On February 13, 2017, the International Trade Commission (“Commission”) issued the public version of its opinion finding a violation of Section 337 in Certain Electric Skin Care Devices, Brushes and Chargers Therefor, and Kits Containing The Same (Inv. No. 337-TA-959).

By way of background, this investigation is based on an April 30, 2015 complaint filed by Pacific Bioscience Laboratories, Inc. (“PBL”) alleging violation of Section 337 in the importation into the U.S. and sale of certain electric skin care devices, brushes and chargers therefor, and kits containing the same that infringe one or more claims of U.S. Patent Nos. 7,320,691; 7,386,906; and D523,809, in addition to infringing PBL's trade dress. See our May 11, 2015 and June 19, 2015 posts for more details on the complaint and Notice of Investigation, respectively.

According to the opinion, eight of the respondents were terminated by consent order, three by settlement, and the remaining ten respondents were determined to be in default when ALJ Dee Lord issued an initial determination (“ID”) granting summary determination of violation of Section 337.

The Commission determined to review the ID in part with respect to its findings on the economic prong of the domestic industry requirement with regard to the patent-based allegations, all issues related to violation of the asserted trade dress, and to correct minor typographical errors.

Economic Prong of Patent-Based Allegations

The Commission was asked by the Commission Investigative Staff (“OUII”) to vacate findings of the economic prong analysis related to design, engineering, and research being included in subsections (A) and (B) related to investments in plant and equipment and labor or capital, respectively. According to the opinion, the Commission determined that the ID correctly found that PBL satisfies the economic prong of the domestic industry requirements under subsections (A) and (B) based on PBL’s significant investments, and did not conduct any further analysis on this point.

The Commission also vacated a portion of the ID separately titled “Significant Investment,” holding that this was properly addressed with the other economic prong analysis and a separate section may erroneously suggest that the significance of investment should be considered separately.

Trade Dress

The Commission found that there was no evidence in the record to contradict PBL’s evidence of infringement, but noted that the ID did not make a finding of domestic industry with regard to trade dress. But, because only a limited exclusion order (“LEO”) was sought against the trade dress respondents, the Commission found that no further analysis was necessary in view of 19 U.S.C. § 1337(g)(1), saying that the Commission shall presume the facts alleged in the complaint to be true when only an LEO is sought against a defaulting respondent.

Remedy, Public Interest, and Bond

A general exclusion order (“GEO”) was sought against numerous respondents, and the Commission determined that a GEO was warranted based on the evidence of record. For example, respondents were shown to change their corporate names and locations to escape detection, to operate under multiple names, and to distribute the accused articles through multiple entities. The Commission also noted the low barriers to entry into the market, and concluded that the named respondents “engage in business practices that would make it difficult to detect a violation if only an LEO were issued, justifying issuance of a GEO” with respect to the patent violations. The GEO contains a certification provision that would permit one respondent subject to a settlement agreement to certify that its products are not covered by the GEO.

Because only an LEO was sought with regard to the trade dress, the Commission granted the LEO with regard to the defaulting respondents based on 19 U.S.C. § 1337(g)(1).

PBL also sought cease and desist orders (“CDOs”) against all respondents. Based on the record of the investigation, the Commission granted the CDOs, noting that “it is appropriate to infer that domestic defaulting respondents...maintain significant inventories of infringing products” and that foreign respondents also maintain commercially significant inventories of the accused products in the U.S. through their use of online retailers. Again, here the Commission relied on 19 U.S.C. § 1337(g)(1), allowing the Commission to infer facts in the Complaint as true against defaulting respondents.

The Commission determined that the public interest would not be harmed by the remedial orders, and that, in fact, the remedial orders will benefit the public “by removing lesser-quality, knock-off products from the marketplace.” PBL also represented that they could meet the market demand for electric skin care devices, and thus the public interest would not be harmed by loss of products.

Because the respondents did not participate in discovery, the Commission found there is no reliable pricing information and set the bond rate at 100 percent of the entered value of the accused products.

Separate Views of Chairman Rhonda K. Schmidtlein

Although agreeing with the Commission’s decision to issue the remedial orders in this investigation, Chairman Schmidtlein wrote to explain that she did not join the Commission’s opinion with regard to the basis for issuing the CDOs. Chairman Schmidtlein explained that 19 U.S.C. § 1337(g)(1) mandated issuance of a CDO in this circumstance, rather than conferring discretion on the Commission to issue a CDO based on drawing inferences from the complaint.

Separate Views of Commissioner F. Scott Kieff

Although agreeing with the Commission’s decision to issue the CDO in this case, Commissioner Kieff wrote “in recognition of the recurring and perhaps increasing diversity of opinion within the Commission concerning the Commission’s authority to issue CDOs under Section 337.” Commissioner Kieff noted that this case in particular might implicate defaulting parties in other cases, and the Commission did not support their actions with specific evidence of Congressional intent.