Talkin’ Trade: How to “Fix” Section 337 and the ITC

Over the past few decades, the ITC has become increasingly focused on intellectual property—and specifically patent—disputes between domestic companies. According to some legislators and commentators, this shift has led the application of Section 337 astray from its original intent: adjudicating unfair trade practices in the importation of goods from foreign countries. Thus, over the past decade, there have been a number of proposed tweaks to Section 337, or the ITC more generally, to address issues like alleged non-practicing entity abuse of the ITC or alleged unfair trade practices implemented by China, such as forced technology transfer. In this episode of Talkin’ Trade, Ropes & Gray IP litigators Matt Rizzolo, Matt Shapiro, Brendan McLaughlin, and Nancy Attalla discuss some of the recent proposals and how they would change Section 337 practice.

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Transcript:

Matt Rizzolo: Welcome back to Talkin’ Trade, a podcast where we explore the ins and outs of Section 337 investigations at the U.S. International Trade Commission. I’m Matt Rizzolo, and with me today are my fellow Ropes & Gray IP colleagues Matt Shapiro, Brendan McLaughlin, and—making her Talkin’ Trade debut—Nancy Attalla. How’s everyone doing today? Glad to have everyone here—especially glad to see Brendan after what happened with the Bills in the playoffs, but I’ll leave it at that. To kick off the New Year, we’re going to dedicate today’s episode to discussing a variety of proposed changes that some people would like to see at the ITC regarding its procedures and its jurisdiction—from some relatively minor tweaks to wholesale changes in how the ITC approaches adjudicating unfair trade disputes. But before we get to that, Brendan, can you give us an update of what’s been new at the Commission?

Brendan McLaughlin: Thanks, Matt. Activity at the Commission predictably slowed down around the holidays. Since the beginning of December, the Commission received five new complaints, issued one public opinion, and the ALJs issued two public final initial determinations.

The one Commission opinion, in Certain Wearable Electronic Devices with ECG Functionality (Inv. No. 337-TA-1266), is worth a read. It includes a lengthy domestic industry discussion with a focus on subsection 337(a)(3)(C). The Commission also opined at length on Section 101, affirming-in-part and reversing-in-part the ALJs findings—reaching different eligibility conclusions for different patents. And even though the Commission found a violation of Section 337 on multiple patents, it suspended enforcement of remedial orders because—just a few days earlier—the PTAB issued IPR final written decisions finding the asserted patents invalid.

The Commission also took the rare step of intervening in a district court action, in a case where two chip design software providers are seeking to enjoin a patent owner from proceeding in litigation against several of its customers. The patent owner, Bell Semiconductor, has brought dozens of complaints in district court, as well as three at the ITC, asserting that a number of chipmakers infringe several of Bell’s patents through the use of third-party design software. The software providers filed a declaratory judgment (DJ) action in Delaware against Bell and sought a preliminary injunction under the customer suit doctrine, arguing that they are the true targets, and the infringement claims should be resolved first in Delaware, with the district court cases and the ITC cases being stayed. The ITC has now intervened and stated that it opposes the preliminary injunction request, asserting that a customer suit exception should not be applied to enjoin parties from participating in the ITC. Briefing is ongoing, and the Delaware court should issue a ruling in the next few months.

Finally, the ITC has launched a new Investigation Database System, which has recently gone live. This new site replaces 337Info, and provides users with a new, robust tool to research and track ITC investigations—you can access it at ids.usitc.gov.

Matt Rizzolo: Thanks, Brendan. I’m not sure anyone is going to miss 337Info, and that includes myself. As you mentioned, December and January are typically slower months at the Commission due to the holidays, but one thing that I personally am looking forward to in the coming months is a new ALJ at the Commission. The Commission has been looking to replace the retired ALJ Shaw (who left last summer) to add someone—and hopefully quickly—to help with the Commission’s ever-growing case load. And as we’ve discussed in previous episodes, the last two ALJs that were hired by the Commission—ALJs Bhattacharya and Moore—each spent substantial time at the Office of Unfair Import Investigations (OUII) and came from a patent litigation background, so it’ll be interesting to see whether that trend continues with this new ALJ.

Now, onto today’s main topic: proposed changes—some may say “reforms,” and others may disagree—to Section 337. For the most part, we’ve stayed away from history lessons on this podcast, but a brief trip back in time may help lay the foundation for why certain proposals have been made over the past few years. So, with that, Matt, I’ll turn the mic over to you: How did Section 337 get started? Let’s go way back.

Matt Shapiro: Sure. What is now Section 337 was first introduced as part of the Tariff Act of 1922, and then modified as Section 337 of the Smoot-Hawley Tariff Act of 1930—an Act that may be familiar to—anyone, anyone? That’s right, Ferris Bueller fans. This Act raised U.S. tariffs to their then-highest levels, and it has been considered a protectionist statute. However, Section 337 focuses on unfair practices in import trade, and was intended by Congress to extend to international trade the same prohibition against unfair methods of competition as provided for by the Federal Trade Commission Act for unfair methods of competition in interstate commerce.

Matt Rizzolo: Over the past decade or so, we’ve been seeing 60-70 ITC cases a year. Was that the case when Section 337 was first introduced?

Matt Shapiro: No, not in the least. For the first few decades of its existence, Section 337 was rarely used. It wasn’t until the 1970s and 1980s—after Section 337 was amended multiple times—that it was used with more frequency. This was because the amendments defined with more certainty the types of acts that are deemed unfair competition—such as infringement of statutory intellectual property rights—and they also relaxed the requirement that a complainant must show an injury to a domestic industry for those types of acts. These amendments also instructed the Commission to conduct a fact finding pursuant to the Administrative Procedure Act by relying on, for the first time, administrative law judges to conduct hearings, and this formed much of the Commission that we know today.

Matt Rizzolo: In all told, the Commission has now instituted a total of about 1,350 numbered investigations. Has the Commission just seen a steady stream of cases since the 70s and 80s, or has it been more intermittent?

Matt Shapiro: No, it certainly has been on a steady incline—the ITC has not always been this hotbed for litigation that it is now. The ITC began numbering investigations with the familiar “337-TA” nomenclature after 1974, beginning with investigation 1, but nearly half of the 1,350 investigations have taken place in the past decade. And all of these recent investigations have been based upon complaints filed by private parties, and the vast majority of them have involved patent infringement. This really drives home how the ITC has evolved from a trade forum into one of the most popular modern day patent litigation venues.

But today, some legislators and commentators think that Section 337 has strayed from its original intent, and it’s inadequate to fulfill its original objective to protect domestic industries for several reasons. For example, some believe it should not be a forum available to NPEs. Others think that the ITC should be strengthened to address somewhat novel forms of unfair competition employed by countries such as China.

Matt Rizzolo: Thanks, Matt. These amendments were really important to the growth of Section 337 litigation in part because they relaxed the onerous injury requirement for infringement of statutory intellectual property. But as you noted, removing the injury requirement also opened the door to non-practicing entities—a group of complainants that has been a constant presence at the Commission, especially since the Supreme Court’s decision in eBay, as we’ve noted in a previous episode.

When NPEs can’t prove a domestic industry of their own (because they don’t make any articles), they have to rely upon the domestic industry of a licensee—which typically involves the licensee spending the time and resources responding to a subpoena and disclosing highly confidential business information, potentially sitting for a deposition, etc. And in most of these cases, the licensee has little, if any, interest in seeing the requested exclusion order issue. These NPE issues have not been lost on at least some members of Congress.

Nancy Attalla: That’s right, Matt—and some Congressional members have seen this as a problem for almost a decade. Back in 2014, Rep. Tony Cárdenas introduced the bipartisan Trade Protection Not Troll Protection Act, which would have amended Section 337 to make it much more difficult for NPEs to bring Section 337 complaints. However, the Act never made it out of the Committee, and it died at the end of the 113th Congress. Undeterred though, Rep. Cárdenas reintroduced the Act in the 114th Congress…when it failed to pass again…and he reintroduced it again in the 115th Congress…and—you guessed it—it failed to pass for a third time."

In the 116th Congress, Rep. Cárdenas did not reintroduce the Trade Protection Not Troll Protection Act, but instead, in 2020, Reps. Suzan DelBene and David Schweikert introduced the Advancing America’s Interests Act (or AAIA)—it’s a very similar bill that mainly addresses the problem of NPEs at the ITC. In the words of Rep. DelBene, NPEs “have abused the ITC process for financial gain. This legislation addresses this problem and helps protect American businesses from unfair and unjustified claims.”

Matt Rizzolo: And how does the AAIA—not to be confused with the AIA (America Invents Act)—propose addressing NPEs at the ITC?

Nancy Attalla: It does a couple of things. So, currently, a licensee whose activities are relied on for domestic industry purposes does not need to be joined as a co-complainant in an ITC investigation—as you’ve mentioned, the complainant can obtain the information it needs via third-party subpoena after the complaint has been filed. The AAIA would change that.

First, it would introduce a joinder requirement that allows a complainant to rely upon the licensee's investments only if the licensee voluntarily joins the complaint as a co-complainant, preventing an NPE—or any complainant, for that matter—from dragging an unwilling licensee into a Section 337 investigation.

Second, the Act would prevent an NPE from satisfying the domestic industry requirement through licenses targeted to existing products on the market by requiring a complainant relying upon a licensee’s activities to show the license led “to the adoption and development of articles.” This change would also apply to situations where the complainant relied on its own licensing activities for domestic industry purposes. Effectively, this requirement that relevant licenses be production-driven, as opposed to revenue-driven, would prohibit nearly all NPEs from relying upon their licensees’ activities to establish a domestic industry, as many licensing disputes arise over existing—not future—products.

Matt Rizzolo: Yes, these changes would create a real headache for any NPEs because it would be highly unlikely that the NPEs licensees who have potential domestic industries would willingly sign up to be a part of an ITC investigation, unless they had a particularized interest in it. As Brendan and I covered in an article a couple of years ago, these provisions would potentially lead to the restructuring of a lot of patent licenses and patent licensing practices—but that topic is beyond the scope of today’s episode.

Nancy, does the AAIA offer any other changes to Section 337?

Nancy Attalla: It would relax the public interest factors to make it easier for respondents to argue that remedial orders are against the public interest. Essentially, the AAIA would eliminate the current presumption in favor of exclusionary relief once the ITC determines that a Section 337 violation has occurred. Instead, it would require the Commission to “affirmatively determine that any exclusion serves the public interest.” This would presumably require an affirmative showing from the complainant that an exclusion order would indeed be in the public interest, which may be somewhat difficult for some types of goods—for example, medical devices—than for others—for example, consumer electronics.

This could potentially align the ITC’s public interest factors with current practices in district court, where injunctions are governed by the four-factor test of eBay v. MercExchange.

However, even if enacted, whether this amendment would have teeth would be up to the Commission and Federal Circuit interpretation. While the bill may aim to make the ITC consider exclusion orders under a more eBay-like framework, it may not change anything at all—the ITC may, just as it has in the past, consider enforcement of valid intellectual property to be an overriding public interest concern that prevails in all but the most unique cases.

Matt Rizzolo: Now, you mentioned earlier that the AAIA was introduced in the 116th Congress back in 2020, but we’re talking about this as a proposal—I’m guessing this means it never actually became law?

Nancy Attalla: Nope! Like its predecessor, the Trade Protection Not Troll Protection Act, the AAIA died at the end of the 116th Congress. It was reintroduced during the 117th Congress…and it died again. That said, it seems like it—or at least some version of it—will be reintroduced now during the 118th Congress, but only time will tell whether it has any chance of passing.

Matt Rizzolo: Thanks, Nancy. We’ll keep an eye out for any more zombie ITC reform bills. I will say, though, that while you may think this multiple deaths of the AAIA means that all hope is lost, it’s worth noting that it was bipartisan when it was introduced in the last two Congresses, so we’ll see.

Shifting gears now—one of the biggest issues that has been at the forefront of U.S. foreign policy over the last decade or so is how to combat China and some allegations of unfair trade practices that have occurred over there, such as, for example, forced technology transfer for foreign businesses seeking to do business within China’s borders. Matt, this is another area that has led to legislators proposing changes that implicate the ITC, right?

Matt Shapiro: Yes, that’s right. Back in 2021, Senator John Cornyn (R-TX) sponsored the bipartisan Stopping and Excluding Chinese Rip-offs and Exports with United States Trade Secrets Act of 2021—or for short, the SECRETS Act of 2021. As you might be able to surmise from the bill’s title, this proposal was geared toward combatting Chinese trade practices.

Matt Rizzolo: Yes, that’s not a very subtle title. What does this bill propose?

Matt Shapiro: Unlike the AAIA, which would directly amend Section 337, the SECRETS Act would create a whole new adjudicative proceeding within the ITC under a completely new statute.

This new statutory scheme would establish the Interagency Committee on Trade Secrets, comprising representatives from various federal agencies involved in law enforcement and trade policy.

At a high level, the committee would be empowered to decide, based upon a third-party complaint or upon its own initiative, whether imported articles contain or were made using misappropriated trade secrets. The committee could then send a report to the ITC detailing its findings. And upon receiving the report, the ITC would have 30 days to conduct a preliminary ex parte investigation. If the ITC found during the preliminary investigation that it was more likely than not that the allegations were true, it would issue a temporary exclusion order pending a full ex parte investigation, which would take an additional 150 days. Then, within that 150 days, the ITC would conduct a full ex parte investigation to determine whether the exclusion order should be extended or made permanent.

Matt Rizzolo: This was a really interesting proposal that, at least on its face, seems like it would provide a new, useful way to combat international trade secret theft. And it’s also interesting that unlike Section 337 proceedings, these SECRETS Act proceedings would be ex parte, which is reminiscent of how trade secret owners can obtain ex parte seizure orders under the Defend Trade Secrets Act in federal court.

But in any event, as we discussed at length in a separate article a bit over a year ago, the bill does seem to overlook some of the ITC's existing self-institution authority under Section 337, and how little that existing authority has been used to date. The SECRETS Act does provide interesting food for thought on how to tweak Section 337 to address the concerns that it is aimed at, but ultimately—as with the AAIA—the SECRETS Act died in Committee, and we’ll need to wait and see if it will be reintroduced in this Congress.

There’s one last thing worth discussing in today’s legislative and policy session on Talkin’ Trade—Brendan, what have you got for us?

Brendan McLaughlin: Last November, the Information Technology & Innovation Foundation (or ITIF) published a policy paper proposing changes to Section 337 to address the threat that Chinese unfair trade practices pose to the American—and Western, more generally—economy. For listeners unfamiliar with ITIF, it’s a think tank with a goal of accelerating technological innovation through public policy.

The paper begins by reciting the view that Chinese unfair trade practices, such as forced technology transfer, pose a serious threat to American industries and innovation. Moreover, the existing strategies of using diplomacy to try to make China change its policies, boosting U.S. competitiveness, or limiting China’s access to U.S. resources, are not viable or likely effective on their own to counter what ITIF calls China’s “industrial predation.”

Matt Rizzolo: That sounds like a parade of horribles—but where does Section 337 come in?

Brendan McLaughlin: So, this paper specifically proposes that Congress should amend Section 337 in several ways so that the Commission’s focus shifts slightly away from adjudicating disputes among U.S.-based multinational companies to adjudicating unfair trade practices in “non-market, non-rule-of-law economies such as China.”

To achieve this shift, ITIF proposes about a dozen changes to how the Commission operates—some of which are statutory, and others which may be implemented under the current statutory structure. While we don’t have time to dive into all of these on this episode, there are a few worth briefly mentioning:

• First, ITIF proposes broadening Section 337’s definition of “unfair” trade practices such that additional unfair practices—including forced technology transfer and IP theft—are expressly included. In this same vein, ITIF proposes that the Commission should consider other potential unfair practices for which degree matters, such as the amount of subsidies a foreign country grants its own industries and whether it has rules that restrict outside entrants. This would enable the ITC to better adjudicate damaging foreign practices.
• Second, ITIF would eliminate the injury requirement for all unfair trade practices claims: It should be irrelevant if the domestic company is harmed in the here and now—the point is that the unfair practices should be punished, period. Waiting to determine whether a harm exists could result in irreversible competitive damage.
• Third, ITIF would reverse the Federal Circuit’s ClearCorrect decision, which limited Section 337’s jurisdiction of physical articles, to allow the ITC to address unfair acts in a cross-border transfer of digital data. According to ITIF, this would make Section 337 stay apace with modern technology and industry.
• Fourth, ITIF proposes a lower standard of evidence in cases involving “non-market, non-rule of law economies” by applying a “rebuttable presumption” that shifts the burden of proof to companies from such non-rule of law economies to show that they are not using forced labor to manufacture the products imported into the United States. This would be similar to the Uyghur Forced Labor Prevention Act, which is intended to prevent the importation of goods made using forced labor from the Xinjiang Uygur Autonomous Region. Such an amendment to Section 337 would prevent foreign companies from using the American legal system to their advantage.
• The final ITIF proposal we’ll touch on is a provision of a tax credit for 50 percent of the cost for successfully bringing a Section 337 complaint against firms in non-rule of law countries like China, which is aimed at encouraging private companies to bring what can often be costly Section 337 litigation.

These are but a few of the proposals in the paper that we don’t have time to get into, but are definitely worth some further reading.

Matt Rizzolo: You can get a feel for how lengthy that paper is when that was Brendan’s brief overview right there. In any event, it’s nice to see that Section 337 and the ITC are getting attention from areas outside the patent realm. I’ll also note that Senator Mark Warner from Virginia spoke at the launch event for this paper, so perhaps we’ll see some legislation get introduced this Congress that touches on some of these issues. With combatting China and unfair trade practices abroad being one of the few issues that Democrats and Republicans can seem to agree upon, this is certainly something that’s worth monitoring over the coming months and years.

That takes us to the end of today’s episode of Talkin’ Trade. You can find this podcast and other Ropes & Gray podcasts on Apple Podcasts, Spotify, or at ropesgray.com/podcasts. I’m Matt Rizzolo, and on behalf of Matt Shapiro, Brendan McLaughlin, and Nancy Attalla, thank you all for listening.