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The International Trade Commission’s New Severance Rules:
Secret Weapons or Double-Edged Swords?

By Hayley Ostrin

 

Traditional complaints brought at the international Trade commission

The International Trade Commission (“ITC” or “Commission”) provides a forum for unfair import investigations (“Section 337”). Section 337 investigations allow entities with a domestic industry to obtain exclusionary relief against imported products that either infringe intellectual property rights or take advantage of unfair trade practices.[1]

Traditionally, a complainant pursuing a Section 337 investigation could bring a virtually unlimited number of intellectual property and unfair act claims against an unlimited number of respondents. Section 337 investigations allow for in personam and in rem investigations, meaning establishing jurisdiction and venue for multiple respondents is easier at the ITC than in district courts.[2]  Consequently, a complaint involving numerous patents, unfair acts, and/or respondents can quickly become difficult to navigate, particularly in light of the condensed timeline. A Section 337 investigation is typically completed on the merits within a year and a half of institution.[3]   This accelerated pace only compounds the difficulty of handling a multipart investigation. When facing a convoluted complaint, accused respondents may succumb to pressure and end up signing an unfavorable agreement to avoid participating in a complex investigation.

Recently, the ITC passed rules that allow the Commission to institute multiple investigations based on a single complaint,[4] and give administrative law judges (“ALJs”) the authority to sever an investigation within 30 days of institution.[5] The severance of an investigation under these new rules is appropriate when “the complaint alleges a significant number of unrelated technologies, diverse products, unrelated patents, and/or unfair methods of competition and unfair acts” that would be “unduly unwieldy or lengthy” as a single case.[6] If severing an investigation achieves the Commission’s goal of simplifying the investigation, then ALJs will be better equipped to meet the statutory mandate that investigations be resolved “at the earliest practicable time.”[7]

When is severance appropriate?

In theory, application of the severance rules would require overambitious complainants to “split the baby”—to prioritize truly infringed patents and claims, rather than implement the strategy of throwing every possible argument and patent into a complaint and seeing what sticks. A severed case may heighten the complainants’ burden of proof, as dividing the patents, claims, and legal arguments into multiple investigations may affect the weight and validity of domestic industry arguments.[8] Additionally, complainants will need to balance the benefit of bringing a multitude of patents or claims against the increased cost associated with participating in multiple investigations. Furthermore, at least for respondents that find themselves in only one investigation stemming from a severed complaint, the burden for those respondents will decrease as severed investigations will be less complex and require less resources.

Ostrin chart

Since the severance rules became effective, few investigations have undergone severance. This may be because the majority of Section 337 complainants allege a single type of unfair act in an investigation,[9] or because most complainants pursue fewer than four patents.[10] Even cases that bring an above average number of infringement claims may not be appropriate for severance if such claims are closely related.[11] For example, prior to the severance rules, one complaint alleged infringement of twenty-two design patents and thirty trademarks, a number well above the average complaint. [12] However, all of the intellectual property claims were closely related with many patents and trademarks covering the same accused products, hub caps.[13] Thus, despite the number of claims asserted, severance would likely have been unreasonable due to the interdependent patent, trademark, and product claims.[14] Ultimately, the scope of that case was narrowed unilaterally, with the complainant systematically withdrawing several allegations against particular respondents and nearly half of the infringement claims.

Perhaps with such self-policing in mind, many commentators have expressed concerns that severance of investigations will result in increased litigation costs and inefficiencies when parties, accused products, or defenses are substantially the same or overlap. [15] In the few instances when ALJs have considered severance, most parties were reluctant to sever the investigation.[16] In fact, in an investigation arising from a complaint asserting almost 90 patent claims, the parties and ALJ alike preferred to limit the number of asserted claims and other trial parameters, rather than sever the investigation.[17]

Since their passage, only one complaint has been divided subject to the severance rules.[18] Notably though, the Commission gave one ALJ permission to sever a complaint into two investigations prior to the rules’ approval.[19]  The severed complaint originally contained eight patents, covering four different product groups, sixty asserted claims, and also included false advertising allegations.[20] The breadth of this complaint initially motivated the Commission to institute two separate investigations under Commission Rule 210.10(a)(6).[21] The resulting LED (II) investigation was designated two of the eight patents and the false advertising claims[22] while the LED (I) investigation was tasked with investigating six patents and fifty-five claims.[23] After requesting briefing on whether LED (I) should be further severed, the ALJ again split the investigation. LED (I) retained two patents and twenty-two claims, while LED (III)[24] was assigned two patents and thirty-three claims.[25]

What could have been an investigation of enormous magnitude and inconvenience for respondents and complainants alike is now in fighting trim. A careless complainant may find that the severance of a complaint into three separate investigations results in an increased burden, potentially threefold, as the complainant now must strategize which investigations and patents to prioritize. However, a strategic complainant can excise some of the additional workload caused by severance by limiting discovery, taking advantage of separate investigations’ staggered procedural schedules, and holding joint case management conferences between investigations. Those respondents involved in multiple investigations must tap into these resource-saving strategies as well. In the LED investigations, for example, eight of the respondents are involved in all three severed investigations, LED (I), LED (II), and LED (III). On the other hand, for those respondents involved in only one of the three investigations, the weight of responsibilities has decreased. The onus on respondents may additionally vary depending on whether they are participating in a joint defense group and how aggressively the complainant is pursuing them.

Conclusion

Time will tell if the new severance rules will preemptively dissuade complainants from bringing numerous, unrelated, or unfounded claims. The ITC has purposely not provided strict guidelines as to when the severance rules may be applied, so the Commission and those involved in the investigation will bear the responsibility of determining when severance is appropriate. Yet, the mere presence of the new severance rules will likely have a self-policing effect on overzealous complainants. While there have been concerns about abuse of these new rules, parties already have responsibly self-regulated, only advocating for severance when the initial complaint was truly overly complex. Invocation of the severance rules will likely be a rare occurrence, so long as the intellectual property and unfair acts alleged in the complaint are substantially related to the protected technologies and products.



[1] USITC, About Section 337, https://www.usitc.gov/intellectual_property/about_section_337.htm (last visited, Sep. 6, 2019 2:11 pm).

[2] Tom M. Schaumberg, A Lawyer’s Guide to Section 337 Investigations Before the U.S. International Trade Commission 10 (4th ed., 2019).

[3]  See USITC, Average Length of Investigations (Jul. 15, 2019) https://www.usitc.gov/intellectual_property/337_statistics_average_length_investigations.htm

[4] 19 C.F.R. 210.10(a)(6) (2018) (effective June 7, 2018) (“The Commission may determine to institute multiple investigations based on a single complaint where necessary to allow efficient adjudication.”).

[5]19 C.F.R. 210.14(h) (2018) (effective June 7, 2018).

[6] Rules of General Application, Adjudication and Enforcement; Final Rule, 83 Fed. Reg. 21,140, 21,144, 21,148 (May 8, 2018).

[7] 19 U.S.C. § 1337(b)(1).

[8] See Certain Earpiece Devices & Components Thereof, Inv. No. 337-TA-1121, Comm’n Investigative Staff’s Statement Regarding Severance in Response to Order No. 3, (July 18, 2018).

[9] USITC, Section 337 Statistics: Types of Unfair Acts Alleged in Active Investigations, FY 2006—FY 2015 (2018) https://www.usitc.gov/intellectual_property/337_statistics_types_unfair_acts_alleged_active.htm.

[10] See supra, Chart 1: Average Number of Patents per Investigation (sourcing data from USITC, Section 337 Statistics: Range of Number of Patents Asserted in New Section 337 Investigations by Number and Percentage of Investigations Filed (Updated Annually) (2018) https://www.usitc.gov/intellectual_property/337_statistics_range_number_patents_asserted_new.htm).

[11] See, e.g., Certain Passenger Vehicle Automotive Wheels (“Automotive Wheels”), Inv. No. 337-TA-1006, Complaint (Pub. Version) (Apr. 11, 2016).

[12] Certain Passenger Vehicle Automotive Wheels (“Automotive Wheels”), Inv. No. 337-TA-1006, Complaint (Pub. Version) at 1-5 (Apr. 11, 2016).

[13] Id.

[14] Auto Wheels, Inv. No. 337-TA-1006, Order No. 21, Initial Determination, at 2-3 (Dec. 15, 2016); 82 Fed. Reg. 10,781-82 (Feb. 15, 2017).

[15] 83 Fed. Reg.  21,140, 22147-48.

[16] See, e.g., Certain Earpiece Devices & Components Thereof, Inv. No. 337-TA-1121, Comm’n Investigative Staff’s Statement Regarding Severance in Response to Order No. 3, USITC Pub. No. 650633, (July 18, 2018) (all parties were against severance because although there were six patents and thirty-two patent claims, twelve of the claims were independent, most of the patents had related specifications, inventors, and subject matter, the accused products were structurally similar, and settlement agreements were in the works); Certain Data Transmission Devices, Components Thereof, Associated Software, & Prods. Containing the Same, Inv. No. 337-TA-1150, Order No. 5, at 2 (Apr. 30, 2019).

[17] See id.

[18] Certain Light-Emitting Diode Prods., Systems, & Components Thereof, Inv. No. 337-TA-1163/1164/1168, Complaint (Pub. Version) (Apr. 30, 2019).

[19] See Certain Electronic Devices, Including Mobile Phones, Tablet Computers, & Components Thereof, Inv. No. 337-TA-1038, Order No. 1 at 1 (Jan. 26, 2017) (order severing the investigation into two, with Commission approval, as the original complaint had 234 claims). 

[20] Certain Light-Emitting Diode Prods., Systems, & Components Thereof, Inv. No. 337-TA-1163/1164/1168, Complaint (Pub. Version) (Apr. 30, 2019).

[21] Id.; Certain Light-Emitting Diode Prods., Systems, & Components Thereof (I) (“LED (I)”), Inv. No. 337-TA-1163, Institution of Investigation, 84 Fed. Reg. 29,877 (June 25, 2019); Certain Light-Emitting Diode Prods., Systems, & Components Thereof (II) (“LED (II)”), Inv. No. 337-TA-1164, Institution of Investigation, 84 Fed. Reg. 29,879 (June 25, 2019).

[22] LED (II), Inv. No. 337-TA-1164, Institution of Investigation, 84 Fed. Reg. 29,879.

[23] LED (I), Inv. No. 337-TA-1163, Institution of Investigation, 84 Fed. Reg. 29,877.

[24] Certain Light-Emitting Diode Prods., Systems, & Components Thereof (III) (“LED (III)”), Inv. No. 337-TA-1168, Order No. 5, at 2 (Jul. 5, 2019). The author is a first-year associate working on the LED (III) investigation for Adduci, Mastriani & Schaumberg.

[25] Id.


Hayley Ostrin is a recent graduate of the University of Texas School of Law, where she served as the Editor in Chief of the Journal of Law and Technology at Texas. Currently, she is a first-year associate, patiently waiting on her bar results, at the firm Adduci, Mastriani & Schaumberg in Washington, DC. Many thanks to Tom Schaumberg, Deanna T. Okun, Paul M. Bartkowski, and Kate Gault for their edits and input.

 

 

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