The issue of whether Section 362(a) operates as a stay of ITC Section 337 investigations arose in several ITC cases in the last two years. The first case, ITC Investigation No. 337-TA-605, involved Spansion, Inc., a Delaware corporation that manufactures semiconductor chips outside the United States. Spansion was named as a Respondent in the case and contended that the ITC investigation should be stayed as to Spansion pursuant to the automatic stay provision of Section 362(a). The ITC rejected Spansion’s contention on the basis of a statutory exception in Section 362(b)(4) that provides that the stay provision is not operative to an action or proceeding by a “governmental unit . . . to enforce such governmental unit’s or organization’s police and regulatory power . . .” The ITC held that preventing violation of intellectual property rights in a domestic industry falls squarely within the “regulatory power” of a “governmental unit,” and therefore, the exception to the stay provision is applicable to Section 337 investigations. The ITC thereafter issued an exclusion order against Spansion and the other parties in the case that were found to be infringing the patents in suit.
The issue came up again in the ITC’s 648 investigation. The 648 investigation involved numerous semiconductor manufacturers as Respondents, including Qimonda AG, a German company that had petitioned a United States Bankruptcy Court for recognition of pending foreign insolvency proceedings under chapter 15 of the Bankruptcy Code. The United States Bankruptcy Court for the Eastern District of Virginia issued an Order staying the ITC investigation as to Qimonda pursuant to the automatic stay provision of Section 362(a). The Bankruptcy Court held that the exception in Section 362(b)(4) for “governmental units” exercising “regulatory power” did not apply to the ITC Section 337 investigations. Specifically the Court held that the exception did not apply because: (i) the ITC investigation was brought by a private party – the patentee – not the ITC; and (ii) the ITC was not acting in a regulatory capacity; rather, it was acting as the tribunal for the litigation of private intellectual property rights. In re Qimonda AG, 425 B.R. 256 (Bankr. E.D. Va. 2010). The ITC thereafter filed an appeal with the United States District Court for the Eastern District of Virginia.
The District Court reversed the Bankruptcy Court’s order on June 28, 2010. In an opinion by the Hon. T.S. Ellis, III, the District Court held that the ITC Section 337 investigation “fits squarely” within the exception of Section 362(b)(4). The Court noted that the ITC investigation was commenced only after the ITC concluded that an investigation was warranted, and that the ITC controls the investigation through a Federal Register notice defining the scope of the investigation. The Court further observed that Section 337 and its legislative history were directed at protecting the public interest. On the basis of these factors and others, the Court concluded that Section 337 investigations are actions “brought by a governmental unit to enforce the governmental unit’s police and regulatory powers” within the meaning of Section 362(b)(4). As such, the Court concluded that the Bankruptcy Court had erred in ordering a stay of the ITC action.
The United States District Court for the District of Delaware reached a similar result with respect to the issue of a stay of ITC Investigation No. 337-TA- 685. The ITC 685 case also involved Spansion, Inc. as a Respondent. Certain creditors of Spansion obtained a stay of the ITC action by order of the United States Bankruptcy Court for the District of Delaware. Although the stay was lifted by an order stipulated by the parties, the ITC appealed the order to the United States District Court for the District of Delaware, contending that the Bankruptcy Court erred in ordering a stay of the ITC proceedings. On June 29, 2010, the District Court issued an order vacating the Bankruptcy Court’s stay order. However, the opinion accompanying the order was focused on the mootness of the appeal and the appropriateness of vacating the order under the circumstances where the ITC had not been a party to the Bankruptcy Court’s stipulated orders.
As the matter now stands, the ITC does not stay its proceedings under the stay provision of the Bankruptcy Code, and at least one United States District Court has determined that Bankruptcy Courts do not have authority to stay ITC proceedings pursuant to the stay provision of the Bankruptcy Code. As such, in future ITC cases it is expected that requests to stay the ITC proceedings against a Bankruptcy debtor pursuant to the stay provision of Section 362(a) will not be granted.