as well as the Office of the General Counsel, and recommendations are made to the Commission as to whether the complaint meets the rules and presents a cause of action which should be considered by the Commission as a basis for an investigation.
At any time before the Commission votes on whether to institute an investigation, the complaint may be withdrawn as a matter of right. Once the Commission votes to institute an investigation, a notice to the public is published in the Federal Register,(3) and copies of the complaint are served upon each respondent named in the complaint, appropriate federal agencies, and the Washington, D.C. embassy of the government of each foreign country represented by each foreign respondent.(4) The investigation is then assigned to an Administrative Law Judge who controls the conduct of the investigation up through the time he or she issues an initial determination of whether a violation exists. A staff attorney from the OUII will also be a formal party to the investigation, and participates in all phases of the proceeding.(5)
Publication of a Notice of Investigation in the Federal Register operates as the official initiation for the Commission's investigation.(6) As discussed below, the recently passed amendments to Section 337 to conform the statute with obligations under the GATT removed the fixed time limits of one year for a normal investigation and eighteen months for a more complicated investigation. However, Congress has stated in these amendments that it expects the Commission to conduct the Section 337 investigations on an expeditious basis. It is expected that the ALJ and the Commission will continue to informally adhere to the former time limits. Respondents named in the investigation have twenty days in which to answer the complaint.(7) Additional time is provided when service of the complaint is made by mail, i.e., three days for domestic companies and ten days for foreign. Parties may begin various discovery procedures once notice of the investigation appears in the Federal Register. Parties may serve document requests, interrogatories, requests for admissions, and notices of deposition upon oral examination or written questions.(8) Requests to inspect manufacturing facilities and production processes are routinely granted by the Administrative Law Judge.
Due to the expedited schedule involved in these investigations, however, the time for answering interrogatories, producing documents, and conducting depositions is very short. The entire process of discovery in previous one-year investigations generally took place within approximately five to six months. A similar time schedule will continue to be imposed by the Administrative Law Judge. During this time, there may be one or more conferences with the Administrative Law Judge who attempts to control discovery by the parties, rules upon motions and handles various requests of the parties to gain additional information or to withhold information requested by an opposing party.(9) Protective orders, to provide for the disclosure and protection of confidential information, are issued as a matter of course and no business confidential information may be withheld from the Commission and a party's outside counsel.(10)
The complainant may have discovery concerns because a great deal of the information needed to prove its case may be located in foreign countries. This information may be difficult to obtain not only because of volume and distance, but also because some foreign governments do not readily permit discovery, as practiced in the United States, to take place. Nonetheless, the Commission, with the approval of the Court of Appeals for the Federal Circuit, has given itself tremendous latitude in gaining access to information held by foreign companies. Although the complainant and the Commission cannot force foreign companies to divulge information or documents in the same way they can force companies or persons located in the United States, the Commission can impose sanctions for failure to provide information. Sanctions are similar to those set forth in Rule 37 of the Federal Rules of Civil Procedure ("FRCP") and may include finding that the information which the respondent should have provided would be unfavorable to the respondent's position, or even finding the case in favor of the complainant.(11) As a practical matter, many of the Commission's Rules of Practice and Procedure closely track the FRCP. This fact is exemplified by the extensive amendments to the Commission's Rules of Practice and Procedure in August 1994.
For a foreign respondent, the discovery period can be extremely burdensome because of the short time limits and the difficulties of transporting large numbers of documents or persons around the world, and coordinating with its U.S. attorneys to ensure that accurate information is compiled and presented to the Commission. The prospect of disclosing confidential business information, even under protective order,(12) has also proven to be very repugnant to foreign respondents in these cases.
Once the period of discovery is closed, preparation begins for the trial-type hearing before the Administrative Law Judge. Normally, parties have about one month between the close of discovery and the beginning of the hearing to prepare pre-trial briefs and exhibits. During this time, the Administrative Law Judge may hold a prehearing conference regarding the course of the hearing, and may enter an order ruling on the direction of the hearing and other matters at issue in the conference.(13) A hearing may last anywhere from a few days to several weeks and is virtually identical to a federal district court trial, except for more liberal evidentiary standards, especially with respect to hearsay testimony.
Following the termination of a hearing, the parties are allowed a short period of time, up to one month, to prepare final briefs and detailed findings of fact and conclusions of law for consideration by the Administrative Law Judge.(14) The Administrative Law Judge generally takes approximately sixty days in which to consider these documents and the evidence presented at the hearing to prepare an initial determination for submission to the Commission.(15)
The Administrative Law Judge's determination addresses such issues as whether the violation alleged in the complaint exists -- the existence of an unfair act, the definition of the domestic industry, and whether it is injured as a result of the unfair act, or whether there has been a restraint of trade. Under the new rules, the Administrative Law Judge may now issue recommendations on the issue of the appropriate remedy which should be imposed by the Commission, as well as the amount of any applicable bond.
Parties may appeal any adverse finding in the Administrative Law Judge's initial determination by filing a petition for review with the Commission. A party's failure to appeal an issue adversely decided against it, even though it may have prevailed in the case overall, will waive the party's right to contest that issue in any subsequent appeal to the U.S. Court of Appeals for the Federal Circuit. The Commission previously decided within forty-five days whether to grant or deny a petition or to review the initial determination on its own motion. Review will be granted where at least one of the six Commissioners votes for ordering review.(16) When the Commission decides to review the determination, it will specify the scope of review and the issues that will be considered, and will make provisions for the filing of briefs and for oral arguments if deemed appropriate.(17)
In the event that the Commission finds a violation of Section 337, its determination is forwarded to the President with the record upon which it is based.(18) The President has sixty days to decide if, for policy reasons, he will disapprove of the determination, in which case the Commission's action will have no force or effect. If the President communicates his approval, or takes no action, the Commission's determination becomes final.(19)
A party may file with the Commission a petition for reconsideration within fourteen days after service of the Commission's determination. The petition must be confined to new questions raised by the determination or action ordered by the determination upon which the petitioner had no opportunity to submit arguments.(20)
Appeal of a final determination of the Commission may be taken to the Court of Appeals for the Federal Circuit within sixty days from the date on which the Commission's determination becomes final.(21)
VII. RECENT LEGISLATIVE AMENDMENTS
A. GATT Panel Rules Section 337 Discriminatory
In June 1987, immediately after the ITC issued its exclusion order in Certain Aramid Fiber, Inv. No. 337-TA-194 (a case primarily affecting Akzo N.V., a company based in the Netherlands), the European Community brought an action before the GATT Council alleging that Section 337, as applied, discriminated against companies and products of non-U.S. origin in violation of the national treatment provisions of Article III:4 of the GATT.(22) The EC was unable to resolve the controversy with the United States through the normal GATT dispute resolution process, and a panel was established to report a recommended ruling which would ultimately be decided upon by the GATT Contracting Parties. In November 1988, the GATT panel issued its report, which concluded that Section 337 violates Article III:4 of the GATT, because it accords to imported products alleged to infringe U.S. patents less favorable treatment than that accorded under federal district court procedures to like products of U.S. origin.(23)
After reviewing the arguments of the Government of the United States, on the one hand, and those of the European Community, supported by Canada, Japan, the Republic of Korea and Switzerland, on the other, the Panel found six aspects of Section 337 inconsistent with Article III:4:
(i) the availability to complainants of a choice of forum in which to challenge imported products, whereas no corresponding choice is available to challenge products of United States origin;
(ii) the potential disadvantage to producers or importers of challenged products of foreign origin resulting from the tight and fixed time-limits in proceedings under Section 337, when no comparable time-limits apply to producers of challenged products of United States origin;
(iii) the non-availability of opportunities in Section 337 proceedings to raise counterclaims, as is possible in proceedings in federal district court;
(iv) the possibility that general exclusion orders may result from proceedings brought before the USITC under Section 337, given that no comparable remedy is available against infringing products of United States origin;
(v) the automatic enforcement of exclusion orders by the United States Customs Service, when injunctive relief obtainable in federal court in respect of infringing products of United States origin requires for its enforcement individual proceedings brought by the successful plaintiff; [and]
(vi) the possibility that producers or importers of challenged products of foreign origin may have to defend their products both before the USITC and in federal district court, whereas no corresponding exposure exists with respect to products of United States origin.(24)
In a further analysis, the Panel determined that certain aspects of Section 337 are "necessary to secure compliance" with United States patent law and, thus, are entitled to an exception under Article XX(d) of the GATT. Specifically, it found that Customs Service enforcement of exclusion orders is such an exception(25) and that, in certain circumstances, general exclusion orders of an in rem nature may be appropriate.(26) However, none of the other four discriminatory aspects was found "necessary."
B. The Search for a Solution
The incumbent U.S. Trade Representative, Carla Hills, commented that, while the United States did not block adoption of the Panel Report, it did not join in the consensus or accept the Report's findings.(27) Simultaneously, President Bush set forth the Administration's policy with respect to Section 337. He stated that:
Pending enactment of legislation amending section 337, which could most effectively occur through Uruguay Round implementing legislation, the Administration will continue to enforce section 337 without change.(28)
While no one expected it to take five years, in fact, the amendments to Section 337 required by the GATT Panel Report are part of the Uruguay Round legislative package.(29)
The intervening five years engendered an extensive debate on the appropriate solution to the Section 337 problems identified by the GATT Panel. The participants in that debate encompassed a broad segment of the intellectual property community, including business groups such as the U.S. Chamber of Commerce and the Intellectual Property Owners, bar groups such as the American Bar Association, the ITC Trial Lawyers Association and the American Intellectual Property Law Association, government agencies, particularly the Office of the United States Trade Representative, and a number of multinational companies which have frequently and successfully used the statute.(30) As a result of this debate, Section 337 has been amended as part of the Uruguay Round legislative package.(31)
Some proposals would have made wholesale changes to the role of the ITC or to the enforcement of patent rights generally, while others would have changed the balance between district court and administrative proceedings in the intellectual property area. In the final analysis, the amendments to Section 337 reflect the minimalist approach taken in the legislation sponsored midway through the process by Senator Jay Rockefeller, the principal member of Congress active in seeking a solution.(32) The Rockefeller approach was to make the fewest changes necessary to Section 337 to meet the findings of the GATT Panel while preserving the effectiveness of Section 337 as a border enforcement measure. In fact, the legislation, as enacted,(33) is even more minimal than the Rockefeller approach would have been, resulting from compromises that were reached, in part to satisfy private interests, in part, governmental ones.
C. The Amendments to Section 337
Some of the amendments to Section 337 contained in the Uruguay Round legislation go beyond the issues raised by the GATT Panel. Those amendments were, essentially, non-controversial and were designed to bring practice before the ITC more into line with federal court practice. In fact, several of the GATT-mandated changes were, surprisingly, also non-controversial, including the elimination of statutory time limits. The two most contentious issues turned out to be the choice of forum and counterclaim aspects of the GATT Panel Report.
D. Time Limits
The "tight and fixed time-limits" referred to in paragraph 5.20(ii) of the Panel Report have technically been removed by the elimination of the one year and eighteen month statutory deadlines. In fact, however, it can be anticipated that investigations will proceed at the same pace as before. First, the statute requires the ITC to decide cases "at the earliest practicable time." Then, "to promote expeditious adjudication," the ITC is required to establish "a target date for its final determination" within 45 days of initiating the investigation.(34)
The Statement of Administrative Action which accompanied introduction of the legislation explains that the setting of target dates parallels the procedures in federal court under Rule 16 of the Federal Rules of Civil Procedure.(35) Since there are now federal courts which decide cases in less than one year under their local version of Rule 16, it can be expected that the ITC will follow suit. In fact, the Senate Joint Committee Report(36) issued just prior to the vote states:
Although the fixed deadlines for the completion of section 337 investigations have been eliminated, the Committee expects that, given its experience in administering the law under the deadlines in current law, the ITC will nonetheless normally complete its investigations in approximately the same amount of time as is currently the practice.
As a final matter, nothing in the Panel Report and, therefore, nothing in the amendments disturbs the strict statutory deadlines for temporary exclusion order determinations, which are the ITC's equivalent of a preliminary injunction. Those will continue to be available within 90 days of initiation (150 days in cases deemed to be complex in nature).(37)
While the GATT Panel found the unavailability of counterclaims in Section 337 proceedings to be discriminatory, American manufacturers, particularly those in high-tech industries, were concerned that the Rockefeller bill's approach of having the ITC adjudicate directly related counterclaims, coupled with the elimination of statutory time limits, could make Section 337 proceedings endless. This coincided with the concerns of some in government who thought it would be inappropriate for the ITC, an administrative agency with limited subject matter jurisdiction, to become a forum for the adjudication of counterclaims that might go beyond traditional trade issues. Rather than limiting the types of counterclaims that can be raised, the legislation provides that a respondent may raise "any counterclaim."(38) However, that counterclaim must be immediately removed to a United States district court with proper venue.
The amendments to Title 28 needed to effectuate the counterclaim provisions establish jurisdiction in the federal courts to the extent that such counterclaims arise out of "the transaction or occurrence" that is the subject of the Section 337 investigation.(39) That the respondent will have to establish jurisdiction for any counterclaim that is permissive makes the notion that a respondent may raise "any counterclaim" somewhat illusory. On the other hand, a federal court defendant must also establish jurisdiction before its permissive counterclaims will be heard and, to that extent, the amendment to Section 337 is consistent with federal court practice.
The third sentence of the counterclaim amendment is also noteworthy. It states that:
Action on such counterclaim shall not delay or affect the proceeding under this section, including the legal and equitable defenses that may be raised under this subsection.(40)
Clearly, this reflects a comprise that was reached during the legislative process. The first part of the sentence assures that counterclaims, whether valid or frivolous, will not affect the time-sensitive nature of Section 337 proceedings. With the elimination of the specific statutory deadline, it was deemed important to state explicitly that the pendency of a counterclaim would neither "delay or affect" the underlying Section 337 proceeding.
The second part of the sentence assures that the availability of a counterclaim will not eliminate any of the defenses previously available to respondents. For instance, inequitable conduct before the Patent and Trademark Office is a defense to patent infringement but can also be the subject of a counterclaim for anti-competitive conduct. As set forth in the Statement of Administrative Action, the intent of the sentence is to clarify that the latter does not preclude the former:
The right to raise counterclaims . . . supplements language . . . that permits a respondent to raise all legal and equitable defenses and does not affect a party's right to raise such defenses.(41)
The Statement of Administrative Action provides a further gloss on this subject not explicit in the legislation:
[T]he ITC will review, as it has in the past, the effect of exclusion orders under sections 337(d), (e), (f), and (g) in determining whether relief will be granted.(42)
This clarifies that, despite the availability of counterclaims, the ITC will continue to consider "public interest" factors. This concept is embodied in each of those subsections by the following language describing the circumstances -- rarely found in previous cases -- under which a remedy will not be imposed even after a violation of the statute is found:
[A]fter considering the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers . . . .
In other words, even though some of those same public interest factors could be raised by counterclaim, the ITC will continue to consider them as part of the remedy phase of its investigations.(43)
F. Multiple Proceedings and Choice of Forum
From its inception, Section 337 has provided that its use is "in addition to any other provision of law."(44) However, the GATT Panel found discriminatory "the possibility that producers or importers of challenged products of foreign origin may have to defend their products both before the USITC and in federal district court"(45) and, correspondingly, "the availability to complainants of a choice of forum in which to challenge imported products".(46)
In its analysis of what it called the double proceeding possibility, the GATT Panel recited that "The [European] Community raised the question of the possibility of simultaneous proceedings".(47) If one posits that the only way to avoid double proceedings is to find a means to eliminate one, the issue could have become whether Section 337 should have been abolished or whether a special court should have been created to hear all patent cases, both those relating to imports as well as to domestically produced goods. In fact, both of these solutions were proposed during the five year debate over this vexing issue.
Senator Rockefeller's proposed legislation(48) contained three elements in this respect, two of which became part of the final amendments. Because it was clear that one of the principal concerns of the GATT Panel was the simultaneous nature of potential multiple proceedings, both the Rockefeller bill and the final legislation provide that a defendant has the right to request and the district court must grant a stay if that defendant is also a respondent with respect to the same issues in a Section 337 proceeding. A second element of the Rockefeller bill and the final amendments is to provide that the record created before the ITC may be used in the district court proceeding, subject to appropriate evidentiary objections.(49) In addition to the fact that this "could expedite proceedings and provide useful information to the court," as set forth in the Statement of Administrative Action,(50) it should also serve to reduce duplication of effort and, therefore, cost in the district court proceeding.
A third element of the Rockefeller proposal that did not become part of the final amendments was the creation of a declaratory judgment action at the ITC available to foreign respondents threatened with litigation. This would have created a choice of forum for declaratory judgments with respect to imported goods, and, to that extent, would have mirrored the choice available to plaintiffs. However, USTR rejected this approach and eliminated it from the amendments.
USTR, itself, made a proposal late in the deliberations to remedy the choice of forum issue. That proposal would have barred a complainant from seeking injunctive relief in district court if it had already filed a claim under Section 337 and, similarly, would have barred a Section 337 investigation if a prospective complainant had previously "sought" injunctive relief in a civil action based on the same underlying claim. USTR's reasoning appeared to be that, since a Section 337 exclusion order was tantamount to an injunction, the plaintiff should be required to make a choice to satisfy the GATT Panel Report.
This proposal served to galvanize company, industry and bar association support for the Rockefeller position. It was the unanimous view that USTR's proposal would place U.S. industry at a tremendous disadvantage and would, in all likelihood, make Section 337 unworkable.
For instance, it was pointed out that an ITC exclusion order could be more limited with respect to products, parties, periods of time or scope than a district court injunction. Furthermore, under this proposal an action brought in one forum could not be moved to the other for purposes of adding or deleting parties. Finally, a complainant who lost a Section 337 case because of an inability to establish the unique "domestic industry" requirement of that statute could be deprived of a remedy altogether. Since none of these results was mandated by the GATT Panel Report, USTR's proposal was seen as going too far in attempting to remedy the choice of forum issue.
As a final matter, the facts underlying that issue had changed since 1988. Most importantly, the GATT Uruguay Round provisions with respect to Trade-Related Aspects of Intellectual Property Rights ("TRIPs")(51) specifically provide for border enforcement of intellectual property rights by administrative agencies. This is exactly the function of Section 337 and, as reflected in the Senate Joint Committee Report:
The TRIPs Agreement, which is part of the Uruguay Round agreements, recognizes that it may be necessary to treat imported and domestically produced goods differently in order to enforce intellectual property rights with respect to imported goods.(52)
Similarly, in its discussion of the choice of forum issue, the GATT Panel had alluded to "the differences between the proceedings of the USITC and of federal courts".(53) Those differences have been virtually eliminated by changes in district court practice, for instance the establishment of expedited target dates under Rule 16 of the Federal Rules of Civil Procedure, and by the changes to Section 337 brought about by the current amendments.
With all of these developments, Senator Rockefeller's proposal to provide for a stay and transfer of the ITC record to the district court was viewed as sufficient to deal with both the dual forum and choice of forum issues. Proposals that would have rendered the ITC inferior to the district courts or, worse, that would have eliminated Section 337 as a viable statute, could have deprived foreign as well as domestic owners of U.S. intellectual property rights of a potent weapon against unfair import competition.
G. General Exclusion Orders
The GATT Panel, recognizing the in rem nature of general ITC exclusion orders, found them to be discriminatory because such relief is not available in district court, but then found them to be "necessary" in some cases, and, therefore, not violative of the GATT. Therefore, the issue that remained from a legislative viewpoint was to define those circumstances in which a general, rather than limited exclusion order would be appropriate.(54) In fact, the ITC had established a clear test through its opinions, but it was not in the statute. The examples given by the GATT Panel, i.e., a widespread pattern of unauthorized use of the patented invention or difficulty in identifying the source of the infringing product, were virtually identical to the instances previously found by the ITC.(55)
The final language of the Amendment provides that a general exclusion order will be appropriate if it "is necessary to prevent circumvention" of a limited exclusion order or "there is a pattern of violation . . . and it is difficult to identify the source of infringing products."(56) These criteria will continue to enable complainants to obtain in rem exclusion orders, which are not available from the district courts, in those cases where widespread infringement can be shown.
H. Other Amendments
Of the other amendments to Section 337, two that have substantive significance, although not mandated by the GATT Panel Report, were included to conform ITC practice to district court practice. First, Section 337 provides for the posting of bonds in connection with the issuance of temporary exclusion or cease and desist orders(57) and for entries made after the ITC finds a violation but before referral to the President has been concluded.(58) Previously, any bond forfeitures were paid into the U.S. Treasury. The amendments, following the practice under Rule 65 of the Federal Rules of Civil Procedure relating to bonding in connection with temporary restraining orders and preliminary injunctions, now provide that bonds may be forfeited to the adverse party. This remedies a previous inequity in the statute, for now the funds will be paid to the party that was presumably injured by the act requiring the posting of the bond.
The other Amendment relates to a previous quirk in Section 337. It has been well established that parties who agree to submit their disputes to arbitration are protected from federal court litigation.(59) However, a decision by the Court of Appeals for the Federal Circuit held that, despite the existence of an arbitration clause, a domestic party was not precluded from availing itself of Section 337 in an effort to exclude its competitor's product.(60) The amendments provide that, henceforth, the ITC, like the courts, is empowered to terminate an investigation where an arbitration agreement exists between the parties.(61)
I. The Future of Section 337
With the amendments in place, Section 337 has completed a six year journey of uncertainty. It has survived and may well serve as the international prototype of border enforcement regime envisioned by the Trade Related Intellectual Property provisions of the Uruguay Round agreements.
Section 337 will continue to be available, particularly to intellectual property rights holders, as a remedy that provides advantages over federal district court proceedings. It will continue to be a forum where an aggrieved rights holder can, in one proceeding, join respondents from any one or more of the 50 States who serve as importers of infringing goods along with producers from any one or more of over 100 countries without concern about long-arm statutes or the technicalities of international service of process. It is a forum where one can obtain foreign discovery, including plant inspections, with relative ease. It is a forum where patent and other complex intellectual property issues are tried before Administrative Law Judges with vast experience in the subject who do not shrink from the challenge. It is a forum where, in the case of a successful complainant, not only will the United States government, in the guise of the Customs Service, enforce the relief that has been granted, but such relief is available against entities which were not even part of the proceeding.
In terms of speed, it is a forum where complainants continue to have statutory assurance of a decision on preliminary relief within 90 days of initiation of the investigation. With respect to permanent relief, there is every reason to believe that the Commission will continue to operate within a one year time frame if Congressional oversight means anything. In fact, in a speech before the annual meeting of the ITC Trial Lawyers Association on November 4, 1994, Peter S. Watson, Chairman of the ITC, stated that he saw no reason why his agency should not continue to adjudicate Section 337 investigations in twelve months or less. In support of his view he stated that the current amendments would not add any complexities to the cases and, furthermore, that district courts are adjudicating cases quickly, as well, without being bound by statutory deadlines.
At the same meeting, a spokesman for 3M, which has filed more Section 337 cases than any other company, shared his experience that Section 337 cases cost about half as much as district court litigation. He credits the limits on discovery caused by the speed of the cases and the ease of obtaining foreign discovery with much of the savings. Another speaker added as a factor the traditional swiftness of discovery rulings by the Administrative Law Judges compared to the reluctance of many district court judges and magistrates to resolve discovery disputes.
As a final matter, there is the question of how far the frontiers of Section 337 can be taken. It is clear that the statute covers intellectual property rights and antitrust(62) violations in connection with imports, but the full extent of the phrase "[u]nfair methods of competition and unfair acts"(63) remains to be explored. For instance, it has been suggested that, where the manufacture of goods imported into the United States involves human rights violations, this general language of Section 337 might be available to prevent their importation.(64) Similarly, the failure to adhere to internationally recognized environmental norms might be argued to be "unfair acts" because it gives the foreign producer a cost advantage over his American competitor. While these are only possibilities today, Section 337 could become the remedy of choice if no other form of protection is available against these types of abuses of internationally recognized standards of fairness.
With completion of the Uruguay Round, including the amendments to Section 337, the ITC, along with the U.S. Customs Service, will continue to provide effective border enforcement against unfair imports.
1. 19 C.F.R. § 210.10 (1994).
2. 19 C.F.R. § 210.9 (1994).
3. 19 C.F.R. § 210.10(b) (1994).
4. 19 C.F.R. § 210.11 (1994).
5. 19 C.F.R. § 210.3 (1994).
6. 19 C.F.R. § 210.10(b) (1994).
7. 19 C.F.R. § 210.13(a) (1994).
8. 19 C.F.R. §§ 210.27-34 (1994).
9. 19 C.F.R. § 210.33 (1994).
10. 19 C.F.R. § 210.34 (1994).
11. 19 C.F.R. § 210.33 (1994).
12. 19 C.F.R. § 210.34(a)(7) (1994).
13. 19 C.F.R. § 210.35 (1994).
14. 19 C.F.R. § 210.40 (1994).
15. 19 C.F.R. § 210.42 (1994).
16. 19 C.F.R. § 210.43(d)(3) (1994).
17. 19 C.F.R. § 210.45 (1994).
18. 19 C.F.R. § 210.49(b) (1994).
19. 19 C.F.R. § 210.49(d) (1994).
20. 19 C.F.R. § 210.47 (1994).
21. 19 U.S.C. § 1337(c).
22. General Agreement on Tariffs & Trade, 61 Stat. Parts 5 & 6, T.I.A.S. No. 1700 (1947).
23. United States Section 337 of the Tariff Act of 1930, L/6439, General Agreement on Tariffs and Trade: Basic Instruments and Selected Documents 345 (36th Supp. 1990) (Report of the Panel Adopted on November 7, 1989) (hereinafter "GATT Panel Report").
24. Id. at § 5.20.
25. Id. at § 5.33.
26. Id. at § 5.32.
27. Press Release of U.S. Trade Representative Carla A. Hills, Announcing GATT Council's Adoption of Panel Report on Section 337 (November 7, 1989).
28. President's Memorandum for the U.S. Trade Representative, Pub. Papers 1476, (November 7, 1989).
29. Uruguay Round Agreements Act, Pub. L. No. 103-465, § 321, 108 Stat. 4809, 4943 (1994).
30. For an extensive discussion of the alternatives presented see Robert G. Krupka, Philip C. Swain, and Russell E. Levine, Section 337 and the GATT: The Problem or the Solution?, 42 Am. U. L. Rev. 779 (1993). Also see Monique L. Cordray, GATT Compliance of Section 337, 1 Fed. Cir. B. J. 39 (1991).
31. Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809 (1994).
32. S. 3172, 102d Cong., 2d Sess. (1992); S. 148, 103d Cong., 1st Sess. (1993).
33. Uruguay Round Agreements Act, supra note 31, § 321 at 4943.
34. 19 U.S.C. § 1337(b). (Section 337, showing both the deletions and additions of the Uruguay Round Amendments, is attached as Appendix A, and statutory references herein are to the statute, as amended.)
35. H.R. Doc. No. 316, 103d Cong., 2d Sess., Vol. 1, at 656, 705 (1994).
36. S. Rep. No. 412, 103d Cong., 2 Sess. 119 (1994).
37. 19 U.S.C. § 1337(e)(2).
38. 19 U.S.C. § 1337(c).
39. Uruguay Round Agreements Act, supra note 31, § 321 (b)(3)(A) at 4946.
40. 19 U.S.C. § 1337(c).
41. H.R. Doc. No. 316, supra note 35, at 705.
42. Id. at 706.
43. 19 U.S.C. §§ 1337(d)(1), (e)(1), (f)(1), (g)(1).
44. 19 U.S.C. § 1337(a)(1).
45. GATT Panel Report, supra note 23, at § 5.20(vi).
46. Id. at § 5.20(i).
47. Id. at § 5.19.
48. See S. 3172 and S. 148, supra note 32.
49. Uruguay Round Agreements Act, supra note 31, § 321 (b)(1)(A) at 4946.
50. H.R. Doc. No. 316, 103d Cong., 2d sess., vol. 1, at 705 (1994).
51. H.R. Doc. No. 316, supra note 50, at 981-1007.
52. S. Rep. No. 412, supra note 36.
53. GATT Panel Report, supra note 23, at § 5.18.
54. GATT Panel Report, supra note 23, at § 5.32.
55. Certain Airless Paint Spray Pumps and Components Thereof, USITC Pub. 1199, Inv. No. 337-TA-90 (November 1981).
56. 19 U.S.C. § 1337(d)(2).
57. 19 U.S.C. §§ 1337(e)(1), (e)(2), (f)(1).
58. 19 U.S.C. § 1337(j)(3).
59. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).
60. Farrel Corp. v. U.S. Int'l Trade Comm'n, 949 F.2d 1147 (Fed. Cir. 1991), cert. denied, ___ U.S. ___, 112 S. Ct. 1947 (1992).
61. 19 U.S.C. § 1337(c).
62. Certain Electrically Resistive Monocomponent Toner and "Black Powder" Preparations Therefor, USITC Pub. 2069, Inv. No. 337-TA-253 (March 1988). See also Tom M. Schaumberg, Section 337 of the Tariff Act of 1930 As an Antitrust Remedy, 27 J. Am. & Foreign Antitrust & Trade Reg. 51 (1982).
63. 19 U.S.C. § 1337(a)(1)(A).
64. Dr. Cheri M. Taylor and George C. Summerfield, Alternative Uses of Section 337 (October 28, 1994) (unpublished manuscript, on file with author).
Symposium on U.S. Trade Regulations, Stockholm, Sweden (February 1995)
© 1994 Adduci, Mastriani, Schaumberg & Schill