ITC Spotlight ‑ May 2023 Edition

May 25, 2023 - The main reason the U.S. International Trade Commission ("ITC") exists is to stop the importation of goods into the U.S. that are manufactured through unfair methods of competition or unfair acts. While it's often associated with high-stakes patent litigation, the ITC is actually the ideal forum for companies that face significant problems with counterfeits.

The Scope of the Counterfeits Problem

In 2022 alone, U.S. Customs and Border Protection ("CBP") seized approximately $3 billion worth of counterfeit products.¹ Trade in illegitimate goods is associated with smuggling and other criminal activities, and often funds criminal enterprises. The seized products originated from Asia, Africa, Europe, and South and Central America, making counterfeiting a worldwide problem.

While the counterfeiting of luxury brands is, of course, well known, counterfeiting affects nearly every industry in some form or another. Significant counterfeiting also occurs in consumer electronics, pharmaceuticals, automotive products, and other industries. In some of these industries, notably pharmaceuticals and certain automotive or electronics products, counterfeits can present a serious health risk to consumers. For example, in 2021, CBP seized over 35 million counterfeit COVID-19 related products, including test kits, ventilators, and pharmaceuticals.²

Moreover, counterfeit parts and components may be hidden from consumers or even the companies that sell the products. Companies that cannot, for whatever reason, maintain complete end-to-end supply chain integrity, may be selling products to consumers that contain substandard components. The Organisation for Economic Co-operation and Development reported in 2017 that it found nearly one in five mobile phones shipped is fake.³ Counterfeit mobile phones, or mobile phones containing counterfeit components, often contain levels of chemicals that exceed established safety standards, present fire and shock hazards, and include malware and other harmful software.

Advantages of the ITC over Other Forums

The ITC provides several unique advantages that are particularly well-suited to efficiently solve counterfeiting problems.

First, it is often difficult to get the personal jurisdiction over counterfeiters necessary to bring suit in federal or state court. And when personal jurisdiction can be obtained, numerous suits in courts all over the country are usually required to effectively address the scope of the problem. Prosecuting a multitude of cases in different courts can lead to massive inefficiencies and, potentially, inconsistent outcomes. Alternatively, because the ITC's jurisdiction is in rem, a company can file one complaint in the ITC naming all suspected foreign counterfeiters and foreign and domestic agents thereof, regardless of where they reside and without the need to establish that the claims arise out of the same transaction or occurrence, as would be required to join defendants in district court.

Second, discovery is potentially much simpler. In district court, even if personal jurisdiction exists over a defendant, a plaintiff may need to go through burdensome and protracted international discovery mechanisms like the Hague Convention to get discovery from a foreign company. In contrast, any respondent who appears in an ITC investigation to contest the allegations is subject to the full range of discovery, regardless of whether the respondent is located inside or outside of the U.S.

Third, the ITC offers powerful remedies that are issued almost automatically to victorious complainants.⁴ Exclusion orders—which come in two varieties, limited and general—instruct CBP to exclude covered articles from entry into the United States. A limited exclusion order will be directed to articles manufactured by or on behalf of named respondents, while a general exclusion order covers all products that violate section 337, regardless of owner or manufacturer. Additionally, cease & desist orders preclude the respondent and its agents from participating in virtually every type of conduct pertaining to the banned product in the United States. General exclusion orders are extremely powerful, and particularly appropriate in counterfeit cases where there is a widespread pattern of infringement and it is difficult to identify the source of the infringing goods. General exclusion orders can even be obtained in cases where the respondents default. But the most valuable advantage in obtaining an exclusion order is that CBP takes such orders very seriously and will work hand-in-hand with the complainant to ensure effective enforcement.

Fourth, the ITC offers a short, predictable schedule and Administrative Law Judges who focus on international trade cases. Accordingly, ITC cases offer fewer opportunities for surprise or delay than litigating in most district courts.

Case Studies

A few recent investigations show the diversity of claims that can be alleged and how effective they can be in obtaining real results, more often than not without trial:

• Certain Hand Dryers, Inv. No. 337-TA-1015—In this investigation, Excel Dryer, Inc., manufacturer of the XLERATOR hand dryer most commonly found in public restrooms, sued 12 manufacturers and distributors of hand dryers that infringed the XLERATOR trade dress. The respondents all either consented to judgment against them or defaulted, and the ITC issued a General Exclusion Order covering all products with the distinctive features of the XLERATOR trade dress.
• Certain Earpiece Devices, Inv. No. 337-TA-1121—In this investigation, Bose Corporation accused 16 manufacturers, importers, and sellers of headphones that infringed numerous Bose patents covering the unique eartip of its headphones. A few of the named respondents appeared to contest the allegations then settled, while the majority defaulted. Bose obtained a General Exclusion Order covering all headphones with the patented features, and cease and desist orders against certain respondents, without even reaching trial.
• Certain Replacement Automotive Service and Collision Parts, Inv. No. 337-TA-1160—In this investigation, Hyundai Motor Company obtained limited exclusion orders over four entities that were selling grey market Hyundai replacement parts in the U.S. in violation of Hyundai's trademarks.⁵
• Certain In Vitro Fertilization Products, Inv. No. 337-TA-1196—In this investigation, EMD Serono, Inc. obtained limited exclusions against two entities that were selling in vitro fertilization products that infringed EMD's trademarks.
• Certain Vaporizer Cartridges, Inv. No. 1211—In this investigation, Juul Labs, Inc. obtained a general exclusion order and cease and desist orders against 49 entities at every level of the distribution network for electronic nicotine delivery systems that infringed Juul's design patents. Juul alleged that the respondents were selling non-FDA-approved flavored vaping cartridges that may contain harmful or illicit substances but that were being marketed as Juul-brand or "Juul compatible."

Conclusion

Counterfeiting is a serious problem that most successful companies face in some form or another. The good news is that the ITC was tailor-made to deal with counterfeiting problems. Companies should seriously consider using its fast, predictable schedule, knowledgeable ALJs, and effective procedures and remedies as part of their enforcement strategy.

Footnotes