backMay 25, 2017
Commission Holds Hearing On Antitrust Injury In Certain Carbon And Alloy Steel Products, Inv. No. 337-TA-1002 – The U.S. International Trade Commission (“the Commission”) held a rare hearing on the Administrative Law Judge’s (“ALJ”) Initial Determination and Order No. 38 in Certain Carbon and Alloy Steel Products, Inv. No. 337-TA-1002 on Thursday, April 20. At issue during the hearing was whether the complainant, U.S. Steel Corp., was required to plead “antitrust injury” as part of its price fixing claim in order to meet the pleading requirements of Section 337. By way of background, U.S. Steel filed a complaint against a number of Chinese steel producers and distributors alleging that they had conspired to fix prices and control output in violation of Section 1 of the Sherman Act. U.S. Steel alleged that it had been injured as a consequence of the price fixing conspiracy under section 337(a)(1)(A), which requires the threat or effect of the predicate unfair act or unfair method of competition to (a) destroy or substantially injure an industry in the United States, (b) prevent the establishment of such an industry, or (c) restrain or monopolize trade and commerce in the United States. In Order No. 38, the Administrative Law Judge held that U.S. Steel was required to plead “antitrust injury” to establish standing, which is required to be plead under the Clayton Act as part of any private right of action under the antitrust laws in federal district courts. Unlike injury to the domestic industry, “antitrust injury” is injury to competition.
Commissioners Schmidtlein, Johanson, Broadbent, Kieff, and Williamson participated in the hearing. Salient lines of questioning included the following:
- How should the Commission reconcile the requirements that (a) the predicate unfair act or unfair method of competition injure the domestic industry as set forth in Section 337(a)(1)(A)(i) and (ii) and (b) the unfair act or unfair method of competition restrain or monopolize trade and Commerce in the United States under Section 337(a)(1)(A)(iii) to be actionable under the statute?
- Should the Commission be more circumspect about U.S. Steel’s claim because, unlike the Justice Department (“DOJ”) or Federal Trade Commission (“FTC”), it is required by statute to investigate all facially valid claims, while DOJ and FTC can use prosecutorial discretion to screen out circumspect claims?
- What is the role of the Clayton Act in establishing standing in a Section 337 case?
- What does the legislative history to Section 337 and the antitrust laws say about the purposes of Section 337 and the antitrust laws?
- Whether prudential standing requirements apply to Section 337, specifically whether U.S. Steel has to be within the zone of interests sought to be protected by the antitrust statute?
Although there is no set timetable for the Commission to act, the issue is fully briefed and awaiting decision.
Exclusion Order Issued in Certain Woven Textile Fabrics, Inv. No. 337-TA-976 – On March 20, 2017, the Commission issued a General Exclusion Order (“the GEO”) in Certain Woven Textile Fabrics, Inv. No. 337-TA-976. The Section 337 violation in this case stemmed from “the unlawful importation and sale of certain woven textile fabrics and products containing same that are falsely advertised through the misrepresentation of thread counts.” The Commission found the GEO warranted because “there is a pattern of violation of Section 337 and it is difficult to identify the source of falsely advertised products.”
The case arose from a complaint filed by AAVN, Inc. of Richardson, Texas (“AAVN”), which alleged that a Section 337 violation had resulted from the importation into the United Sates, the sale for importation, or the sale within the United States after importation of certain woven products by reason of patent infringement and/or false advertising. The complaint originally identified fifteen respondents, but fourteen of the respondents were terminated based on Consent Order and/or settlement agreement, with only Pradip Overseas Ltd. of Ahmedabad, India (“Pradip”) remaining. AAVN’s complaint against Pradip focused on false advertising, “specifically alleging that Pradip misrepresented the thread count of sheets manufactured in India, imported into the United States, and sold in United States department stores.”
On November 10, 2016, the ALJ granted AAVN’s motion for summary determination that Pradip had violated Section 337. The ALJ recommended that a general exclusion order be issued. The Commission determined not to review the ALJ’s Initial Determination, and thus the finding of a Section 337 violation via false advertising stands.
The GEO prohibits the import of “woven textile fabrics and products containing same that are falsely advertised through the misrepresentation of thread counts (‘covered products’).” The bond during the Presidential review period is 100% of the entered value for all covered products.
Will the Commission Rescind the Limited Exclusion Order Entered in Certain Beverage Brewing Capsules, Inv. No. 337-TA-929? – The Commission instituted the Section 337 investigation on Certain Beverage Brewing Capsules, Inv. No. 337-TA-929, on September 9, 2014 naming several respondents including Eko Brands, LLC; Evermuch Technology Co., Ltd.; and Ever Much Co. Ltd. The complaint alleged a violation of Section 337 based on infringement of U.S. Patent No. 8,720,320.
Eko and Evermuch did not respond to the Commission complaint and Notice of Investigation. Instead, they instituted a declaratory judgment action in U.S. District Court for the Western District of Washington. See Eko Brands, LLC v. Adrian Rivera Maynez Enterprises, Inc., 2-15-cv-0522 (W.D. Wa. April 2, 2015). The Commission entered default against Eko and Evermuch in May 2015. In March 2016, the Commission upheld the validity of claims 8 and 19 of the ‘320 patent, assumed the truth of Complainant’s allegations with respect to these claims, and entered a Limited Exclusion Order and Cease and Desist order against Eko and Evermuch.
The Complainant then requested that the Commission institute a formal enforcement proceeding based on Eko and Evermuch’s violations of the exclusion and cease and desist orders. The Commission instituted an enforcement proceeding on July 1, 2016.
During the enforcement proceeding, the federal district court in Washington granted summary judgment that claims 8 and 19 of the ‘320 Patent were invalid. Eko Brands, 2-15-cv-0522 (W.D. Wa. April 2, 2015) at DKT#94. Following that decision, Eko and Evermuch petitioned the Commission to rescind the exclusion and cease and desist orders and to terminate the enforcement proceedings based on changed circumstances. The Commission instituted a rescission proceeding, consolidated that proceeding with the enforcement proceeding, and delegated those proceedings to the ALJ who presided over the original investigation.
On March 27, 2017, the presiding ALJ issued the subject enforcement initial determination (“EID”), which found that the remedial orders cannot be enforced due to a lack of domestic industry, and issued a recommended determination that the remedial orders be provisionally rescinded due to an intervening federal district court summary judgment that Eko and Evermuch did not infringe claims 8 and 19. On May 11, the Commission decided to review the ALJ’s initial determination in its entirety.
The rescission recommendation in Certain Beverage Brewing Capsules reflects an alternate, though risky, approach for proposed Respondents in Commission proceedings. Instead of answering the Commission complaint, the respondents accepted a default and filed a declaratory judgment action in federal district court to adjudicate the infringement allegations. By prevailing in district court, the respondents were able to seek rescission of the exclusion and cease and desist orders entered by the Commission. If, however, the Commission elects not to rescind the exclusion orders before the district court action is finally resolved and/or Eko and Evermuch ultimately do not prevail in district court, then this strategy will backfire. Eko and Evermuch will have waived certain defenses, including non-infringement, that could have been raised in the Section 337 investigation. They will also likely face substantial penalties and fines for violation of the Commission’s cease and desist order. Much is at stake in the pending Commission review. Stay tuned.
Federal Circuit Affirms Commission’s Imposition of Default Judgment Sanctions for Spoliation of Evidence – On February 15, 2017, the United States Court of Appeals for the Federal Circuit affirmed the Commission’s decision imposing default judgment sanctions for spoliation of evidence and entering a limited exclusion order against Organik Kimya San. ve Tic, A.S., Organik Kimya Netherlands B.V., and Organik Kimya US, Inc. (collectively, “Organik Kimya”), in Certain Opaque Polymers, Inv. No. 337-TA-883. The sanctions, which were previously covered in the November 20, 2014, and May 5, 2015 editions of the ITC Section 337 Update, resulted from (a) Organik Kimya’s failure to preserve evidence, including what the ALJ found to be the “massive spoliation of evidence” on a laptop just days after a discovery order was issued authorizing examination of the computer, (b) “the multitude of lies Organik Kimya knowingly and deliberately presented to the [ALJ] to hide or explain away its wrongdoing,” and (c) the failure by Organik Kimya to issue a document preservation notice notwithstanding the ALJ’s document preservation order.
In affirming the ALJ’s Initial Determination, the Commission found that the spoliation of evidence on the laptop “alone is more than sufficient to justify the sanctions ordered by the ALJ.” It also found that exclusion and cease and desist orders were appropriate remedies and imposed a 25-year exclusion order, with a narrowing provision that would allow Organik Kimya to import products it could show were developed without using misappropriated trade secrets.
The Federal Circuit held that the Commission did not abuse its discretion in imposing sanctions. Under 19 C.F.R. § 210.33(b), an ALJ may order any non-monetary sanction available under Federal Rule of Civil Procedure 37(b) that is not already included in § 210.33(b), and under Rule 37, which allows the entry of a default judgment “against a party that fails to obey an order to provide or permit discovery.” The court noted that default judgment sanctions are appropriate in certain cases, and that Organik Kimya’s conduct fit squarely within the Supreme Court’s admonition in Nat’l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639 (1976), that “‘the most severe in the spectrum of sanctions provided by statute or rule must be available …in appropriate cases’ to penalize a party’s sanctionable conduct and to deter future parties from repeating such conduct.” Noting the broad discretion of the Commission to select a remedy, the Federal Circuit also held that the record supported the Commission’s limited exclusion order.
“Trade Protection Not Troll Protection” Act Reintroduced – On April 27, 2017, U.S. Representatives Tony Cárdenas (D-CA) and Blake Farenthold (R-TX) reintroduced the Trade Protection Not Troll Protection Act (H.R. 2189). The Bill aims to protect U.S. industries from Section 337 suits brought by so-called “patent trolls.” As King & Spalding reported, the Act was last introduced in March 2016, but did not gain much traction in the House.
The text of the Bill remains the same. As with its previous iteration, the Bill seeks to redefine “the domestic industry,” striking “licensing” from the provision that provides that with respect to articles protected by patent, copyright, trademark, mask work, or design, a domestic industry exists with “substantial investment in its exploitation, including engineering, research and development, or licensing.” (19 U.S.C. § 1337(a)(3)(C)). The Bill would add a new subsection whereby a domestic industry may exist with “substantial investment in licensing activities that leads to the adoption and development of articles that incorporate the patent, copyright, trademark, mask work, or design.” Furthermore, the Bill would require that, for the purposes of establishing a domestic industry “the complainant may not rely upon activities by its licensees unless the license leads to the adoption and development of articles that incorporate the claimed patent, copyright, trademark, mask work, or design for sale in the United States.”
The Bill also proposes additions to the section governing the Commission’s investigations which seek to expedite proceedings in certain circumstances. For instance, the Bill adds:
The Commission shall identify, at the beginning of an investigation, whether the investigation presents a dispositive issue appropriate for an expedited fact finding and an abbreviated hearing limited to that issue, and shall direct the assigned administrative law judge to rule on such issue early in the investigation. The Commission, in its notice of instituting the investigation, shall set out specific timeframes for such expedited fact finding and hearing.
The proposed text continues:
If the Commission identifies a domestic industry as the dispositive issue in question, the Commission shall direct the assigned administrative law judge to expedite fact finding in the investigation on the domestic industry requirement, including an early evidentiary hearing, and to issue an initial determination on this matter within 100 days after the investigation is instituted.
The Bill’s co-sponsors view it as an opportunity to protect American manufacturers. According to Congressman Farenthold, “[r]ight now patent trolls are filing abusive claims, which manipulate the marketplace and eliminate U.S. jobs as companies spend millions of dollars fighting these lawsuits . . . [n]obody should be abusing our system to extort money.”
There currently is no companion Senate bill, and no hearing has been scheduled on H.R. 2189.