ITC Remedial Orders: Obey the Law?
Jonathan Engler, Esq.
Jonathan Engler is a partner with Adduci, Mastriani & Schaumberg, LLP, a Washington, D.C.-based international trade law firm that is the recognized leader in the field of Section 337 litigation before the ITC. Prior to joining the firm, he was an attorney in the Office of General Counsel at the ITC, where he advised the Commission on matters relating to Section 337 and represented the ITC in appellate litigation before the U.S. Court of Appeals for the Federal Circuit.
The inconsistent enforcement by U.S. Customs and Border Protection (CBP) of U.S. International Trade Commission (ITC) Section 337 exclusion orders has drawn considerable attention in the past year. Criticism has focused on problems with the interagency enforcement process and whether it is the responsibility of CBP or the ITC, after an exclusion order has gone into effect, to determine whether specific imported articles infringe ITC remedial orders.1 While the interagency process is sorted out, there are two steps that the ITC could take on its own to improve the effectiveness of its Section 337 remedies.
First, today’s ITC “obey the law” remedial orders, which define goods that should be excluded only as “articles that infringe” the subject patent, are a significant source of confusion at CBP. The ITC’s orders give CBP no specific guidance as to which goods to exclude or why. In addition, these open-ended orders may be unlawfully vague under current Federal Circuit law. More precise exclusion orders, while narrower, would likely be more effectively enforced by CBP. Second, the ITC has unnecessarily undercut its remedial authority in many investigations by declining to issue cease and desist orders (CDOs) in addition to limited exclusion orders (LEOs). CDOs are essential to effective Section 337 enforcement because, unlike LEOs, their breach can lead to significant civil penalties, a major incentive for compliance. The severe penalties for violating a CDO are the ITC equivalent of the threat of a district court contempt proceeding. The absence of a CDO drastically undercuts the effectiveness of many LEOs and may even have the unintended effect of leading to more litigation. The combination of more precise, prescriptive remedial orders and the consistent threat of civil penalties could go a very long way to improving the effectiveness of ITC remedial orders while reducing the burden on CBP.
ITC Remedial Orders Are Not Limited to Adjudicated Products
By way of background, the ITC’s remedial orders are generally not limited to the adjudicated products and provide no specific notice of what actions are enjoined. Rather, the typical LEO states merely that the entry into the United States of a respondent’s articles “covered by one or more of claims” of the asserted patent by the respondent or “its affiliated companies, parents, subsidiaries, licensees, or other related business entities, or their successors or assigns … in violation of Section 337 is prohibited.” ITC CDOs, using almost identical language, state only that a respondent may not import, sell, market, advertise, distribute, transfer or solicit U.S. agents or distributors for products “covered by one or more of claims” of an asserted patent “in violation of Section 337.” CBP, which is tasked with enforcing ITC exclusion orders at the border, is then expected to enforce LEOs against imports of infringing articles.
Broad ‘Obey the Law’ Language in ITC Orders Hurts CBP Enforcement
The broad “obey the law” language in the Commission’s remedial orders is the source of much of CBP’s difficulty in enforcing ITC exclusion orders. The Commission’s orders provide CBP with effectively no guidance at all as to what products are “covered by” the patent claims listed in exclusion orders. CBP recently complained about current ITC practice and expressed its preference for narrower, detailed, prescriptive remedial orders, with infringement analysis for new products to be handled by the Commission:
[T]he complexity of the legal issues inherent in patent-based exclusion orders presents a challenge for CBP’s enforcement regime, especially with regard to redesigned articles, as well as articles that were not accused and found to infringe at ITC … . CBP’s role should be focused on excluding the specific products that were accused at ITC and found to infringe. Questions regarding redesigned articles, for example, are more appropriately directed to the ITC since it has the ability to conduct hearings on the record, receive and compel testimony, and, upon review of the evidence, render a final determination that is reviewable by a court experienced in such matters.
CBP intends to consult with … relevant stakeholders on how best to restructure the enforcement process … to … ensure that CBP’s role in the process would be limited such that it would not result in extending the agency’s actions beyond the specific articles accused at the ITC and found to infringe. Correspondingly, decisions on whether to exclude articles that were not previously considered and specifically identified in the Commission Opinion as infringing would devolve back to the ITC.3
To date, however an increased role for the ITC, as envisioned by the CBP, has not been implemented.
ITC ‘Obey the Law’ Orders May be Unlawful
The Commission’s current “obey the law” remedial orders are not only very difficult for CBP to administrate but may also be unlawful. The Federal Circuit has held that patent injunctions may not be directed generally to “infringement” or towards products “covered by” patent claims but must specifically identify the enjoined unfair acts: “the only acts [an] injunction may prohibit are infringement of the patent by the adjudicated [products] and infringement by [products] not more than colorably different from the adjudicated [products].”4 In that case, the Federal Circuit vacated a district court injunction with language very similar to ITC remedial orders, which would have barred “making, using, offering for sale or selling in, or importing into, the United States, any device covered by one or more” claims of the asserted patent.5 The Federal Circuit found the injunction to be unlawful because it (1) lacked specific terms and a reasonably detailed description of the acts sought to be restrained and (2) failed to state “which acts constituted infringement or to expressly limit its prohibition to the … specific device[s] found to infringe or devices” only “colorably different” therefrom.6
The importance of specific notice in an injunction as to what is enjoined is “no mere technical requirement” but, rather, is necessary “to prevent uncertainty and confusion on the part of those faced with injunctive orders, and to avoid the possible founding of a contempt citation on a decree too vague to be understood.”7 That is because “[b]asic fairness requires that those enjoined receive explicit notice of precisely what conduct is outlawed” and “[u]nless the trial court carefully frames its orders of injunctive relief, it is impossible for an appellate tribunal to know precisely what it is reviewing.”8
The ITC’s current boilerplate remedial orders are difficult to reconcile with Schmidt and relevant Federal Circuit precedent.9 Injunctive orders can only extend to the adjudicated products or products not colorably different but “[should] not extend to the remainder of the products covered by the patent” and must explicitly identify the infringing acts.10 While Additive Controls and International Rectifier involved Federal Rule of Civil Procedure 65(d), which does not formally apply to proceedings at the Commission, the Federal rule reflects the longstanding equitable principle that “those against whom an injunction is issued should receive fair and precisely drawn notice of what the injunction actually prohibits.”11 Significantly, the Supreme Court case relied upon by the Federal Circuit in International Rectifier and Additive Controls, NLRB v. Express Publishing Co., involved an injunction issued by the National Labor Relations Board, an administrative agency, and did not turn on FRCP 65(d).12
ITC Should Conform Orders to ‘Colorably Different’ District Court Standard
A better approach for the Commission, in drafting Section 337 remedial orders, as some commentators have proposed, may be to conform its orders to the “more than colorably different” standard applied by the Federal Circuit in International Rectifier.13 The Commission has long held that the burden of proof, once a violation has been found, lies with a respondent to demonstrate that new articles do not infringe: “[a]s is appropriate, such procedures place the burden of demonstrating non-infringement on respondents, who have been found to be in violation of section 337, and such procedures have been judicially approved.”14 ITC Respondents, to import new or redesigned articles similar to those found by the ITC to infringe, could be required to pre-clear the importation of such goods with the Commission through a showing that the new or redesigned articles are “more than colorably different” from those found to infringe in the original investigation. Such petitions could be adjudicated in expedited, APA-compliant ITC proceedings established for this purpose. Such proceedings would address CBP’s concerns about the administrability of ITC orders while aligning the ITC’s remedial orders with the Federal Circuit’s “colorably different” standard.
In its proposed amicus brief in Microsoft v. Department of Homeland Security, No. 1:13-1063-RWR (D.D.C.), submitted on Sept. 23, 2013, the ITC argued that respondents have recourse to expedient “enforcement proceedings” and “advisory opinions” at the Commission, by which rapid clarification can be obtained as to the scope of ITC remedial orders.15 As a practical matter, however, these two options are not well-suited to calling balls and strikes with respect to new and redesigned articles. ITC enforcement proceedings are, in effect, new Section 337 investigations, impose very significant costs on the parties, and often take well over a year. For this reason, the agency’s practice after an exclusion order has gone into effect has long been to place the “burden of establishing noninfringement upon would-be importers rather than to require complainant, the aggrieved party in this matter, to prove infringement”).16 To place the burden on complainants to bring an enforcement action to contest new or redesigned articles would effectively shift the burden of proof from the importer to the complainant. Respondents, similarly, should have the opportunity to obtain a binding, reviewable, prospective determination by the Commission whether new and redesigned articles still infringe that minimizes the disruption to legitimate commerce. The only option available to respondents today is to request an ITC Advisory Opinion which is non-binding, unreviewable by any court and is “not subject to the APA.”17
Cease and Desist Orders Essential to ITC Enforcement
The Commission’s decision, in several recent cases, not to issue cease and desist orders due to the lack of evidence of significant domestic inventories, has further weakened already difficult to enforce “obey the law” remedial orders. While Section 337 provides for civil penalties for violations of ITC cease and desist orders, there is no equivalent provision for the violation of a limited exclusion order. The Commission generally declines to issue CDOs in cases, however, where there is no evidence that the respondent maintained domestic inventories.18 (refusing to order a respondent to cease and desist the distribution19 of infringing goods because “the evidence shows that [the respondent] surrenders all title and interest to its commercial products when they arrive and are warehoused in the United States”). The statute is clear, however, that Congress did not intend to limit Section 337 cease and desist orders only to cases involving domestic inventories. Section 337 provides that “[i]n addition to, or in lieu of [issuing an exclusion order] the Commission may issue and cause to be served on any person violating this section, or believed to be violating this section, as the case may be, an order directing such person to cease and desist from engaging in the unfair methods or acts involved.”20
The imposition of CDOs as a matter of course in ITC investigations would improve incentives for compliance and would not require legislative or even regulatory change. The threat of substantial ITC CDO penalties (penalties in some recent cases have reached the tens of millions of dollars) is likely to encourage compliance with LEOs and may even lessen the need for enforcement proceedings, thereby reducing the enforcement burden on the ITC and CBP. The ITC also has a significant institutional interest in imposing CDOs in all investigations; the agency’s authority to impose civil penalties on respondents for non-compliance is akin to the district court’s criminal contempt authority. Section 337 civil penalties, like criminal contempt penalties, are not intended to make the complainant whole but rather to preserve the Commission’s authority.21
In short, the ITC’s current practice, in which the Commission issues “obey the law” remedial orders, while frequently failing to issue CDOs–which are essential enforcement teeth to enhance the effectiveness of Commission LEOs–has contributed greatly to today’s sometimes unpredictable Section 337 enforcement. The critical interplay between sufficient specificity in injunctions and the enforcement mechanism of contempt proceedings or their equivalent has been long recognized by the courts. Application by the ITC of the “more than colorably different” standard in its remedial orders, while arguably a narrower standard than that now applied, is likely to improve the actual enforcement of ITC orders by easing the burden on CBP. The creation of an expedited ITC proceeding to apply this standard, in conjunction with a CDO in all cases, would increase the efficiency and attractiveness of Section 337 by giving all the parties and CBP effective notice of what is enjoined and powerful financial incentives to comply.
1 Improving the Enforcement of Section 337 Exclusion Orders,Adduci, Mastriani & Schaumberg LLP comment (posted July 22, 2013) on the Office of Management and Budget (OMB) Notice Request for Comments: Interagency Review of Exclusion Order Enforcement Process (78 Fed. Reg. 37,242 (June 20, 2013)), available at www.Regulations.gov, ID OMB-2013-0003-0001.
2 SeeCertain Erasable Programmable Read Only Memories, Components Thereof, Prods. Containing Such Memories, & Processes for Making Such Memories, Inv. No. 337-TA-276, Comm’n Op. (Enforcement Proceeding) (Pub. Version), at 10-11 (Aug. 1, 1991) (“The Commission has always issued its orders in terms of ’infringing’ products, and has always intended them, as in this case, to prohibit to [sic] future importation or sale of products which were not specifically adjudged infringing in the violation proceeding, but do in fact infringe.”).
9 SeeInternational Rectifier, 383 F.3d at 1316 (citing NLRB v. Express Publ’g Co., 312 U.S. 426, 435-36 (1941)) (“In accord with the policy of Rule 65(d), the Supreme Court has denounced broad injunctions that merely instruct the enjoined party not to violate a statute.”).
13 See International Rectifier, 383 F.3d at 1317 (“The rule requires an injunction to prohibit only those acts sought to be restrained, which in this case are infringement of the patent by the devices adjudged to be infringed and infringement by devices no more than colorably different therefrom.”)
21 See Spindelfabrik Suessen-Schurr v. Schubert & Salzer Maschinenfabrik Aktiengesellschaft, 903 F.2d 1568, 1578, 14 U.S.P.Q.2d 1913 (Fed. Cir. 1990) (“A civil contempt sanction is remedial and for the benefit of complainant[,] while a criminal contempt sanction is punitive, to vindicate the authority of the court.” (internal quotation marks omitted).