Tackling counterfeiters where it hurts the most: the allure of the ITC
Addressing trademark infringement traditionally begins with a cease and desist letter backed by the threat of legal action. But whereas flexing litigation muscles in state or federal court may be effective in enforcing domestic infringement, it is often inadequate to halt infringement originating abroad. Nicole McLaughlin looks at the case for the International Trade Commission.When threatened with international counterfeiters, the key challenges are addressing who to sue and how to maximise enforcement, so that regardless of their location, the counterfeiting stops.
Proceedings before the International Trade Commission (ITC) can eliminate challenges when a plaintiff company is faced with foreign or anonymous infringers. Although monetary damages are unavailable, exclusion orders are frequently handed down and immediately enforced by the US Customs and Border Protection (CBP). Moreover, the ITC is not only statutorily required to issue its final decision within a defined period of time, but with only 58 investigations on its docket in 2010, it is still on the path to completing them expeditiously. As such, there are powerful incentives to consider the ITC as an alternative venue to a district court.
Framing litigation strategy
One of the most advantageous aspects of bringing a complaint before the ITC is its expansive jurisdiction, which is triggered by a complainant demonstrating the presence of infringing goods in the United States. This avoids the threshold issue of personal jurisdiction that plaintiffs in a district court will face if asserting claims over foreign manufacturers or importers. Because an in rem exclusion order issued by the ITC prevents infringing goods from entering the United States, it is possible to exclude infringingimports from parties other than those named in the complaint.
Further, unless you have standing to sue in a notably quick-acting court, suing in federal district court may leave you entrenched in a long, protracted litigation. Not so for proceedings before the ITC, which is required by law to conclude its investigation and issue a final determination “at the earliest practicable time”. To ensure compliance, Congress even went so far as to require the ITC to establish a “target date” for its final determination, and to share the target date with the parties within 45 days of the commencement of the investigation.
What happens if your litigation strategy is to simultaneously go after domestic retailers and distributors of counterfeits? Or your strategy is to send a media message by bearing down on buyers of counterfeit products? Or if you wish to seek monetary damages in federal district court? The effect of an ITC action is that a related court action may be stayed pending the resolution of the ITC decision. Indeed, if the same parties and issues are involved in both proceedings, it may even be possible to use the same record for both.
The nuts and bolts of ITC proceedings
The ITC’s authority to investigate derives from Section 337 of the Tariff Act of 1930, which prohibits unfair methods of competition andunfair acts in import trade. This includes the import of infringing goods containing registered trademarks, unregistered common law marks, simulations of protected trade dress or product designs, and false advertisements. To invoke the ITC’s jurisdiction, a plaintiff must demonstrate that the imported goods infringe a protected mark and there is an existing US industry relating to the goods protected by the mark.
A Section 337 investigation begins on filing of a complaint with the ITC. The complaint should describe the infringing goods as precisely as possible, because at the conclusion of proceedings, a CBP officer stationed at a port or border will be tasked with enforcing the final order. The Office of Unfair Import Investigations has a 30-day period to evaluate the sufficiency of the complaint. If an investigation is approved, copies are transmitted to the parties named as respondents, and in the case of foreign respondents, the complaint is sent to the relevant foreign embassy. A notice is published in the Federal Register, upon which discovery may commence.
The investigation is assigned to an Administrative Law Judge (ALJ) and the proceedings are governed under the Administrative Procedure Act. Although there are differences, overall, the ITC’s Rules of Practice closely model those of the Federal Rules of Civil Procedure. The party responding to the complaint has 20 days after service to do so, unless the ALJ or notice of investigation states otherwise.
At this stage, there are several important tactical advantages for a plaintiff. Counterclaims made by the respondent will not be considered by the ITC and will be removed to an appropriate federal district court. Parties may intervene only at the discretion of the ALJ or the ITC. If a motion for a temporary exclusion order is sought, the ALJ will utilise factors considered by the Federal Circuit for a preliminary injunction and must issue a final determination within 90 days, or for complex cases, within 150 days.
Further, within 45 days of the investigation’s initiation, the ITC must provide a target date, which is generally within 15 months. If an investigation is to be completed within 12 months, the evidentiary hearing is likely to occur around the five or six-month mark. The hearing is similar to a bench trial where the parties may present evidence, make arguments and crossexamine witnesses.
The president of the United States has 60 days to veto the final decision. Unless there is a significant potential impact on foreign relations, veto is a rare occurrence. In the absence of a veto, appeals may be taken to the Federal Circuit, orthe case becomes ‘final’ upon the expiration of the time to appeal. The ITC’s legal conclusions are reviewed de novo and factual findings of the administrative law judge are reviewed under the substantial evidence standard. Accordingly, the Federal Circuit will not overturn the ITC’s decision if a reasonable person would have accepted the evidence as adequate. Under the doctrines of collateral estoppel and res judicata, an ITC decision may even preclude the filing of identical lawsuits or claims in a district court.
Remedies
The remedies granted by the ITC include: permanent cease and desist orders mandating the respondent to refrain from the infringing conduct; permanent exclusion orders enforced by US Customs and Border Protection; or a combination of both.
Cease and desist orders are domestic in scope. For example, they may be necessary when an infringing mark is affixed only after goods are imported and assembled in the United States. They are also effective in prohibiting distributors and retailers that are already present in the United States from selling goods bearing the mark and from prohibiting marketing practices deemed to be deceptive.
An exclusion order applies to goods imported after the date of the final ITC order. There are two categories of exclusion orders: a limited exclusion order (LEO) applicable to specific individuals or entities named in the complaint, or a general exclusion order (GEO) preventing the importation of all infringing products, even if the importer was not party to the ITC proceeding. To ensure better results from an LEO, it is best to delineate in the complaint itself as many respondents as possible. However, a petition can be filed with the ITC to modify an LEO or request an advisory opinion regarding its scope.
The most effective form of relief is the GEO, given the broad scope of its coverage. In Certain Airless Paint Spray Pumps and Components Thereof, the ITC held that a GEO is warranted upon demonstrating “a widespread pattern of unauthorized use” and “certain business conditions from which one might reasonably infer that foreign manufacturers other than respondents to the investigation may attempt to enter the US market with infringing articles”. Although Spray Pumps applied to patent infringement, the ITC subsequently held that the same test applies to claims of trademark infringement. Factors demonstrating the existence of the first prong include an ITC determination of unauthorised importation into the United States of infringing articles by multipleforeign manufacturers and any other evidence demonstrating a history of unauthorised use of the protected marks. Evidence of the second prong includes the existence of an established market for goods bearing the protected mark in the US market and the availability of marketing and distribution networks in the United States for potential foreign manufacturers.
Failure to comply with an ITC order can result in hefty monetary penalties of $100,000 or more. The ITC can also use its sanctioning power to enforce settlement agreements in the event that the parties settle prior to the investigation’s conclusion.
Conclusion
When a cease and desist letter from an attorney fails to stop international counterfeiters from importing goods with infringing trademarks, think again before slapping the letter to a complaint filed in federal a district court. It’s possible that attaching the letter to a complaint filed in the ITC will get you greater relief, in a shorter amount of time. Nicole McLaughlin is a partner at Duane Morris LLP. She can be contacted at: nkmclaughlin@duanemorris.com
