ITC Puts Complainants on Notice that Pleading Requirements are Not Mere Suggestions

A recent policy change at the U.S. International Trade Commission (ITC) provides a lesson in how to properly draft a key requirement in a Section 337 complaint.

The ITC is a popular forum for companies facing unfair competition from imported goods that infringe intellectual property rights. Companies alleging unfair competition can file a complaint asking the ITC to institute what is called a Section 337 investigation and issue exclusion orders barring entry into the United States of the offending goods. To prevail in a Section 337 investigation, the complainant must show, among other things, it has made investments in the US to exploit its intellectual property—the “domestic industry” requirement.

ITC complaints do not automatically lead to an investigation. All complaints are reviewed by an attorney in the Office of Unfair Import Investigations who recommends to the Commissioners whether to institute an investigation. Though most complaints lead to investigations, sometimes complaints are only partially instituted, with the ITC deciding that the complaint does not sufficiently support certain allegations. The reasons to not institute certain issues were normally not made public, but recently, the ITC has decided to make the basis of those decisions public. This new policy will help parties better understand the ITC’s thought process and help attorneys hone their complaint-drafting skills.

A recent decision by the ITC not to institute a portion of a complaint shows that the ITC might be giving greater scrutiny to allegations that a complainant has a domestic industry in the process of being established.

Domestic Industry Requirement Basics

The Tariff Act prohibits, among other things, “[t]he importation into the United States, the sale for importation, or the sale within the United States after importation” articles that infringe a valid US patent, trademark, or copyright. A company who believes somebody is importing articles that infringe, for example, its patent (and most investigations involve patents) can file a complaint requesting the ITC to institute an investigation into the allegations—called a Section 337 investigation. Because Section 337 is a trade remedy a complainant must show that it has a “domestic industry” that needs protection. The domestic industry (“DI”) has two prongs: the economic prong (how much has the complainant invested in the United States?) and the technical prong (were those investments made to exploit the patent?).

Commission Rules require the complaint to plead specific information and evidence for many issues, including the domestic industry. For the economic prong, complainants can argue that they have an existing industry or an industry in the process of being established. They must:

“include a statement as to whether an alleged domestic industry exists or is in the process of being established as defined in section 337(a)(2), and include a detailed description of the relevant domestic industry as defined in section 337(a)(3) that allegedly exists or is in the process of being established (i.e., for the former, facts showing significant/substantial investment and employment, and for the latter, facts showing complainant is actively engaged in the steps leading to the exploitation of its intellectual property rights, and that there is a significant likelihood that an industry will be established in the future).” (emphasis added)

Both allegations require showing that complainants have invested money in the United States and both allegations are usually judged from the date the complaint is filed. Proving an existing industry requires showing investments towards “an actual article that practices the patent.” For example, a company that began producing widgets a year before filing a Section 337 complaint would allege in its complaint that it has an existing industry because it has articles that practice the patent.

An industry in the process of being established is one where, although investments have been made towards a DI product, the DI product is in development. For example, a company might file a complaint because they believe the unfair acts will cause such immediate harm that they cannot wait until the DI product has been fully engineered, designed, and produced. Process of being established claims involve future events. This raises the possibility of a complainant filing a complaint on vaporware simply to keep others out of the market, a complainant pleading an industry in the process of being established must plead (and eventually prove) that (1) it is actively involved in establishing an industry and (2) there is a significant likelihood that an industry will be established in the future. Most complainants allege an existing industry. But some also plead in the alternative and allege both an existing industry and one in the process of being established.

Once a complaint is filed, it is assigned to an attorney in the Office of Unfair Import Investigations (OUII) who reviews whether the complaint complies with ITC rules and recommends to the Commissioners whether an investigation should be instituted. The Commissioners then vote on the recommendation, with the whole process taking 30 days. Most complaints are instituted, but sometimes there is partial institution. For example, OUII and the Commissioners might find there is not sufficient evidence that one of five proposed respondents imported allegedly infringing articles into the United States and so that respondent will not be named but an investigation will be instituted as to the remaining four respondents.

Complainants have commonly pled an existing industry or, in the alternative, an industry in the process of being established. Alternative process of being established claims are commonly pled in conclusory fashion, often with a simple statement that there is an industry in the process of being established. Based on a recent partial denial of institution, this bare-bones pleading might not pass muster anymore.

In a recent complaint, VideoLabs, Inc. alleged both an existing industry and an industry in the process of being established. For the process of being established claim, the entirety of VideoLabs’ allegation stated:

“VideoLabs’ … domestic industry is also in the process of being established. Specifically, VideoLabs continues to invest in building, marketing, licensing, and enforcing its licensing platform – including particularly related to the Asserted Patents. VideoLabs has taken the necessary tangible steps to establish a domestic industry in the United States, and there is a significant likelihood that the domestic industry requirement will be satisfied in the future.”

The ITC instituted the investigation but did not institute the process of being established allegation. In a letter to complainants, the ITC explained “[t]he information provided with the complaint and exhibits … does not provide, as required by the rules, a ‘detailed description’ of the asserted domestic industry in the process of being established that includes ‘facts showing complainant is actively engaged in the steps leading to the exploitation of its intellectual property rights, and that there is a significant likelihood that an industry will be established in the future.’”  The ITC went on to say that the allegations were made “without any factual support.”

Lessons

The ITC has strict statutory pleading standards that must be followed (this goes for all the requirements, not just domestic industry). Though statutory pleading may conflict with attorneys’ desires to plead every possible cause of action, attorneys should carefully evaluate whether the client can plausibly allege that it has an industry in the process of being established. Though there are some fact patterns that might fall between an existing industry and one in the process of being established, it is more difficult to prove process of being established so a decision should be made about the need for pleading in the alternative.

If you truly have an industry in the process of being established, plead it specifically. Provide as much information as possible about (1) how the client is engaged in the steps leading to the exploitation of its intellectual property rights, and (2) facts that show that there is a significant likelihood that an industry will be established in the future. This can include declarations from knowledgeable employees detailing, for example, the product development timeline, any milestones reached, and investments. This information can be submitted confidentially, so companies do not need to decide between complying with pleading requirements and keeping sensitive information secret.

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Author: billperry