The Advantages of a Section 337 Investigation for Intellectual Property Infringement Claims

Holders of intellectual property attempting to combat infringement may assume that the sole or most advantageous remedy is to file suit in U.S. federal district court.  However, a Section 337 investigation before the U.S. International Trade Commission offers fast, effective relief that may ultimately be more cost-effective than solely pursuing traditional district court remedies.

1.  What is It?  Basics of a Section 337 Investigation

Section 337 of the Tariff Act of 1930, as amended, gives the U.S. International Trade Commission ("ITC") the authority to investigate and decide issues related to unfair competition and unfair acts in the importation and/or sale of imported goods.  Under Section 337, the ITC has jurisdiction to investigate claims of imports that infringe: (1) a valid and enforceable U.S. patent; (2) a U.S. copyright registered under the Copyright Act; or (3) a U.S. trademark registered under the Lanham Act.  19 U.S.C. § 1337 (a) – (d).  To date, the great majority of Section 337 investigations involve claims of patent infringement.

Section 337 investigations typically commence with the filing of a complaint before the ITC by an intellectual property rights owner, although the ITC also has authority to begin a Section 337 investigation on its own initiative.  The ITC has 30 days from the filing of the complaint to decide whether to institute an investigation.  If the ITC initiates the investigation (generally, it will initiate if the complaint includes certain specified elements), it will assign the investigation to an administrative law judge ("ALJ"), who will oversee discovery, conduct any necessary hearings, and issue an initial determination as to the merits of the matter under investigation; the ALJ's initial determination is subject to review by the ITC.

In addition to establishing that it owns the patent at issue and that an infringing product was imported into the U.S., the complainant must establish that a U.S. (domestic) industry related to the articles protected by the patent exists or is in the process of being established.  To meet the domestic industry requirement, complainants must show: (1) that the complainant's product is covered by the asserted intellectual property right; and (2) significant investment in U.S. plants and equipment, significant capital or labor deployment, or substantial investment in engineering, research and development, or licensing.  The ITC has recently relaxed these standards, and a domestic industry may now be found to exist even where companies have no physical presence in the United States and produce no articles using the intellectual property at issue, so long as the company has made a sufficiently significant investment in licensing those intellectual property rights.

2.  Advantages of Section 337 Investigation

Section 337 investigations offer significant advantages over federal district court litigation to those seeking to enforce intellectual property rights, including:

a.  Speed

Section 337 investigations move much faster than traditional intellectual property infringement litigation in federal court.  Section 337 mandates that investigations be completed "at the earliest practicable time;" the ITC takes this mandate seriously.  Thus, while it may take 24 to 36 months or even longer to obtain a judicial ruling regarding an intellectual property infringement claim in federal district court, obtaining a decision in Section 337 investigations generally takes about half that amount of time, or 15 to 18 months from the date of initiation of the investigation.  This shortened time period may result in significant cost savings to the complainant.

b.  Effective Remedies

Unlike federal courts, the ITC does not have the power to impose monetary remedies for intellectual property infringement.  However, the ITC has the power to bar (issue an "exclusion order") the importation of goods which the ITC has determined infringe upon the intellectual property rights at issue.  The ITC can issue a limited exclusion order, which bans the importation of goods by the specific respondents found to be in violation of Section 337; it can also issue a broader general exclusion order, which bans the importation of infringing goods from all sources, regardless of whether the importers were respondents in the Section 337 investigation.

Significantly, unlike traditional federal court litigation, the Section 337 complainant is not left to enforce these remedies itself; rather, U.S. Customs enforces the exclusion orders, thus making these orders an extremely potent remedy.

The ITC may also issue cease and desist orders, which can direct specific respondents in the Section 337 investigation to cease a variety of activities; generally, cease and desist orders are used to prevent a respondent from selling infringing products already in the United States.

c.  Jurisdictional Reach

Unlike a federal district court, the ITC does not need to establish personal jurisdiction over the parties which have allegedly infringed intellectual property rights; rather, the ITC exercises in rem jurisdiction over the alleged infringing products themselves.  As a result, even non-U.S. respondents may find it necessary to participate in Section 337 proceedings to protect their interests.  Moreover, a single Section 337 complaint may be filed against multiple respondents residing in different jurisdictions.

In addition, as noted above, the "domestic industry" requirement has been significantly relaxed by the ITC in recent years; as a consequence, Section 337 complaints may be filed even by companies that are not physically present in the United States and which do not manufacture the products at issue, so long as the companies have made a sufficiently significant investment in licensing.

d.  Fact Finder Expertise

The intellectual property expertise of federal judges varies by district; while some judges are familiar with the issues and concerns arising in this area, some  are not.  By contrast, Section 337 proceedings are handled by ALJs who are specialists in this area, thus reducing the need to "educate" the fact finder.

e.  Federal District Court Proceedings are Not Precluded

Section 337 investigations do not preclude federal district court actions regarding the same or related infringement claims; because the ITC does not have authority to order monetary damages, complainants before the ITC frequently file parallel district court actions based on the same infringement allegations contained in the ITC complaint.  The complainant can request that the district court action be stayed until the Section 337 action is concluded, which almost always is granted.

The ITC's decisions may have res judicata effect in trademark, trade secret, and unfair competition cases.  This is not the case in patent and copyright cases.  As a practical matter, however,  district court judges may defer to the ITC's findings, thus easing the way to obtaining a monetary judgment on top of the relief already awarded by the ITC.  This could account for the fact that a 2008 study found that the overwhelming majority of parallel district court patent cases settled.

For further information, contact David J. Marr, Intellectual Property Practice Group Leader at dmarr@clarkhill.com or 312-985-5558; or Thomas J. O'Donnell, Member, International Trade Practice Group at todonnell@clarkhill.com or 312-985-5570 .