Dilemma of the Unnamed Section 337 Respondent

July 20, 2020

One unique aspect of the International Trade Commission’s authority under Section 337 is the power to issue general exclusion orders (GEO). Under such orders, companies never named as a respondent in an ITC complaint can find their products seized by U.S. Customs and Border Protection.

Because the ITC’s investigations are published in the Federal Register, companies worldwide are presumed to be on notice of them. Thus, when a company that imports products to the United States becomes aware of an ITC investigation that may produce a GEO, it must decide whether to wait it out and hope for a good outcome or intervene in the investigation and attempt to shape the outcome. Many companies resist the temptation to incur such expenses and endure the unforgiving deadlines and distractions that accompany Section 337 investigations.

A recent opinion by the U.S. Circuit Court of Appeals for the Federal Circuit highlights one of the risks in not intervening. In Mayborn Group, Ltd. v. Int’l Trade Comm’n, 2019-2077 (Fed. Cir. July 16, 2020), the court considered the following situation: After the ITC complainant settled with various named respondents, the ITC judge found the two remaining named respondents in default. The ITC judge recommended entry of a general exclusion order because it was difficult to obtain information about the entities selling the infringing self-anchoring beverage containers. The ITC issued the GEO.

While Mayborn had been informed of the ITC action by the complainants, Mayborn took no action during the course of the ITC investigation. When the complainant informed Mayborn that its products violated the GEO, Mayborn petitioned the ITC to rescind its GEO under the law that allows the ITC to rescind or modify an order if the conditions that led to the order no longer exist. Mayborn claimed that the patent claim giving rise to the GEO was invalid such that the GEO should be rescinded. The ITC denied the petition, noting that Mayborn’s discovery of invalidating prior art after a GEO issued was not a changed condition under the law.

On appeal before the Federal Circuit, the ITC argued that this was not a changed condition and that it did not have statutory authority to consider an invalidity challenge outside an investigation or enforcement proceeding. Despite Mayborn’s arguments that the public interest weighed in favor of such an exercise of authority by the ITC, the Federal Circuit agreed with the ITC.

The court found that the ITC had properly denied Mayborn’s petition for two independent reasons. First, the ITC may “only adjudicate patent validity when an invalidity defense is raised by a respondent in the course of an investigation or an enforcement proceeding.” (See Mayborn at 9.) Because Mayborn did not raise an invalidity defense in the course of an investigation or an enforcement proceeding, the ITC could not adjudicate the issue. Second, Mayborn’s claim of invalidity was not a changed condition; only a determination of invalidity (perhaps by the Patent Trial and Appeal Board or in a district court) could be such a changed condition. Thus, the law that Mayborn invoked was inapplicable.

Takeaways: If a company has notice that an ITC investigation could result in a general exclusion order that would require seizure of its products by Customs, it should consider thoroughly whether to intervene in the investigation to protect its interests and present whatever defenses it may have to such an order. While intervention will be more expensive than waiting on the sidelines in the short run, it may prove to be more expensive in the long run. Too, if a company holding an ITC exclusion order decides to begin an enforcement proceeding at the ITC, it must be aware that defenses such as invalidity that were not raised previously could well be raised in such an enforcement proceeding.