Addressing default trends in patent-based section 337 proceedings in the United States International Trade Commission.

• Author: Evans, John C.

Section 337 of the Tariff Act of 1930 empowers the United States International Trade Commission to investigate imports to ensure imports do not infringe on U.S. trademarks. The Commission permits patent, copyright, and trademark owners to notify the Commission of possibly infringing imports and to obtain exclusion orders that prevent importation of products that infringe their intellectual property. The total number of investigations increased from 1996 to 2005, yet the proportion of respondent defaults rose as well. The increase in defaults suggests there is some systemic difficulty in ensuring full participation. This Note argues that the res judicata effects of particular outcomes in patent-based investigations may skew respondents' participation incentives. To recalibrate respondent participation incentives and spread participation costs more equitably, this Note proposes respondent class certification in patent-based section 337 investigations as a procedural alternative to intervention and mass joinder. The proposed respondent class certification would also require bifurcation be available because, while many patent issues apply generally to each member of the proposed respondent class, some issues require an individualized determination for each respondent.

TABLE OF CONTENTS INTRODUCTION I. SECTION 337 INVESTIGATION DEFAULT TRENDS DEMONSTRATE DIFFICULTIES IN ENSURING RESPONDENT PARTICIPATION A. The ITC is an Increasingly Important Alternative Forum in Intellectual Property Disputes B. Analysis of Section 337 Investigations from 1996 to 2005 1. Complainants Named Larger Numbers of Respondents 2. Complainants Designated Greater Numbers of Origins of Accused Products 3. Respondents' Overall Proportion of Default Increased in 1996-2005 C. High Default Rates and Practical Considerations Indicate Non-Optimal Incentives II. CLASS ACTIONS HARMONIZE WITH PATENT LAW AND SECTION 337 LAW IN MANY ASPECTS A. Class Actions Accommodate Questions of Law or Fact Common to All Respondents 1. Claim Construction can be Conducted for a Respondent Class 2. Validity Accords Strongly with Respondent Class Disposition 3. Certain Unenforceability Defenses Suit the Class Form 4. Domestic Industry Accommodates Respondent Class Disposition B. Class Actions Are Not Appropriate for Individualized Issues C. Bifurcation Permits Common Issue Disposition with Distinct Proceedings for Individual Issues III. LARGE AND WIDELY DISPERSED RESPONDENT CLASSES MAY SATISFY THE PROCEDURAL REQUIREMENTS FOR CLASS CERTIFICATION A. Respondent Classes Can Satisfy the Requirements of Rule 23(a) B. Respondent Classes Can Satisfy the Additional Requirements of Rule 23(b) 1. Respondent Classes Are Most Properly Certified under Rule 23(b)(3) 2. Rule 23(b)(1)(B) Also Justifies Respondent Class Certification 3. Rule 23(b)(2) Also Justifies Respondent Class Certification 4. Rule 23(b)(1)(A) Does Not Support Respondent Class Certification CONCLUSION INTRODUCTION

Over the last ten years, the United States International Trade Commission ("ITC") emerged as an important forum for patent litigation. (1) Section 337 of the Tariff Act of 1930 (2) enables U.S. patentees with a domestic industry to petition the ITC to investigate unfair trade practices, including importation of infringing products. (3) If the ITC finds that a challenged product infringes on a patent, it may exclude the product from the United States through U.S. Customs and Border Patrol ("Customs"). (4) Consequently, in a global business environment, any business attempting to bring articles into the United States is a potential respondent and faces the possibility that those articles may be turned away at the border.

The ITC provides powerful remedies against infringing imports. Section 337 investigations proceed much faster than infringement trials in a federal district court, (5) placing significant pressure on respondents. A Customs exclusion order affects respondents' products directly at the point of importation, while an injunction's effects are more diffuse. Additionally, a complainant in the ITC can seek investigations of large numbers of respondents, (6) which may be more efficient than piecemeal litigation against individual defendants. Indeed, the number of section 337 investigations essentially doubled between 1996 and 2005 and shows no signs of abating, indicating that patentees have noticed the strategic benefits of section 337 investigations. (7) But while investigations rose, the default rate doubled from seven percent in the period from 1996 to 2000 to fourteen percent in the period from 2001 to 2005, imposing costs and inefficiencies. (8)

Currently available ITC procedural mechanisms may encourage strategic default behavior. First, participation costs may be prohibitive. Appearing may be more expensive than funneling imports through other entities, forcing complainants to seek general exclusion orders. (9) Second, defaulting respondents enjoy spillover benefits from invalidity and unenforceability judgments won by appearing respondents: those judgments collaterally estop (10) the patentee from asserting infringement, at least in subsequent section 337 investigations. (11) Similarly, respondents can appear and default later, perhaps when it becomes apparent that other respondents will successfully present defenses of invalidity or unenforceability. Appearing respondents thus disproportionately shoulder the costs of obtaining judgments inherently benefiting defaulting respondents.

This Note proposes respondent-initiated (12) respondent class certification to address the growing rate of default in patent-based section 337 proceedings, thereby providing a formal mechanism for cost sharing among respondents that will make strategic default less attractive. Part I presents empirical data concerning default patterns from 1996 to 2005, examines respondents' disadvantages, and suggests respondent class certification may reduce the disproportional costs for appearing respondents. Part II argues that claim construction, defenses of invalidity and unenforceability, and domestic industry analysis (13) may be conducted as class actions, but the acts of unfair trade and infringement elements of a cause of action (14) require bifurcation and separate proceedings. Part III argues that respondent class certification is consistent with the requirements of Rules 23(a) and 23(b) of the Federal Rules of Civil Procedure. This Note concludes that where a respondent class meets the thresholds of Rule 23(a), it may be certified under Rule 23(b)(3) for claim construction, defenses of invalidity and unenforceability, and domestic industry analysis, but the acts of unfair trade and infringement elements must be assessed individually.

1. SECTION 337 INVESTIGATION DEFAULT TRENDS DEMONSTRATE DIFFICULTIES IN ENSURING RESPONDENT PARTICIPATION

   This Part presents empirical data (15) concerning respondent default patterns in section 337 investigations from 1996 to 2005. (16) Section I.A briefly describes the ITC. Section I.B analyzes data derived from investigations from 1996 to 2005 for trends in default behavior. Finally, Section I.C suggests that respondents encounter incentives encouraging strategic default and proposes that these incentives could be addressed by respondent class certification.

   1. The ITC is an Increasingly Important Alternative Forum in Intellectual Property Disputes

      In recent years, the ITC has become a popular forum. Between 1996 and 2000, the ITC initiated 63 investigations. (17) Between 2001 and 2005, the ITC initiated 113 investigations. (18) This represents about an eighty percent increase in the number of investigations instituted.

      Though it operates differently than an federal district court, the ITC is effectively an alternative forum for patent infringement. Complainants' pleadings are slightly different under section 337. (19) Much of the analysis centers on whether respondents' imported products infringe the complainant's patent. In the infringement context, the ITC works like a federal district court, (20) but it employs different jurisdictional bases, different policy imperatives, and different remedies. First, the ITC's patent jurisdiction is limited to deciding infringement for the purposes of unfair import trade practices under section 337. (21) By contrast, Article III courts have original jurisdiction over patent matters. (22) ITC determinations are therefore not binding on federal courts. (23) Second, the ITC must, by statute, consider the public interest during an investigation, (24) and the ITC may only grant relief to patentees that have a domestic industry harmed by the unfair importation of infringing products. (25) Additionally, the Office of Unfair Import Investigations ("OUII") participates in ITC investigations as a third party and protects the public interest. (26) Finally, ITC remedies are more limited--but also more targeted--than those available through a federal court. The ITC cannot award money damages, but it can issue three forms of injunctive remedy: (27) limited exclusion orders, (28) general exclusion orders, (29) and cease and desist orders. (30)

   2. Analysis of Section 337 Investigations from 1996 to 2005

      This Section presents empirical data regarding section 337 investigations from 1996 to 2005. Section I.B. 1 demonstrates that section 337 investigations grew larger on average and that large investigations (consisting of ten or more respondents) became more common. Section I.B.2 shows that complainants increasingly designated three or more origins of accused products, suggesting that respondents are similarly geographically dispersed. Finally, Section I.B.3 indicates that the overall proportion of default increased significantly from 1996 to 2005.

      1. Complainants Named Larger Numbers of Respondents

         Section 337 proceedings increasingly involve large numbers of respondents, and the number and frequency of investigations involving ten or more...