Companies that receive an ITC Section 337 complaint alleging unfair trade practices can no longer afford to ignore it, cautions Kaye Scholer IP Partner Grace Pan, who advises Asian companies on international IP issues.
“Too many Chinese companies opt not to respond to 337 complaints, believing it will have no adverse impact,” says Pan. “But ignoring such complaints could literally shut down your ability to sell products in the US.”
The ITC is an independent federal agency that investigates and adjudicates various unfair import/trade practices under Section 337 of the Tariff Act of 1930. Any product that infringes at least one claim of one valid US patent, one trademark or protected trade dress, a registered copyright, a falsely marked product, or a product made from misappropriated trade secrets falls under the purview of Section 337 of the ITC.
Companies from Asian countries are particularly feeling the brunt of this enforcement uptick.
“In the past, even if an Asian company had a huge money judgment entered against them in the district court, there were not many practical consequences. For example, awards – even injunctions – are very difficult to enforce against foreign companies in foreign jurisdictions. Also, the awards handed down by the US courts are company specific, meaning that if a company changes its name or address, which some have attempted to do in the past in an effort to avoid the judgment, enforcement becomes even more difficult. But that has all changed,” says Pan.
Pan, who has significant US litigation experience representing and defending Asian product manufacturers such as semiconductor equipment manufacturer Tokyo Electron Limited from Japan and CMC Magnetics Corporation, a worldwide leader in optical disc manufacturing and replication from Taiwan, stresses: “The ITC is an entirely different animal – one with teeth. Its judgments are product-specific, not company-specific. So it doesn’t matter if you change your name or move to a different address. US Customs and Border Protection officers will seize the products at issue at the US borders so no products can enter US territory.”
Beyond the obvious cultural difference between the Western and the Eastern ethos, Pan cites another possible reason why some Asian companies may be ignoring these ITC complaints.
“Many Asian companies have never been exposed to US lawsuits and so are not accustomed to the typical costs of US litigation. Nor can they accept budgeting legal fees as part of the cost of doing business. While this is understandable, these same companies need to understand that by ignoring the ITC complaint, a default judgment will likely be entered against them which often, in the most severe case, results in what is known as a general exclusion order where the company not only could potentially lose millions of dollars, but could possibly face being shut down.”
Pan explains that she has observed this outcome even where a company has tried to employ creative means, such as modifying the product slightly or just shipping a component of the product instead of the actual item.
“The ITC 337 general exclusion order can be so broad that it has the power to block the infringing product plus all related products,” she notes.
Pan also points out that ITC proceedings happen at a much faster pace than typical district court infringement proceedings. While a patent litigation (even in what is known as the “rocket docket” jurisdiction) can take two to three years, an ITC matter is typically resolved within 12 to 16 months. Most importantly, stresses Pan, companies who receive ITC complaints have only 20 days to answer the complaints and 10 days to respond to discovery requests.
Latest statistics from the ITC substantiate Pan’s theory. According to CBP, ICE Release Report on 2011 Counterfeit Seizures, in Fiscal Year 2011, there were 24,792 seizures with a domestic value of $178.3 million. The number of Section 337 proceedings instituted by calendar year is rising rapidly, from 35 just five years ago in 2007 to 69 in 2011, according to the ITC site. As of August 21, the number of investigations based on new complaints instituted so far in Fiscal Year 2012 was 45.
As for the countries seeing the most activity, Pan lists China (including Hong Kong and Macau), Japan, Korea and Taiwan.
“Seventy-one percent of Section 337 matters involved at least one East Asian party. Given the recent increase in the number of consumer products imported (an 85% increase from 1996, according to the US Department of Commerce Bureau of Economic Analysis), one can expect a corresponding increase in the number of infringing products entering the US, giving ITC the required in rem jurisdiction,” Pan concludes.