Continuing the trend against Non-Practicing Entities (NPEs or "trolls"), the U.S. International Trade Commission (ITC) announced a pilot program to permit an accelerated determination on the existence of dispositive issues in the first 100 days of an investigation.1 Only days later, an ITC Administrative Law Judge (ALJ) issued the first ruling where, previous to the announcement of the pilot program, the ITC ordered an ad hoc bifurcation of domestic industry. The ALJ found there was no domestic industry.2
These developments, which were likely welcome to manufacturers targeted by NPEs at the ITC, began with an unprecedented directive in a notice of institution in the Laminated Packaging investigation.3 The case involved paper box laminate technology, and was brought by an NPE headquartered in the Eastern District of Texas, represented by two law firms notable for their representation of NPEs. The complaint named a who's who of luxury good importers, including Rémy Cointreau, Pernod Ricard, Moet Hennessy and L'Oreal. In the notice of institution, the ITC directed the ALJ to render an initial determination within 100 days of institution "as to whether the complainant has satisfied the economic prong of the domestic industry requirement."4 Ordinarily, all issues are decided by the ALJ only upon issuance of an omnibus initial determination.
Establishing the existence of a "domestic industry" is an element of any variety of ITC Section 337 action. It may be shown by a significant investment in plant and equipment; significant employment of labor and capital; or substantial investment in exploitation, including engineering, research and development, or licensing of an IP right.5
In Laminated Packaging, the complainant primarily relied upon its own licensing activities, as well as activities of three identified licensees. This variety of domestic industry is often referred to as a "licensing industry," and has generated calls for reform because of its exploitation by NPEs.6
In complying with the directive for an initial determination within 100 days by setting a procedural schedule, the ALJ carefully noted that such deviation from the Code of Federal Regulations may not be lawful under the Administrative Procedures Act.7 He also examined the disruptive effect of this procedural short-circuit on docket management.8
Days before the initial determination in Laminated Packaging, the ITC announced a pilot program to: "identify, at institution, investigations that are likely to present a potentially dispositive issue and direct the assigned [ALJ] to rule on that issue early in the investigation through expedited factfinding and an abbreviated hearing limited to the identified issue."9 It is not limited to the issue of domestic industry. For those cases assigned to the program, the ALJ may limit or stay discovery on issues other than that which was identified as case dispositive by the Commission in assignment to the pilot program.
The pilot program represents an opportunity for the ITC to streamline adjudication in questionable Section 337 actions. Although designed to weed out NPEs that rely upon licensing to establish domestic industry, there may also be occasions where practicing entities have sufficiently feeble domestic industry allegations to become entangled.
There is no formal mechanism by which a named respondent can seek inclusion of its case in the pilot program. Proactive legal counsel may wish to use the public interest statement due within eight days of the notice of the filing of the complaint10 as a vehicle to make arguments for inclusion.
As noted by the ALJ in Laminated Packaging, cases assigned to the pilot program will impose substantial burdens on the judge and parties. A party will have to conduct discovery within one month and prepare for and participate in the hearing and post-hearing briefing during the second month, while the ALJ will have only a month to draft the initial determination. This is likely to impose considerable responsibilities upon parties and their counsel, dramatically raising short-term costs; however, it may be worth the expense for a respondent who can successfully stop the case cold within one-third of the time it would ordinarily take.
The ITC appeared unsympathetic to the burden on complainants:
"[T]he complainant controls the timing of the complaint's filing and should be prepared to prove its case, including such elements as domestic industry, importation, and standing, without extensive discovery on these issues. While some complainants rely on licensees' activities to satisfy the domestic industry requirement, such complainants should have acquired the necessary information from licensees prior to filing the complaint and have a well-developed plan for obtaining any necessary discovery immediately upon institution."11