MX: IP Litigation and the ITC: A PrimerMX: IP Litigation and the ITC: A Primer

Given these large stakes, device companies obviously can benefit from understanding the risks and opportunities in IP litigation.

Enter the U.S. International Trade Commission (ITC). The ITC—one of two venues for U.S. IP litigation—can be a strategic weapon for enforcing U.S. trade law prohibiting the importation of goods that infringe IP rights. The ITC is an important venue with the power to order U.S. Customs and Border Protection (U.S. Customs) to bar importation of any products that infringe U.S. IP rights.

This article is a primer on IP litigation involving the ITC. It describes the ITC’s background, operations, and enforcement role, along with some of the benefits and drawbacks of employing the agency as part of a device company’s IP litigation strategy.

ITC’s Relevance to the Device Industry

The ITC is an “independent, quasi-judicial federal agency with broad investigative responsibilities on matters of trade.”² It comprises a panel of six commissioners, who are the ultimate decision-makers. Each commissioner is appointed by the President and approved by the Senate.³

The ITC has five strategic operations.⁴ They are:

Litigation at the ITC will become more relevant to medical device companies for at least three reasons.

First, more FDA-approved medical devices are being imported into the United States than ever before. In recent years major U.S. medical device suppliers have moved their manufacturing/assembly facilities to countries such as Mexico, Germany, the Dominican Republic, Malaysia, and Ireland.⁶ More recently, a number of U.S. medical device companies have entered into partnerships with China for the purpose of manufacturing high-technology medical devices like CT and x-ray devices.⁷ The effects of importing medical devices into the United States have been appreciable. In fact, the ITC reported that “continued growth in the demand for medical services in 2008 led to an increase in imports of medical goods of $2.7 billion (11%).”⁸

Second, highly motivated medical device companies, both foreign and domestic, hold significant portfolios of U.S. IP rights and have the financial capability to assert those rights. Such an asset mix is a potent ingredient for using IP litigation as a strategic enforcement tool.

Third, the ITC has the power to exclude infringing imports at the U.S. border. This exclusionary power is attractive because it has become somewhat more difficult in the last few years to obtain injunctive relief (i.e., to prohibit a competitor from infringing a U.S. patent) via litigation in the U.S. federal court system.⁹ This power, therefore, may be attractive to a domestic or overseas IP rights holder seeking to protect its U.S. market and recoup investment.

ITC’s Statutory Power

The ITC’s power comes, in part, from a federal statute, 19 U.S.C. § 1337 (Section 337), which governs the ITC’s IP investigations.¹⁰ In enforcing Section 337, the commissioners are aided by attorney-advisors and the Office of General Counsel. An Administrative Law Judge (ALJ) presides over each IP investigation and has initial decision-making authority on behalf of the commissioners.

In addition, unlike district court litigation involving a plaintiff and a defendant, the Office of Unfair Imports and Injury (OUII), a part of the ITC, is a party to all ITC Section 337-based investigations. OUII represents the U.S. public’s interest by investigating the factual and legal bases for the complaint of IP infringement. OUII acts as the private parties do by, among other things, conducting discovery during the investigation, staking out its own legal positions, taking depositions, and examining witnesses at trial.

Section 337 authorizes the ITC to investigate unfair methods of competition and unfair acts in the importation of articles into the United States.¹¹ To find a violation of Section 337, three elements must be proven. They are:

ITC’s Enforcement Role

The ITC has initiated investigations based on statutory and nonstatutory IP. Such investigations can include patent (both utility and design) infringement, trademark infringement (involving registered and common law trademarks), trade dress infringement, copyright infringement, trade secret misappropriation, trademark dilution, and other business torts such as false advertising.¹³ 

As a sign of the growing influence of the ITC in IP litigation, in 2008 nearly 15% of the patent trials conducted in the United States took place at the ITC instead of the federal court system.¹⁴ The chart below shows the growth in investigations instituted by the ITC from 1998 to 2010 (estimated).

As Figure 1 shows, a steady increase in ITC investigations instituted occurred between 1999-2009. The reduced number of instituted ITC investigations in 2009, however, seems to be an anomaly in view of the upward trending number of investigations instituted in prior years. The ITC itself explained that the “levels of new proceedings commenced in FY2009 was in keeping with the elevated level of new proceedings experienced in the years since FY 2004, but below the record level reached in FY 2008. The Commission expects the section 337 caseload will continue at a high level in FY 2010 and 2011.”¹⁵

Specifically, regarding medical devices, the ITC has litigated a wide range of technologies. Examples include:

These exemplary investigations involved products imported from locations spread throughout the world, including Japan, Israel, Australia, the Netherlands, Spain, West Germany, France, Switzerland, Brazil, England, Sweden, India, Canada, and Pakistan. The 17 investigations listed above resulted in 9 settlement/consent orders, 4 determinations of no violation, and 4 withdrawn complaints. Four of the most recent investigations involving medical devices are shown in Table 1.

The cryosurgery investigation in Table 1 illustrates a comprehensive IP litigation strategy employed by a U.S.-based medical device company. (In the interest of full disclosure, the author was counsel for complainants in this ITC investigation.) The investigation involved catheters and consoles used for cryosurgical applications—particularly cryoablation of heart tissue. The complainant making these cryosurgical devices (who was a licensee of the patent owner) spent substantial R&D resources in developing cryosurgical products in the United States, obtained patent protection, and sought FDA approval. In contrast, the respondent (i.e. accused infringer), a Canadian company, had imported cryosurgical devices accused of infringement and obtained patent protection and was further ahead at the FDA.

The device company complainants (i.e. the patent owner and its licensee) responded to the Canadian company’s U.S. activity with a four-pronged strategy. That strategy brought to bear several tools, including: an ITC investigation, multiple patent interference proceedings involving the respondent’s patents with the U.S. Patent and Trademark Office, and parallel patent infringement suits filed separately in both U.S. district court and Canadian federal court.

ITC Litigation: Outcomes, Benefits, Drawbacks

Approximately 40% to 50% of ITC investigations are decided on the merits of the case. The remaining 50% to 60% are settled or withdrawn. In addition, recent statistical studies evaluating the ITC against district court litigation provide some further context regarding outcomes of investigations at the ITC:

The ITC can be an important tool for a medical device company’s overall IP litigation strategy. At a high level, the ITC offers at least the following benefits:

There is a powerful remedy (i.e., an exclusion order). By its own account, the ITC can “provide meritorious complainants with injunctive relief that is increasingly difficult to obtain in other fora, including the unique remedy of excluding articles from entry into the United States.”¹⁷ This injunctive-type remedy may be quite valuable for medical devices with short product life cycles.

Cases are resolved reasonably quickly. The ITC strives to complete investigations within 12 to 15 months, but the target date for completion can be set later than 15 months under certain circumstances. The time to complete discovery is about seven months. The evidentiary hearing (i.e., trial) typically occurs within six to nine months from initiation of the investigation. The average trial can last about three to five days, though some are longer. Such time frame “certainty” can translate into more controllable fees and costs; though, the compressed nature of the proceeding can accelerate fees and costs much earlier than in district court cases.

The scope of legal issues is narrow. There are no counterclaims that can be decided at the ITC. A respondent’s counterclaim(s), if raised, can be transferred to district court. Defenses under 35 U.S.C. § 271(g) also are not available at the ITC.¹⁸ In addition, certain equitable defenses relating to past damages are not available at the ITC because monetary damages are not available at the ITC.

In rem jurisdiction applies. This means that the ITC has jurisdiction over products imported (or about to be imported) into the United States. A foreign entity, therefore, need not be subject to personal jurisdiction in a U.S. district court. Suchjurisdiction can reduce issues that sometimes exist in U.S. district court litigation in exercising the court’s power over a foreign entity.

The remedy is policed by U.S. Customs and Border Protection. This agency also provides special procedures for enforcement of an ITC exclusion order.

ITC Judges (ALJs) have expertise in patent and other IP litigation. The ALJs hear almost exclusively IP cases and typically have had litigation experience before becoming ALJs. Thus, you will likely have a decision-maker that has extensive IP knowledge.

In contrast, here are some drawbacks of ITC litigation:

No money damages are available for infringement. The ITC issues prospective relief, i.e., an exclusion order. Money damages must be sought through litigation in U.S. district court. It is worth noting, however, that in some cases, particularly with the introduction of new medical technology, an injunction against infringing devices or activity can be more valuable to a company than money damages. This is especially the case when considering business factors such as loss of market share, brand identity, and other intangibles.

Additional proofs are needed to prevail at the ITC. A complainant must show additional evidentiary proof beyond the proof of infringement required in a U.S. district court case. For example, a complainant must show that there is a “domestic industry” and “importation.” These additional requirements do not exist in U.S. district court litigation.

Juries are not available. In cases before the ITC, a single judge is the fact-finder.

The U.S. district courts are not bound by the ITC decision and record. In practice, district courts show deference to the ITC’s record and decisions. The practical downside, though, is that if money damages are significant you could be faced with paying for two litigations (if both the ITC and district court are selected) instead of one district court case.

The breakneck pace of ITC litigation may not be conducive to highly complex or nuanced cases because of the number of issues or number of parties. Some lawyers counsel clients to litigate in the district court because the controlled and slower pace allows for a potentially more circumspect case development.

The pace of ITC litigation also risks missteps. ITC litigation allows little time to change course or correct strategies that do not work out as planned. The demanding schedule can work to a complainant’s favor, since it has time to prepare and chooses when to file. In addition, while conventional wisdom is that respondents are up against the eight-ball, respondents can benefit too, particularly where there are multiple respondents coordinating against a sole complainant or if the complainant half-heartedly approaches preparation. Simply put, pursuing or defending an ITC action cannot be taken lightly.

The ITC’s powerful remedy can be outweighed by its effect on the “public interest.” The ITC balances the IP holder’s rights against the effect of exclusion upon the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles, and U.S. consumers. Decisions in general refusing to issue an exclusion order are rare, but the public interest may have significance in the entry of an exclusion order in medical device investigations.

Powerful Litigation Asset

Medical device companies operate in an industry that is becoming more global in nature. This rapid evolution in the nature of the device business means industry executives face a broader range of IP issues than they have in the past. In this evolving global industry, the ITC can be a powerful litigation asset. Given the tremendous amount of money and time it can take to develop medical devices, industry executives should weigh the pros and cons of using the agency (or having it being used against them) when they’re shaping their IP strategy.

References

1. See Medical Devices and Equipment: Competitive Conditions Affecting U.S. Trade in Japan and Other Principal Foreign Markets, United States International Trade Commission, Inv. No. 332-TA-474, U.S. ITC Pub. No. 3909 (March 2007), at 2-1 (explaining “[a]ccording to the National Academy of Sciences (NAS), most advanced medical devices tend to undergo continual product improvements that eventually render the products obsolete, often within 2 years or less.”)

2.See United States International Trade Commission Budget Justification: Fiscal Year 2011, United States International Trade Commission, at 1 (2010).

3. The ITC is viewed as nonpartisan. No more than three commissioners may be from one political party. The chairman and vice-chairman must be from different political parties, and different political parties rotate the chairman post. See, e.g., Public Law 102-185, 105 Stat. 1280 (1991). The current commissioners are: Deanna Tanner Okun (Chairman); Daniel R. Pearson; Shara L. Aranoff; Charlotte R. Lane; Irving A. Williamson and Dean A. Pinkert. See http://www.usitc.gov/press_room/bios.htm (last viewed September 21, 2010.)

4. See United States International Trade Commission Budget Justification: Fiscal Year 2011, United States International Trade Commission, at 2 (2010).

5. See id.

6. See Foreign Infringement of Intellectual Property Rights: Implications for Selected U.S. Industries, United States International Trade Commission, Office of Industries Working Papers, at 26 (October 2005).

7. See id. Medical Devices and Equipment: Competitive Conditions Affecting U.S. Trade in Japan and Other Principal Foreign Markets, United States International Trade Commission, Inv. No. 332-TA-474, U.S. ITC Pub. No. 3909 (March 2007), at 3-3.

8. Shifts in U.S. Merchandise Trade 2008, United States International Trade Commission, Inv. 332-TA-345, U.S. ITC Pub. No. 4089 (July 2009), at EL-6.

9. The U.S. Supreme Court recently changed the law regarding injunctions in patent litigation cases by making it somewhat harder for a patent owner to get an injunction. See eBay Inc v. MercExchange, L.L.C., 547 U.S. 388 (2006).

10. See 19 U.S.C. § 1337. Section 337 has its current roots to the Tariff (Smoot-Hawley) Act of 1930 (and earlier in section 316 of the Tariff Act of 1922), and has been amended several times to get us to its current incarnation. The Smoot-Hawley Act is generally viewed as expanding the depth of the Great Depression.

11. See 19 U.S.C. § 1337(a) (defining unlawful activities and covered industries).

12. See 19 U.S.C. § 1337(a).

13. See, e.g., 19 U.S.C. § 1337(a)(1)(A)-(E).

14. United States International Trade Commission Budget Justification: Fiscal Year 2010, United States International Trade Commission, at 6 (2009).

15. See United States International Trade Commission Budget Justification: Fiscal Year 2011, United States International Trade Commission, at 25 (2010).

16. Chien, Colleen V., Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission, 50 Wm. & Mary Law Rev. 63, 97, 99-100 (October 2008); see also Hahn, Robert, Hal J. Singer, Assessing Bias in Patent Infringement Cases: A Review of International Trade Commission Decisions, 21 Harvard J. Law & Tech 457, 483-484 (2008).

17. United States International Trade Commission Budget Justification: Fiscal Year 2011, United States International Trade Commission, at 5 (2010).

18. See Kinik v. USITC, 362 F.3d 1359 (Fed. Cir. 2004).

Wil Rao is a patent lawyer and shareholder at McAndrews, Held, & Malloy Ltd. (Chicago). He has extensive IP-based litigation experience in the medical device industry, including cases involving the ITC, U.S. district courts, and IP disputes outside of the United States. He can be reached at [email protected].