The US International Trade Commission is a powerful and cost-effective weapon in the ongoing brand protection war, but remains underused

The US International Trade Commission (ITC)  investigates imports connected with unfair acts such as IP infringement and directs US Customs and Border Protection (CBP) to exclude those products from the United States. In 2012 around 75% of all exclusions by  the CBP resulted from ITC investigations into brand protection claims sought by Crocs, Inc (for its foam  footwear) and Philip Morris (for counterfeit cigarettes).  That figure is remarkable on its own, and even more so  in light of the fact that brand protection claims comprise  only a small fraction of ITC investigations. Naturally, this  begs the question of why more companies do not use the  ITC as a weapon in the brand protection war.

The ITC’s potency in the fight to protect valuable brands  stems from its unique rules, fast docket and the fact that  its exclusion orders are enforced by the CBP, whose agents  are trained to inspect and seize products subject to ITC  exclusion orders. Once an ITC decision is obtained, the CBP can help to carry out the brand owner’s work and multiply  its efforts to keep infringing goods out of the United States.  Further, unlike in federal district court, where jurisdictional  skirmishes often frustrate and delay brand protection efforts, the ITC’s jurisdiction is in rem – that is, based on the imported article – requiring only a single actionable product to initiate an investigation.

Given the advantages and proven effectiveness of the  ITC, companies facing pressure from infringing imports  should consider this forum when choosing where to  allocate their enforcement dollars. Bearing in mind that  the CBP will undertake the enforcement effort for many  years following the investigation, the ITC can be great  value compared to federal district court enforcement  efforts intended to curtail the same imports.

ITC investigates IP infringement claims

The ITC is a quasi-judicial agency located in Washington  DC charged with administering Section 337 of the US  Code, the powerful statute that allows the ITC to protect  US companies from unfair imports. Section 337 broadly  prohibits “unfair methods of competition and unfair acts  in the importation of articles… into the United States”, which can include anything from statutory or nonstatutory IP infringement (eg, trademark, trade dress or  copyright infringement) to advertising injury and breach of  contract. The ITC has much experience investigating brand protection claims concerning trademark, trade dress and design patent infringement, and grey-market imports. 

The vast majority of all brand protection claims in the past 15 years ended in default, a consent order or  settlement, meaning that such claims rarely go to trial, particularly where the accused products are illicit to begin  with. Investigations move fast and a final determination usually issues in 15 months or less. Relief may come as fast  as a few months against defaulting parties. This is a stark  contrast from federal district court litigation, where the time between filing the case and trial can be years.

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Proving a violation of Section 337 is straightforward  and is particularly streamlined where statutory  intellectual property such as a patent, trademark or  copyright registration is at issue. Complainants alleging  infringement of patents, and registered trademarks and  copyrights must prove the ‘three Is’:

  • import, sale for import or sale after import of the accused articles;
  • infringement of the statutory intellectual property by the accused articles; and
  • a domestic industry related to articles protected by the statutory intellectual property

To prove a domestic industry, a company need not produce the article that practises the asserted  intellectual property, which can instead be carried  out by a contract manufacturer or licensee, either  in the United States or abroad. A domestic industry  can be established provided that a complainant can demonstrate the following investments relating  to articles that practise or embody the asserted  intellectual property:

  • significant investment in plant(s) and equipment;
  • significant employment of labour or capital; or
  • substantial investment in its exploitation, including  engineering, research and development or licensing.

‘Significant’ and ‘substantial’ do not mean that  the investments must be most or all of a company’s  domestic spend. The absolute and relative amounts  may be modest, provided that they are significant in the  context of the company’s business or compared to the broader industry’s investments for similar efforts.

When other unfair acts are alleged, such as trade  dress or unregistered trademark infringement, complainants must prove injury or threat of injury to  the domestic industry. Injury may be shown  through, for example, lost actual or potential sales, royalties, income, profits or customers, and other harm  to the complainant’s business attributable to the  unfair imports.

ITC issues powerful remedies

The remedies offered by the ITC are a unique feature  of Section 337 litigation. Unlike in federal district court  litigation, monetary damages are not available. Instead,  the ITC possesses the authority to issue two types of  remedial order: limited, general or temporary exclusion  orders, and cease and desist orders.

The remedies available under Section 337 are:

  • a limited exclusion order, which bars the named  respondent (and its agents) from importing  any articles that violate Section 337 through  infringement or another unfair act;
  • a general exclusion order, which bars anyone from  importing articles at issue into the United States  (these are granted in circumstances where widespread  counterfeiting and difficulty in identifying the source  of the infringement would make circumvention of a  limited exclusion order likely);
  • a temporary exclusion order to redress import of the  articles during the pendency of the ITC case; and
  • a cease and desist order directed against specified US parties, which may be granted in addition to, or  in lieu of, an exclusion order and whose violation  can result in a penalty of up to $100,000 or twice the  domestic value of the articles at issue for each day in violation.

Exclusion orders are administered by the CBP at  the ports and for as long as the exclusion orders are in  effect. Cease and desist orders, on the other hand, are  administered by the ITC through a separate enforcement  proceeding.

ITC is an efficient forum

In addition to speed, the ITC offers several advantages  over federal district court to companies grappling with  how to stop infringement by imports: 

  • Jurisdiction – in rem jurisdiction makes it possible to  initiate an action based on a single actionable item,  no matter whether the manufacturer has contacts  with the United States or can even be identified. 
  • Service of complaint – the Hague Convention does  not apply to ITC complaints, unlike in federal district  court, where service of the complaint in foreign  countries can be a lengthy process fraught with  pitfalls. Service is handled by the ITC, via overnight  mail, when the investigation is instituted. 
  • Joinder – all parties can and will be joined in a single  action, which promotes the efficient resolution of  common legal and factual issues. Investigations  naming 20 or more respondents are not uncommon,  particularly where widespread infringement of  commodity items is at issue.
  • Broad discovery – parties can make use of 175  interrogatories per respondent, unlimited requests  for production and requests for admission. There  can also be up to 20 fact depositions (each corporate  deposition notice counts as a single deposition  regardless of the number of corporate designees).  The ITC also has nationwide subpoena power.
  • Efficient justice – administrative law judges each  have specialised and detailed ground rules designed  to promote efficiency and penalise parties  that fail to produce discovery in a  timely manner.
  • Default – default can  be sought soon after a party fails  to answer or participate in the  investigation, after which an  exclusion order will issue. Named  parties have 20 days to respond, after  which the complainant may move  for default, yielding relief against the  defaulting parties in as little as a few  months.

Companies turn to ITC to protect brands

Under Section 337, the ITC can investigate a number of unfair methods  of competition, including trademark  infringement, copyright infringement  and trade secret misappropriation.  Accordingly, companies that are aware of the ITC’s remedies and its fast-paced procedure have  used the ITC enforcement actions as part of their overall  brand protection programme. Three examples illustrate  this point: Crocs, Philip Morris and Louis Vuitton.

Crocs obtains a general exclusion order protecting its footwear

Crocs took the world by storm in the early 2000s with  its distinctive foam footwear, which it protected with  design and utility patents. 

In addition, Crocs said, its products’ appearance and  overall image were protected trade dress. Not long after Crocs’ initial market success, competitors flooded the  market with imported shoes remarkably similar to the  Crocs design. 

To stem the flow of these products and protect its  brand, Crocs filed an ITC complaint asserting design and utility patent infringement and trade dress infringement  (Crocs later dropped the trade dress claims in an apparent  effort to streamline the case).

While the ITC initially baulked at finding design  patent infringement, the US Court of Appeals for the  Federal Circuit, in an important decision for future design  patent cases, reversed the ITC and emphasised that the  viewpoint of the ordinary observer should predominate  when evaluating infringing designs. Thus, despite the fact  that Crocs had to appeal its original negative ITC decision  to the US Court of Appeals for the Federal Circuit, it  ultimately prevailed. In 2011 the ITC issued a general  exclusion order barring imports that infringed the design  and utility patents from any source, resulting in 39% of all  exclusions by Customs in 2012.

Philip Morris achieves a general exclusion order protecting its tobacco products

Philip Morris protects its cigarettes with registered  trademarks and sells its branded cigarettes worldwide  with regional restrictions on distribution. 

However, grey-market cigarettes from outside the  United States were being imported to compete with  Philip Morris’s domestic offerings. The ITC found that the  accused companies had violated Section 337 by selling for  import into the United States grey-market cigarettes that  infringed Phillip Morris’s MARLBORO, PARLIAMENT and VIRGINIA SLIMS trademarks. The ITC also found  that a lack of English-language warning labels from the  surgeon general on the grey-market cigarette packages  rendered them materially different from the US-market cigarettes. Moreover, due to the high likelihood of  circumvention, the ITC issued a general exclusion  order barring infringing product from any source. In  2012 exclusions of grey-market Philip Morris cigarettes  accounted for 36% of all seizures.

Louis Vuitton wins general exclusion order

Famous French fashion house Louis Vuitton offers highend luggage and bags, among other luxury items, on  which it uses its Toile Monogram trademark. Louis Vuitton alleged, and the ITC found, that  a husband-and-wife team was manufacturing and  importing confusingly similar products and exact copies  that traded on Louis Vuitton’s Toile Monogram mark. 

The couple conducted business through a constellation of companies that made it difficult for Louis Vuitton to identify the source of the infringing product. The ITC found that before resorting to the commission, Louis  Vuitton had engaged in extensive civil activities in the United States, including cease and desist letters and district court actions, and criminal investigations that resulted in  arrests. However, the fact that one of the named parties could produce up to 200,000 units per style, per month, combined with the inherent anonymity of internet sales  operations, made it unfeasible to pinpoint the source of the infringing goods. The ITC also noted that the evidence  showed that the accused businesses could be easily formed  and dissolved, further frustrating enforcement efforts, and  that the barrier to entry on the market was low. In view of  these findings, the ITC issued a general exclusion order  barring the entry of infringing products from any source.

Comment

Brand owners in all industries should consider adding  ITC actions to their arsenals. Methods such as online  monitoring, site raids and conventional lawsuits  through the US and Chinese court systems are still  necessary, but should be seen as elements in a multipronged strategy. Site raids are effective because they  often raise the costs and risks of doing business for  counterfeiters. Counterfeiters may incur fines, face jail  time or lose inventory and manufacturing capacity due  to raids and seizures. Although district court lawsuits can be effective, they are becoming prohibitively  expensive as infringers multiply and often vanish, only  to reappear under a new name and address, making it impossible to trace them, let alone add them as  defendants to existing actions. Such efforts should be part of a brand owner’s armoury. However, as the problem of counterfeiting and grey-market goods distribution escalates, brand owners should look to  the ITC and the in rem jurisdiction that it offers as an additional and efficient means of attack. It is a weapon that, when successful, enables the CBP to  do the brand owner’s work. Indeed, more  companies should use the ITC as a weapon  in the ongoing brand protection war.

Whether the infringement involves luxury goods, textiles, electronics, pharmaceuticals or other products, brand owners must continue to enhance their enforcement efforts to prevent counterfeits from reaching the stream of commerce. Section 337 actions offer brand owners an additional  tool to counteract the negative effects of counterfeit goods.

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