The United States International Trade Commission ("ITC" or "Commission") has historically utilized a cease and desist order ("CDO") if a complainant successfully proved that a respondent possessed a commercially significant inventory of infringing goods in the United States. However, in a recent opinion (Certain Dental Implants, Inv. No. 337-TA-934), the Commission found itself divided on the proper boundaries of this remedy and the required burden of proof. As a result, the Commission did not issue a CDO against the respondent, and more importantly, a remedy that was long considered settled and routine is anything but.
Cease and Desist Orders
ITC statute 19 U.S.C. § 1337 ("Section 337") provides that the Commission may issue a CDO as a remedy for violation. 19 U.S.C. § 1337(f)(1). CDOs target domestic respondents with a commercially viable inventory of infringing products located in the United States. These orders generally proscribe the further marketing, sale, or distribution of infringing articles already inside the United States at the time a violation was found. They also provide for civil penalties of up to $100,000, or twice the value of the infringing articles, for each day the respondent is in violation of the order. Penalties may be recovered by filing a civil action in federal district court, which can also order mandatory injunctions incorporating the relief sought by the Commission.
Notably, the statute uses the discretionary language ("may issue"), in contrast with the compulsory language ("shall … be excluded") used in describing the Commission's authority related to exclusion orders. Compare id., with 19 U.S.C. § 1337(d)(1). In past investigations, the Commission indicated it issues "cease and desist orders where 'commercially significant' inventories of infringing products are present in the United State[s], and complainants bear the burden of proving that respondent has such an inventory." See, e.g., Certain Integrated Repeaters, Switches, Transceivers, and Products Containing Same, Inv. No. 337-TA-435, Comm'n Op. at 27 (Public Ver.) (Aug. 16, 2002).
On October 27, 2014, based on a complaint filed by Nobel Biocare Services AG and Nobel Biocare USA, LLC, the ITC instituted Investigation No. 337-TA-934 to determine whether there was a violation of Section 337 with respect to the importation of dental implants that allegedly infringe U.S. Patent Nos. 8,714,977 and 8,764,443. On October 27, 2015, the administrative law judge ("ALJ") issued his final initial determination ("Final ID"), finding a violation of Section 337 with respect to some of the asserted claims. On November 10, 2015, the ALJ issued a recommended determination ("RD") on remedy and bonding. The ALJ recommended in his RD that the appropriate remedy should be a limited exclusion order ("LEO") barring entry of respondents' infringing dental implants. The ALJ did not recommend issuance of CDOs against any respondent.
In its Opinion issued on May 11, 2016, the Commission affirmed the Final ID's findings of violation of Section 337, determined to issue an LEO covering infringing imported dental implants, and decided not to issue a CDO "because the Commissioners are divided 3-3 on whether a cease and desist order is appropriate." Certain Dental Implants, Inv. No. 337-TA-934, Comm'n Op. at 49 (Public Ver.) (May 11, 2016).
Remarkably, the Opinion contains several long footnotes describing the views of several commissioners and is further supplemented with two additional documents—"Additional Views of Chairman Broadbent, Vice Chairman Pinkert and Commissioners Williamson and Johanson" and "Additional Views of Commissioner Kieff"—all on the topic of CDOs in this Investigation and in the ITC practice generally.
Vice Chairman Pinkert and Commissioners Williamson and Johanson found that a CDO was not appropriate. Id. at 49 n.30 and their Additional Views. They argued that despite a showing that commercially significant inventories of the accused products were present in the United States during the Investigation, based on depletion rate evidence submitted by respondent, domestic inventories of the accused products would have dropped below a commercially significant amount by the target date (the date the Commission set for completing the Investigation). Id. Accordingly, they found that complainant had failed to meet its burden of proof, and that the CDO should not be issued. Id.
Chairman Broadbent, Commissioner Schmidtlein, and Commissioner Kieff found that a CDO was appropriate. Id. at 49 n.31. Their analysis focused on the statute itself, finding that Section 337 does not require commercially significant domestic operations or inventories to issue a CDO. They further opined that the evidence of depletion rate submitted by respondent did not rebut the showing that commercially significant inventories were in the United States during the Investigation. Id. Commissioner Schmidtlein additionally emphasized that "the statutory language of section 337(f)(1) leaves it to the discretion of the Commission and does not establish any particular test or standard for issuing a cease and desist order aside from consideration of the public interest factors." Id. at 49 n.32. In her view, the fact that the domestic respondent maintained some inventory of accused product during the investigation provided a sufficient basis to issue a CDO. Id. In her opinion, the little harm in issuing a CDO without a commercially significant domestic inventory is outweighed by a risk of harm for the complainant if a CDO is not issued when "a commercially significant inventory actually exists at the time of the Commission's determination." Id.
Commissioner Kieff wrote separately to emphasize that both the Commission and the parties in this case would have benefitted from additional briefing to consider (i) if "the Commission has an established practice of issuing CDOs only when a respondent maintains a commercially significant inventory of infringing products in the United States," (ii) if "there is a presumption against the issuance of a CDO unless the patentee proves the existence of such inventory," and (iii) legal authority, burdens, and presumptions involved in resolving "a good faith dispute about the levels of infringing inventory in the United States." Certain Dental Implants, Inv. No. 337-TA-934, Comm'n Op. (Public Ver.), Additional Views of Commissioner Kieff (May 11, 2016). Using a risk allocation reasoning, and considering that "[a]n adjudicative-search for highly accurate decision-making about such inventory levels is expensive for all involved: the Commission and all parties," Commissioner Kieff concluded that "[w]here there is credible evidence in the record supporting good faith dispute about the levels of infringing inventory in the United States, the award of a CDO against the party whose particular actions have been adjudicated to be infringing, would provide helpful [certainty] to all involved." Id.
The Commission Opinion in Inv. No. 337-TA-934 raises questions regarding the ITC's precedent related to the issuance of CDOs, specifically with respect to a complainant's burden of proof and relevance of the size of respondent's inventory. The Commission is likely to dig deeper into the topic in future investigations and to further define the approach to issuing CDOs. It appears that some commissioners suggest an approach that does away with the complainant's burden of proof and associated review of the size of the inventory, and instead utilizes a rebuttable presumption of issuance of a CDO, at least when some domestic inventory existed during the investigation. Other commissioners appear to be of the view that a CDO should not issue where a respondent has shown that domestic inventories will be depleted below a significant level by the target date.