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Everybody Comes

to theRead the

Section 337

docket at the

International

Trade

Commission,

and see

the world.

ITCBy V. James Adduci IIand William C. Sjoberg

PHOTO BY JAY MALLIN

PIJuly 11,2005

SUPPLEMENT TO LEGAL TIMES

When Viagra was introduced, it met withinstant success. But success breeds patentinfringers. Foreign competitors, seeking totake advantage of Viagra's popularity,

entered the market with knockoff sildenafil tabletsmanufactured using Pfizer's patented formula. Thevast majority of these tablets were imported into theUnited States.

What did Pfizer do? It unleashed the patent holder'sbest friend—a Section 337 complaint with the U.S.International Trade Commission. Within a little morethan a year, the drug-maker had an ITC order barringany and all infringing foreign-made sildenafil tabletsfrom being imported into the United States for the lifeof Pfizer's patent.

Such powerful results are not unusual at the ITC.Indeed, the commission offers a unique window into(quite literally) the world of patent infringement.Reading the ITC's docket reveals which products aremost attractive to pirate manufacturers seeking toprofit in the world's richest market and which coun-tries currently harbor industries with more ambitionthan respect for IP laws. It also highlights the largertrade concerns of American business over the past30 years.

These days the attention in global trade and ITC liti-gation focuses on China. But it was not always so.

The ITC has become a center of intellectual prop-erty litigation, thanks to Section 337, whichallows for fast and decisive resolutions to cer-tain disputes over foreign competition. Section

337 focuses on unfair methods of competition andunfair acts when products are imported into the UnitedStates. The most commonly asserted type of unfair actis the infringement of a U.S. IP right, includingpatents, trademarks, and copyrights.

But patents are the main concern. Of the 26Section 337 investigations that were launched lastyear, approximately 90 percent raised allegations ofpatent infringement.

A Section 337 investigation begins with a complaintbeing filed at the ITC. Once a complaint is filed, theITC has 30 days to decide whether the claims merit aninvestigation. To prevail in a patent-based Section 337dispute, the complainant must prove that (1) theaccused product has been imported into the UnitedStates, (2) the accused product infringes the assertedpatent, and (3) there is a domestic industry that prac-tices the asserted patent.

Section 337 investigations are famously fast. Casesare heard and decided more quickly at the ITC thaneven in the famed “rocket dockets" of the Eastern

District of Virginia and the Western District of Texas.Most Section 337 investigations are completed inapproximately 12 to 14 months.

Because the ITC forum offers extremely strongremedies, it is also invaluable for companies seeking toenforce patents. Section 337 authorizes the ITC toexclude infringing products from entry into the UnitedStates and to prohibit the sale of those that havealready entered. An infringer loses any future revenueit may have realized from U.S. sales of its products.(Monetary damages, however, are not recoverableunder Section 337. For those, the patent holder mustgo to federal district court.)

Under certain circumstances, the ITC—and only theITC—is even empowered to grant a general exclusionof all infringing imports covered by the asserted patentor patents, not just the products of the specificinfringers named in the investigation.

But Section 337 has not always been the powerfulmagnet for patent holders that it is today.

Once, the ITC was a little-noticed federal admin-istrative agency charged with updating the tar-iff schedule of the United States. Section 337 ofthe Tariff Act of 1930 was not particularly

well-known, and it did not offer any useful or well-defined procedures.

The first rumblings of change came in 1974, whenthe statute was amended in ways that made Section337 much more appealing to litigants. All Section 337investigations had to be completed within 12 monthsor, if deemed “more complicated,” 18 months.Investigations were also subjected to due processrequirements under the Administrative Procedure Act.

Nonetheless, the revamped Section 337 did notimmediately attract a lot of litigants. Only five investi-gations were launched in 1975. And cases were slowin coming for the next decade.

The trade volume of the infringing products in theseearlier disputes was relatively low. Complainants tend-ed to be either individual patent holders or small U.S.-based manufacturing companies, and the respondentswere usually small to medium-size foreign manufac-turers. Trial exhibits routinely consisted of no morethan a few banker's boxes filled with documents.

And the products themselves, while technically cut-ting-edge (they were, after all, the subject of currentpatents), lacked a certain glamour. Indeed, during thelate 1970s and early 1980s, the vast majority of theproducts subject to Section 337 investigations weredecidedly low-tech consumer items and apparel.Disputes arose over plastic bags, automobile screwjacks, steel cookware, luggage, golf balls, skateboards,

sneakers, and the Rubik's Cube. In a Section 337 casein the early 1980s, our law firm successfully repre-sented a Columbia, Md., inventor seeking a generalexclusion order covering all imports of infringingcaulking guns.

By contrast, only 10 percent of the products subjectto that first wave of Section 337 investigations couldbe classified as high-tech (which, for the purposes ofthis analysis, we have defined to exclude biologicaland chemical products). These investigations looked atsuch products as minutiae-based automated fingerprintidentification systems and unitary electromagneticflowmeters with sealed coils.

A quarter-century ago, the trade bar that handledthese kinds of cases consisted of about a dozen spe-cialized firms (including ours). Many of the lawyershad begun their careers at the ITC and knew oneanother, the judges, and the ITC staff. Although wefaced off in adversarial proceedings, the atmospheretended to be quite collegial.

Things began to speed up in the second decade ofthe new Section 337.

Between 1985 and 1994 high-tech electronic prod-ucts comprised 16 percent of the investigations, a 6percent increase from the previous decade, perhapsreflecting the rise in the use of personal computers andcomputer-related products. The cutting-edge productsat issue had evolved to include single in-line memorymodules, anisotropically etched one-megabit dynamicrandom access memory, and memory devices withincreased capacitance. But the ITC also continued tospend a lot of time on low-tech items such as minia-ture hacksaws, self-inflating air mattresses, and vacu-um cleaners.

These allegedly infringing products came in largepart from the other highly developed, mainly Westerneconomies with which the United States traded. From1975 to 1984, Western Europe and Canada, plus Japan,were named as the sources of infringing products 62percent of the time. The two East Asian countries thatgenerated the most business angst and the most ITCcomplaints were Japan and Taiwan. Products fromJapan were named 22 percent of the time; productsfrom Taiwan, 18 percent. China was not yet a focus ofSection 337 complaints.

Today, we’re in a different world. Section 337practice at the beginning of the 21st centuryreflects the greater investment in, the higherstakes of, and the broader reach of, global com-

merce in intellectual property. A whole new breed of practitioner now brings

Section 337 complaints. Most of the boutique firms

that once dominated the practice have disappeared,acquired by larger national law firms eager to developtheir own trade practices. More firms are handlingSection 337 cases, and the lawyers are locatedthroughout the United States.

The attorneys no longer argue these disputes in ahistoric 19th-century building in NorthwestWashington. In 1988, the ITC moved into sleek newoffices in Southwest Washington. (The old building hasbecome a hotel.)

More important, the majority of Section 337 investi-gations today revolve around technologically sophisti-cated, high-dollar-volume electronic and pharmaceuti-cal products. Between 1995 and 2004, 46 percent ofthe complaints that the ITC investigated addressedelectronic, chip-based, or computer-related high-techproducts—a 30 percent increase from the previous peri-od. Companies were alleging infringement of theirpatents on global positioning receivers, EPROM flashmemory and flash microcontroller semiconductordevices, and digital image storage and retrievaldevices, among other very complex products.

Of the cases filed in the past 18 months alone, afull 69 percent have involved high-tech products. Forinstance, we are representing Carsem (M) Sdn Bhd,Carsem Semiconductor Sdn Bhd, and Carsem Inc. in aSection 337 investigation brought on behalf ofAmkor Technology Inc. over encapsulated integratedcircuit devices. The technology at issue involves the“package" that seals and protects semiconductorsused in everyday consumer products such as cellphones. (The matter is now pending before theadministrative law judge.)

As the products become more and more sophisticat-ed, the geographic focus of the latest Section 337investigations has also been shifting—to the East.

The shift started in the second decade (1985 to1994), when 52 percent of countries named as sourcesof infringing products were located in Western Europe,Canada, and Japan; 38 percent were located in EastAsia, excluding Japan. Products coming from Taiwanovertook those from Japan as the focus of com-plainants' interest, with items from South Korea andHong Kong also appearing more frequently on theSection 337 docket.

Now look at the ITC's recently completed thirddecade: For the first time since the commission beganadministering Section 337, the frequency with whichproducts from the countries of East Asia (other thanJapan) were named in Section 337 investigations sur-passed that of Western Europe, Canada, and Japancombined (52 percent vs. 41 percent). What is evenmore striking is that, among Asian countries, China hasbecome the leading target of Section 337 complaints.

China's role in the manufacture of products thathave aroused the interest of U.S. intellectual propertyowners is even more evident if only those cases insti-tuted since the start of 2004 are considered: Since Jan-uary 2004, Chinese products and companies have beeninvolved in more than 40 percent of the Section 337cases instituted at the ITC. That’s an astoundingincrease for one country, and yet one that should comeas no surprise to anyone who has been following thepast several years of economic activity in China.

The level of technology associated with Chineseproducts has also increased as that country’s econo-my has matured. Instead of investigating fur coatsand pelts from China (as the ITC did in 1986), thecommission is now expending its resources onChinese semiconductor devices, disc drives, opticaldisc controller chips, and audio-processing integratedcircuits. High-tech products represent more than 50percent of the items from China alleged to infringeU.S. intellectual property.

A s the infringing products, source countries, andlawyers before the ITC have evolved since 1974,so too have the typical complainants. Just assuccess bred numerous infringers of Viagra, the

success of Section 337 in enforcing IP rights has led toa major increase in the volume of large companiesseeking its protection. Today, Section 337 litigation isbig business, and the Fortune 500 dominates both sidesof the docket.

The Microsoft Corp., Hewlett Packard Co., 3M Co.,Chiron Corp., Siemens, Gateway Inc., EnergizerHoldings Inc., Genentech Inc., and, of course, PfizerInc. have all turned to Section 337. In addition, foreignowners of U.S. IP rights, such as the Fuji Photo FilmCo., Samsung Electronics Co., and Toshiba Corp., arenow invoking Section 337 to their advantage.

The vast expansion of and technological evolutionin Section 337 disputes have been reflected in the pro-ceedings themselves, which have grown bigger andmore technologically sophisticated. In the 2001 set-top-boxes investigation, for example, more than 2 mil-lion pages were produced by the complainants alone,and both sides employed technical and graphics spe-cialists to prepare exhibits and assist at trial. In the2003 zero-mercury-added alkaline batteries investiga-tion, when the complainant and the 20-plus respon-dents agreed to conduct discovery electronically,approximately 100 CD-ROMs were exchanged.

Exhibits subject to testimony now can be displayedon monitors throughout the courtroom where Section337 disputes are heard. And the ITC has begun to acceptelectronic filing of certain public documents—and soonwill begin accepting e-filing of confidential documents.

Today, Section 337 cases sit at the center of changesin the global marketplace. More money, bigger liti-gants, and greater international concerns have turnedup the volume on ITC work.

Still, the old ways are not gone yet: Even for e-fil-ing, the ITC will stick to its 5:15 p.m. deadline, whichis closing time at the agency. ■