Welcome to the latest issue of the Section 337 Update. This newsletter is designed to provide you with practical updates and developments on Section 337 proceedings before the U.S. International Trade Commission.

Counterfeiters Beware -- Increasing Focus on IP Theft

The U.S. Department of Justice recently announced the formation of a new Task Force on Intellectual Property, in part to confront the growing number of domestic and international crimes involving theft of intellectual property ("IP"). A link to the February 12 announcement is provided here.

While the precise contours of the Task Force's mission have yet to be made public, its activities may lead to increased attention on section 337 of the Tariff Act of 1930, as amended (19 U.S.C. § 1337), as an enforcement tool against counterfeiting and other types of IP theft. Although section 337 provides the U.S. International Trade Commission (“ITC”) with the power to issue relief against imported counterfeit goods, the statute has historically been underutilized for such purposes.

In announcing the Task Force, Attorney General Eric Holder explained the problem being confronted: "The rise in intellectual property crime in the United States and abroad threatens not only our public safety but also our economic wellbeing.... This Task Force will allow us to identify and implement a multi-faceted strategy with our federal, state and international partners to effectively combat this type of crime."

The ITC has long been one of the federal partners combating IP theft in the civil arena. For example, in 1984, the ITC addressed a case involving counterfeit goods. In the investigation of Certain Single Handed Faucets, complainant Masco alleged various acts of unfair competition, as well as trademark infringement, based in part on respondents' offering for sale counterfeit copies of its Delta faucet. Certain Single Handed Faucets, Inv. No. 337-TA-167, Unreviewed Initial Determination (November 1984)(available here). After finding that there was a violation of section 337, the ITC determined that the appropriate relief was an exclusion order, available here. Exclusion orders are common remedies in counterfeiting cases and are generally preferred to the other remedy available at the ITC, cease and desist orders. See, e.g., Certain Single Handed Faucets, Inv. No. 337-TA-167, Unreviewed Initial Determination. Exclusion orders are enforced by U.S. Customs and Border Protection ("Customs").

There are two types of exclusion orders available at the ITC. The most powerful of the ITC's remedies is its ability to issue a general exclusion order. General exclusion orders direct Customs to exclude all infringing articles without regard to whether the source of the articles has been identified as a respondent, a remedy not possible in federal court without suing in multiple jurisdictions with all possible infringers as defendants. A general exclusion order is granted when either (i) it is necessary to prevent circumvention of an order limited to named parties, or (ii) there is a pattern of violation of section 337 and it is difficult to identify the sources of the infringing products. In cases involving counterfeiting, both situations may exist, thus making the general exclusion order a particularly useful remedy.

Indeed, a general exclusion order was issued in a recent case involving, inter alia, allegations of counterfeiting -- Certain Hair Irons and Packaging Thereof, Inv. No. 337-TA-637, General Exclusion Order (June 2009)(available here). In Hair Irons, complainant Farouk Systems, Inc. ("FSI") alleged a violation of section 337 by five named respondents by reason of unlawful importation and/or sale in the United States of hair irons and packaging thereof that infringed its trademark, "CHI"®. Although two respondents were terminated from the investigation on the basis of a consent order, the remaining respondents defaulted and the Administrative Law Judge ("ALJ") granted FSI's summary determination motion, finding a violation of section 337. The ALJ's recommendation of a general exclusion order relied partially on the fact that FSI had filed over 20 district court actions, but such "strategy... had proven inadequate to stop the sale and importation of infringing hair irons." The ALJ also noted that thousands of unauthorized products were being offered for sale online, making it difficult to both prevent the sales and to determine the source of the infringing products. Thus, as a result of the Hair Irons investigation, all hair irons or packaging for hair irons that infringe FSI's trademark are excluded from entry into the United States, regardless of supplier, until the trademark is abandoned, canceled, or rendered invalid, except under license of the trademark owner.

The ITC can also issue a limited exclusion order which directs Customs to exclude only infringing articles that originate from a specific respondent in the investigation. An exclusion order remains in effect as long as the intellectual property right remains in effect and until the ITC determines that the conditions that led to the exclusion no longer exist. The ITC can also order the seizure and forfeiture of subsequent shipments of items that were previously denied entry pursuant to an exclusion order.

The third remedy available to the ITC is a cease and desist order, which is often issued in conjunction with an exclusion order. A cease and desist order directs a respondent to cease and desist from the alleged unfair acts, including the selling of infringing imported articles out of inventories stockpiled in the United States. Such an order can also be effective in a case involving counterfeiting. Since infringement can be determined at the time of importation or at the time of sale, a party cannot circumvent an order of the ITC by legally importing an item under the jurisdiction of Customs and then affixing a counterfeit label to it once the item is ready for sale in the United States. Agricultural Tractors Under 50 Power Take-Off Horsepower, Inv. No. 337-TA-380, Enforcement Proceedings (July 28, 1999) (holding that application of counterfeit labels onto tractors prior to sale violated cease and desist order and brought tractors under ITC's jurisdiction, despite the fact that tractors did not infringe complainant's trademark at time of importation).

Section 337 is a highly effective tool against counterfeiting and other types of IP theft. However, as recognized by the Justice Department in creating the Task Force, IP theft is often part of a broader problem, and can be linked to organized crime. Thus, where counterfeiting is involved, the envisioned wider and more integrated efforts on the part of various U.S. government agencies should enhance enforcement efforts. With the U.S. government stepping up its role, IP owners should become better positioned to identify when theft is occurring. Also, since the Task Force contemplates enlisting partners both domestically and internationally, more comprehensive enforcement should lead to the availability of more fool-proof relief, whether under section 337 or other provisions of law.

In this regard, the Task Force will work closely with the recently established Office of the Intellectual Property Enforcement Coordinator (IPEC), housed in the Executive Office of the President and charged with drafting an Administration-wide strategic plan on intellectual property. As part of its mission, the Task Force will assist IPEC in recommending improvements to intellectual property enforcement efforts. Victoria Espinel, the U.S. intellectual property enforcement coordinator, has stated: "President Obama is committed to ensuring that the value created by American workers and enjoyed by communities around the world is protected. The Justice Department’s new task force will play a critical role in supporting the Administration's ongoing efforts to protect American intellectual property and the millions of jobs that depend on it."