BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON LOS ANGELES NEW YORK SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C. The Changing Landscape for Section 337 Actions Karin J. Norton Organization For International Investment October 16, 2009

Section 337 Investigations at the U.S. International Trade Commission (ITC) US ITC is a quasi-judicial trade agency that addresses alleged injury to US domestic industries. Section 337 investigations of “unfair methods of competition and unfair acts” in the importation of articles into the United States and infringement of statutory intellectual property rights. >90% of cases involve claim of U.S. patent infringement. <10% of cases involve registered trademark, common law trademark, trade dress, copyright, registered mask works, trade secret, passing off, false designation of origin, antitrust, etc.

Domestic Industry Requirement A cause of action under Section 337 exists only if –an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work or design concerned, exists or is in the process of being established. An industry exists if there is in the United States, with respect to the articles protected by the patent, copyright, trademark, mask work or design concerned - –(A) significant investment in plant and equipment; –(B) significant employment of labor or capital; or –(C) substantial investment in its exploitation, including engineering, research and development, or licensing.

What is a Domestic Industry? Manufacture of goods in the United States. –Investment in plant and equipment –Employment of labor or capital 1988 amendment expanded the activities that would constitute a domestic industry adding “engineering, research and development, or licensing.” –Change from manufacturing to knowledge-based economy –Enormous value of the domestic industry of creating intellectual capital

Status of Non-Practicing Entities at the Commission CY 2008 (5 of 35 complaints) –Patent Licensing Companies – Tessera and Rambus Engaged in licensing/litigating patents they developed –Patent Holding Companies - Saxon Engaged in licensing/litigating patents they acquired Domestic Industry consists of two (2) full-time employees and two (2) part-time employees –Individuals – Rothschild Engaged in licensing/litigating patent Domestic investment in outside litigation attorneys

Effect of Relaxation of Domestic Industry Requirement Easier to approach the ITC as a complainant. –Historically, some foreign companies have had difficulty proving an adequate domestic presence. –Enforcement/licensing industry extant or in the process of being established. –Other domestic activities – warranty and servicing; customer service and training. The ITC may become a forum of choice for non- practicing entities. –Post-eBay injunctive-type relief

ITC Section 337 Remedies Exclusion order –Directs US Customs to bar importation of infringing products into the US –Limited Exclusion Order – products of named respondents –General Exclusion Order – all infringing goods Cease and desist order –Prohibits all commercial activity in the United States with respect to infringing products except exportation.

Kyocera v U.S. ITC [O]n its face, the statutory context limits LEOs to named respondents that the Commission finds in violation of Section 337. The ITC cannot expand its authority from “persons determined by the Commission to be violating” to “articles manufactured by persons determined by the Commission to be violating.”... If a complainant wishes to obtain an exclusion order operative against articles of non- respondents, it must seek a GEO by satisfying the heightened burdens of §§ 1337(d)(2)(A) and (B).... [T]he trade act has made it clear that a party must meet these heightened requirements before the ITC has authority to issue a general exclusion order against products of non-respondents.

Proposed ITC-TLA Amendment Adding the following clause to the end of Section 337(d), as new paragraph (3): The authority of the Commission to order an exclusion from entry of articles under paragraph (1) or (2) of this subsection or under subsection (e) extends to any products, of any person, incorporating, containing, or including any articles subject to the finding of violation, unless the Commission determines that the complainant's interest in excluding such products from entry into the United States is outweighed by the potential to disrupt legitimate trade.

Advantages of Proposed ITC-TLA Amendment Efficiency –Less expensive to complainant Research and Name Downstream Product Manufacturers Possibility of multiple cases –Less expensive to ITC – need only determine infringement once –Greater manageability of cases No more 50+ respondent cases Choice for downstream manufacturer to intervene

Disadvantages of Proposed ITC-TLA Amendment No clear problem to be fixed. –Limited ITC precedent on implementation –Complainants have adjusted complaints accordingly –Federal Circuit set out work-around - - name them or request GEO Downstream product manufacturers will once again be bound by decisions they have no part in and of which they may have no notice. –Intervention is not of right –Intervenors do not have the same rights and obligations as parties

Disadvantages of Proposed ITC-TLA Amendment (cont’d) Amending legislation is Pandora’s Box – cure might be worse than the disease. Consortium of consumer electronics manufacturers are organizing opposition to any such legislation.

Effect of Proposed ITC-TLA Amendment Depending on your particular situation, this amendment might give you an advantage in not having to sue your own customers or getting full relief in a single investigation. As U.S. subsidiaries, you may once again be subject to exclusion orders that you had no opportunity to defend against but nonetheless are bound. Efforts under way to require the automatic disclosure of all worldwide customers for both the U.S. subsidiary and its foreign parent.

For Further Info: Karin J. Norton Sidley Austin LLP 1501 K Street NW Washington, DC (202)