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Ropes & Gray’s podcast series Talkin’ Trade explores the world of Section 337 unfair import investigations at the U.S. International Trade Commission. In this episode, IP litigation partner Matt Rizzolo and associates Matt Shapiro, Kathryn Thornton, and Brendan McLaughlin explore the statute’s importation requirement, including the Federal Circuit and Commission’s interpretation of a phrase in Section 337—“articles…that infringe”—that has been the subject of confusion and debate in recent years.

Transcript:

Matt Rizzolo: Welcome back for episode three of Talkin’ Trade, a podcast where we explore the ins and outs of Section 337 investigations at the U.S. International Trade Commission. I’m Matt Rizzolo, and with me today are my fellow Ropes & Gray IP attorneys Matt Shapiro, Kathryn Thornton, and Brendan McLaughlin. Thanks to all who have been tuning in. For new listeners, you may want to check out episode one for an overview of the ITC or episode two for a discussion on the ITC’s domestic industry requirement. Now, because the ITC is a trade agency—after all, it’s in the name—it won’t get involved in deciding a case unless there’s been an importation of something into the United States, and questions surrounding importation are going to be the focus of today’s episode. But first, Brendan, what’s new at the Commission? 

Brendan McLaughlin: Thanks, Matt. The Commission was a little more active in June, especially towards the end of the month—it received three new complaints, instituted two investigations, and it issued a notice in the -1175 Investigation, Certain Bone Cements, affirming the ALJ’s finding of no trade secret misappropriation and no violation of Section 337, with modified reasoning.

Matt Shapiro: And for those of us who rely on the ITC’s RSS feed to get notice of new filings, those have been out of service for most of July, so it’s been a bit harder to really know what’s actually going on at the Commission.

Brendan McLaughlin: But fortunately, that seems to be fixed now. Arguably, the most notable ITC development for June didn’t come from an RSS feed or out of the Commission at all—instead, it came from a few blocks away, from Congress. On June 15, 2021, Senators John Cornyn, Chris Coons, and Todd Young introduced the bipartisan “SECRETS Act of 2021,” also known as the “Stopping and Excluding Chinese Rip-offs and Exports with United States Trade Secrets Act of 2021.” 

Kathryn Thornton: Yet another bill with a “backcronym”—so original.

Brendan McLaughlin: Yes, exactly. So this bill would create a special committee at the ITC that would have the power to quickly block imports if they rely on trade secrets misappropriated by a “foreign agent.” The committee would be chaired by the Attorney General, and the committee’s voting membership would comprise at least representatives from Treasury, Homeland Security, Commerce, Intellectual Property Enforcement Coordinator and the USTR. The Director of National Intelligence would serve as a non-voting member of the Committee. The Committee would primarily decide if imported articles “contain, were produced using, benefit from, or use any trade secret acquired through improper means or misappropriation by a foreign agent or foreign instrumentality.” It would be empowered to review complaints filed by trade secret owners or on its own initiative any allegations that an article imported or to be imported into the United States misappropriates a trade secret. If the committee decides to proceed with allegations, it would submit to the ITC a report including those allegations. Perhaps the most unique aspects of the bill is the incredibly fast mandated pace—within 30 days of receiving a committee report, the Commission would conduct an ex parte, preliminary review to “determine whether there is a reasonable indication the article is more likely than not a covered article.” If the ITC finds that it would be more likely than not that a trade secret was misappropriated, then it must issue an order excluding the concerned articles and notify the President of its determination. Then, within 150 days, the Commission must conduct an ex parte, in-depth investigation, which may include a hearing. There’s a lot in this bill—and still many unanswered questions, including whether or how an importer whose products are implicated might be able to dispute any accusations before the Commission. Matt, do you have any further thoughts?

Matt Rizzolo: Yes, my first impression is that this bill is largely redundant of the ITC’s existing authority under Section 337. And I’ll put in a shameless plug here for an article that Brendan and I wrote along with one of our colleagues, Nicole Pobre, in Law360 that was just published, and we noted in there the ITC may already conduct investigations into trade secret misappropriation either based upon private party complaints or on its own initiative. And Section 337 specifically contemplates that the Commission conducts investigations consulting with other agencies, such as the DOJ. But what stands out in this bill is the idea that just 30 days after receiving a complaint, the ITC would issue what’s effectively a temporary exclusion order pending a full in-depth investigation. That is extremely rare under current law. But finally, in terms of the politics, I doubt that this bill will go far—while it might garner some support since it specifically targets Chinese trade secret misappropriation, ITC-related bills really haven’t received much Congressional interest over the past decade despite having a handful of them being introduced. But if it does, it could certainly add to the Commission’s packed and increasing docket, so we’ll keep monitoring this bill and whether it gains any traction this Congress or perhaps in the future. So, thanks for the update, Brendan. 

Last month, we covered the ITC’s unique domestic industry requirement, and as I mentioned, on today’s episode, we’re going to dive into another aspect of Section 337 that differs from district court litigation—the necessity that there’s an “importation” into the United States before the ITC will get involved. And as part of that, we’ll also talk about how the ITC and the Federal Circuit have grappled with the import—pardon the pun—of an awkward phrase in the statute, “articles that infringe.” So, Matt, where’s the importation requirement come from?

Matt Shapiro: This is a requirement straight out of Section 337. Section 337 prohibits “unfair methods of competition and unfair acts in the importation of articles into the United States.” Now, for statutory IP claims—this would include patents, copyrights, and federally registered trademarks—Section 337 gets more specific, prohibiting “the importation into the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that” infringe statutory IP rights. This is a jurisdictional requirement—the ITC is a trade agency and it has jurisdiction over imported articles. If there isn’t an importation, then the ITC just doesn’t have jurisdiction. And the reason for this is that the ITC has jurisdiction over articles rather than the respondents to the action. Now, this is a key distinction between the ITC’s in rem jurisdiction over the imported articles, compared with a district court’s in personam jurisdiction over the defendants to the action. Put simply, without importation, a complainant is out of luck at the ITC and must instead seek the assistance of the relevant country’s court. Practically, if we’re in the United States and the alleged conduct is wholly domestic, a complainant’s best bet is to seek the assistance of a federal district court.

Matt Rizzolo: Yes, and this is a critical point—a lot of potential complainants may want to use the ITC as an alternative forum to litigate disputes or escalate them, especially given the ITC’s fast pace, but a respondent must actually have imported, or sold for importation, or sold after importation the products at issue in the investigation. 

Matt Shapiro: And what you just said, Matt, hits on another key concept—there must be an importation of a product—that is, there must be an importation of an article that is a physical, tangible good. Now, we’ve mentioned “importation” a couple times in our past episodes, but we haven’t discussed that Section 337 requires importation of articles. And the precise definition of “articles” came before the Federal Circuit a few years ago in ClearCorrect v. ITC. There, the accused “articles” were digital models and data relating to orthodontics, and they were being transmitted electronically from Pakistan to the United States—there was nothing physical crossing the border. The Commission had concluded that “articles” included this intangible digital data, so cross-border electronic transmissions could be “importations.” But the Federal Circuit reversed, holding that “articles” means “material things,” and this is based on both the literal text and statutory scheme of Section 337. Note that while the Federal Circuit found electronically transmitted data are not an “article,” the Federal Circuit did recognize that data imported on a physical medium, such as a compact disk or thumb drive, may still satisfy jurisdictional requirement of an imported article.

Matt Rizzolo: Yes, the ClearCorrect decision is really an interesting read, and in particular, Judge Newman’s dissent. She had sided with the Commission’s view and argued that in today’s digital economy, Section 337 really must evolve with the time and consider digital or electronic transmissions of data as articles. But, ultimately, she was alone, and garnered no support when she also dissented from the Court’s denial to rehear the case en banc. So moving forward, physical articles must be imported for the ITC to have jurisdiction.

Matt Shapiro: Right, but while there must be importation of physical articles under the current law, even a small quantity of physical goods will satisfy the importation requirement. For example, importation of a single accused product is enough to satisfy the importation requirement and give the ITC jurisdiction.

Matt Rizzolo: Yes, I think that’s important. You mentioned compact discs earlier—if in that case there had been an importation of software on a compact disc and also electronic transmissions, there the ITC would have had jurisdiction over the whole case and probably could have issued the appropriate remedy. Now, there is also one other important statutory category—situations where there’s been a sale for importation. Matt, can you explain that?

Matt Shapiro: Sure. A good place to start when explaining the meaning of sale for importation is the -376 Investigation, that’s Variable Speed Wind Turbines. There, the Commission found that the phrase “sale for importation” includes the situation in which a contract for goods has been formed under the UCC. And since the ITC found that there was a clear intent by the parties to enter into a contract for sale of the article at issue there, there was a sale for importation. Then on appeal, the Federal Circuit in Enercon v. ITC affirmed the Commission’s findings and interpretation of Section 337. More recently, in the -887 Investigation, this is Crawler Cranes, the ALJ found that the respondent sold for importation into the United States an infringing article because that respondent had entered into a contract for the future purchase of the infringing article. Relying upon the Federal Circuit’s opinion in Enercon, the Commission found that a contract for sale, which can cover the sale of future goods, constitutes a “sale for importation” and confers jurisdiction on the Commission. Further, the Commission’s decision indicated that the Commission would find that a contract for sale of an article that was not yet even manufactured could constitute a “sale for importation.” Therefore, the Commission found there was a sale for importation, and this holding clarified that even where a respondent does not itself import goods, but instead knowingly sells the goods abroad for importation, it is still subject to the ITC’s jurisdiction.

Matt Rizzolo: Yes, that’s right—the respondent that sold the goods for importation into the U.S., knowing that it’s going to be bound for the U.S., can’t simply say, “Hey, I didn’t import it.” and then point the finger at the party that actually imported the goods into the U.S, so they might still be subject to ITC jurisdiction there. So that leaves the final category of importation-related element here: sale within the United States after importation. 

Matt Shapiro: That’s right. Here, simply selling an accused article after importation—even if you didn’t import the product into the country—could subject you to the ITC’s jurisdiction. The ITC has interpreted this language fairly broadly, to cover a variety of domestic commercial transactions. In recent years, there have been a couple cases seeking to include leasing or renting products after importation as a “sale”—think of, for example, the set-top box you can lease from your cable provider—but the ITC hasn’t extended the statute that far. 

Matt Rizzolo: Thanks. Yes, query whether that “lease” issue might present an opportunistic entity with a potential loophole to try to avoid ITC jurisdiction. Although, we’ve seen some entities try to reimport products into the United States that may have been domestically manufactured, exported abroad for repair, and then imported into the U.S., the ITC in those situations has found that reimportation is still an importation and the ITC has jurisdiction.

Now, switching gears, as I mentioned earlier, most ITC cases involve patents. And in recent years, we’ve seen a number of cases addressing questions about the interplay between the importation requirement that we just discussed and the “articles that infringe” language that I mentioned earlier. So I’ll turn the floor over to Kathryn here to explain some of the confusion that the ITC has been trying to address.

Kathryn Thornton: Thanks, Matt. So, part of the problem here is that there is a mismatch between how the Patent Act and Section 337 each use the term “infringe.” While Section 337 speaks of “articles that infringe” a patent, the Patent Act talks about infringement by people or entities—making, using, selling or importing a patented invention. This presents some interesting questions. How does one import an article that infringes? Can an article ever infringe a method or process claim? Until 2011, the ITC solved this dilemma by requiring ITC claimants to demonstrate a nexus, or connection, between the alleged act of infringement and importation. Claimants could establish nexus by showing direct infringement by the importer or even a purchaser of the imported goods. Then in 2011, the Commission clarified in Certain Electronic Devices, the -724 Investigation, that merely showing some nexus between an act of infringement and the importation of an article does not satisfy the post-1988 version of Section 337. The Commission reasoned that because the post-1988 statute now expressly defines the relevant unfair acts to be importation, sale for importation, and sale after importation of articles that infringe U.S. patents, there can be no violation if the articles do not infringe when imported. Specifically, the Commission found that importing a device (an Apple computer) that is then used in the United States to perform a patented method does not constitute a violation of Section 337, because the claimant had not proved infringement of the method claim at the time of importation.

Matt Rizzolo: Yes, that’s right. The Commission’s opinion in Electronic Devices appeared to narrow the scope of infringing conduct that could be addressed by the ITC, and this was much to the surprise of many ITC practitioners at the time. So, given that was about a decade ago, is Electronic Devices still good law?

Kathryn Thornton: Probably not. Actually, both the ITC and the Federal Circuit have issued rulings over the last decade going in the other direction. First, shortly after the Commission issued its opinion in Electronic Devices, the Federal Circuit was grappling with a similar issue in its review of the Commission’s Opinion in Biometric Scanning Devices, the -720 Investigation, and came out with its landmark decision in Suprema v. ITC.

Matt Rizzolo: The Federal Circuit’s en banc decision in Suprema, which as you mentioned, stemmed from the -720 Investigation, is perhaps the most significant ITC case of the 2010s and is worth discussing in some detail here, so can you walk us through that?

Kathryn Thornton: Yes. For those who are unfamiliar with the facts of the -720 Investigation, the article at issue—a fingerprint scanner sold by Suprema, one of the respondents—did not infringe prior to importation. Instead, the imported scanners infringed the asserted patent only after the other respondent, Mentalix (who purchased and imported the goods) added particular software to control and operate the scanner. After finding direct infringement by Mentalix, and induced infringement by the respondents, the Commission concluded that the findings of direct and induced infringement by the respondents were sufficient for a finding of a violation of Section 337 by each. The Commission’s decision was ultimately reviewed en banc in 2015 by the Federal Circuit, which examined whether importation of articles that do not directly infringe at the time of importation, but when used in the United States by one respondent directly infringe the asserted patent at the inducement of another respondent are unfair trade acts covered by Section 337. In its analysis, the Court—in an opinion issued by Judge Reyna, who was a trade lawyer before becoming a judge—explored the inherent tension between the language of Section 337 and the Patent Act. Ultimately, the Court deferred to the Commission’s interpretation of “articles that infringe” to cover “goods that were used by an importer to directly infringe post-importation as a result of the seller’s inducement.”

Matt Rizzolo: So this sounds like a really particular circumstance. Does Suprema only apply in that narrow situation, where the importer is liable for inducement and the downstream purchaser directly infringes, or is there broader reasoning that can come from the case that Section 337 can reach articles that are only capable of infringing after importation?

Kathryn Thornton: The Federal Circuit took another look at this issue last year in Comcast v. ITC, but it did not fully resolve this question. In the underlying case, the Commission found that Comcast’s customers directly infringed certain patents when using Comcast’s set-top boxes, and that Comcast induced that infringement. However, the Commission also found that the companies that imported the set-top boxes did not contributorily infringe because the set-top boxes did not infringe at the time of importation and had substantial non-infringing uses. So there, unlike Suprema, the actual importers—the entities bringing the products across the border—were not involved in the infringement.

On appeal, Comcast asserted that it was not subject to Section 337 because these articles were non-infringing upon importation and that it was not an importer. The Federal Circuit plainly stated, “The Commission correctly held that Section 337 applies to articles that infringe after importation.” The Federal Circuit also affirmed the Commission’s determination that Comcast was an importer under Section 337, including because it was intimately involved “with the design, manufacture, and importation,” meaning that just as in Suprema, the importer of the ultimately infringing goods induced the infringement. Both Comcast and Suprema reflect the Federal Circuit and the ITC’s view that Section 337 is a statute that broadly allows the ITC to combat every type and form of unfair trade practice—jurisdictional loopholes are going to be pretty rare.

Matt Rizzolo: I’ll note that ultimately, the Supreme Court denied Comcast’s cert petition in the Comcast v. ITC case. I’ll offer requisite disclaimer that Ropes & Gray represented the complainant, Rovi, in that case. So, Kathryn, how has the Commission dealt with articles that are “non-infringing” at the time of importation since Suprema and the Federal Circuit’s decision in Comcast?

Kathryn Thornton: In the -1116 Investigation, Certain Blood Cholesterol Strips, the Commission applied its understanding that the Federal Circuit has twice “repudiated a time-of-importation requirement” to find Section 337 violation for infringement that occurred after importation. So the Commission found that ACON’s imported test strips and meters that, when used according to directions provided by ACON infringed the asserted method patents, were “articles that infringe” under Section 337. Perhaps most relevant to our discussion, the Commission explicitly confirmed that to the extent its Opinion in Electronic Devices was “interpreted to mean that there is a time of importation requirement in Section 337,” that determination is “effectively overruled by Suprema, Comcast,” and the Commission’s decision in the -1116 Investigation.

Matt Rizzolo: Alright. Well, we’re continuing to see questions arise at the edges of what constitutes an “article that infringes” under Section 337. And in fact, the Commission recently issued a notice that it was reviewing in part a final initial determination in the -1194 Investigation, which is Certain High-Density Fiber Optic Equipment, involving a complaint from Corning. There, the Commission requested responses from the parties relating to whether there was a nexus between the imported article at issue there and the alleged unfair acts of patent infringement. It was notable, to me at least, that the Commission adopted that “nexus” language despite what it said in -1116 that Kathryn just discussed, and it posed some questions for the parties to brief:

  • Would it be appropriate for the Commission to consider whether there is a sufficient nexus between the imported article and the alleged unfair acts in reaching its determination of whether there’s a violation of Section 337?
  • Similarly, the Commission’s wondering whether it would be appropriate for it to consider certain factors: (i) whether the imported article is a material part of the claimed invention, (ii) whether it’s especially designed or configured for use in an infringing manner, (iii) whether it has substantial noninfringing uses, and (iv) to what extent, if at all, the imported article is modified or combined with other articles after importation into the U.S.?

So those obviously have some echoes of the contributory infringement and inducement standards from the Patent Act. In -1194, the parties have completed briefing, and I think it will be interesting to see if and whether the Commission continues to nibble around the edges of what constitutes articles that infringe or do not infringe at the time of importation.

So with that, that’s all the time that we have for this episode three of Talkin’ Trade. Thanks, everyone, for being here. And as always, we appreciate feedback from our listeners, so if there’s a topic you would like to hear more about, or if you have ideas for other ways to improve this podcast, please let us know. You can find Talkin’ Trade and other Ropes & Gray podcasts on Apple podcastsSpotify, or ropesgray.com/podcasts. Until next time, I’m Matt Rizzolo, and on behalf of Matt Shapiro, Kathryn Thornton, and Brendan McLaughlin, thank you all for listening.