October 2013: International Trade Commission Update - ITC Unveils New Pilot Program Aimed at Early Resolution of 337 Investigations.

The United States International Trade Commission recently unveiled a new pilot program aimed at faster, less expensive resolution of 337 investigations. As part of the pilot program, the Commission “will identify, at institution, investigations that are likely to present a potentially dispositive issue, such as the existence of a domestic industry, importation, or standing.” Id. For those investigations, the Commission will direct the Administrative Law Judge (ALJ) to expedite discovery and fact-finding, hold an evidentiary hearing, and issue an initial determination (ID) on the potentially dispositive issue(s) within 100 days of institution. The Commission will then determine whether to review the ID within 30 days. The Commission believes that this procedure will reduce costs and limit unnecessary litigation. (Additional information on the pilot program may be found on the ITC website. See Pilot Program Will Test Early Disposition of Certain Section 337 Investigations, USITC, http://www.usitc.gov/press_room/documents/featured_news/337pilot_article.htm).

The formal unveiling of this pilot program comes on the heels of the Commission’s successful use of similar procedures in Certain Products Having Laminated Packaging, Laminated Packaging, and Components Thereof, Inv. No. 337-TA-874 (“Laminated Packaging”). There, the Commission directed the ALJ to hold an evidentiary hearing, find facts, and issue an early ID on whether the complainant satisfied the economic prong of the domestic industry requirement. The complainant objected to the Commission’s order and the ALJ’s accelerated procedural schedule as violating its rights under the Administrative Procedures Act (APA). The ALJ overruled complainant’s objection and permitted discovery and the evidentiary hearing to proceed.

In his ID, the ALJ revisited the complainant’s objection and agreed that the Commission’s order violated the APA. In particular, the ALJ found that the Commission’s order deviated from long-established Commission rules and that the changes were made without justification or adherence to APA procedure. Notwithstanding his views that the accelerated proceeding on the economic prong was procedurally improper, the ALJ found that the complainant failed to satisfy the economic prong of the domestic industry requirement.

On the merits, the ALJ determined that the “article protected by the patents” is “limited to the packaging only and does not include the products contained within those packages.” Id. at 31. The ALJ based this decision on his finding that the laminated packaging used by the complainant’s licensees is not integral to the products, so the product and packaging should not be considered as a whole. The ALJ then found that the complainant’s licensees failed to satisfy the economic prong under § 1337(a)(3)(A)-(C), based largely on the complainants failure to put forth evidence for expenses related to just the packaging and expenses that were incurred near or after the time the license agreements were executed.

The ALJ also rejected the complainant’s alternative basis for proving the economic prong—that its investments in licensing activities related to the asserted patents were substantial. While the ALJ found that the complainant had shown a sufficient nexus between its activities and the patents-in-suit, he found that the investments were not sufficiently linked to licensing activities. The ALJ further found that the complainant’s purported investments were not “substantial” within the meaning of the statute because the complainant failed to set forth any evidence establishing their quantitative or qualitative importance within the industry.

Finally, the ALJ rejected the complainant’s argument that it should be permitted to offer evidence that its domestic industry is “in the process of being established” at some later point in the investigation. Specifically, the ALJ found that because the Commission ordered that the issue as to whether the economic prong of the domestic industry has been satisfied was to be definitively answered within 100 days, the complainant was required to put on all evidence supporting its position during the two-day evidentiary hearing.

On review, the Commission determined that the ALJ correctly found that the complainant had failed to satisfy the economic prong of the domestic industry requirement, but rejected the ALJ’s finding that the accelerated procedures violated the APA. The Commission held that its order requiring an ID on the economic prong within 100 days was merely a procedural requirement that is exempt from notice-and-comment rulemaking pursuant to section 4 of the APA. Moreover, the Commission determined that the complainant was not prejudiced by the accelerated schedule because the complainant had ample opportunity to develop evidence of a domestic industry in advance of filing its complaint.

To date, the Commission has not ordered similar expedited schedules in any investigation following Laminated Packages. Whether the Commission’s pilot program ultimately will prove to be successful in reducing litigation costs will depend, in large part, on the frequency of its use and respondents’ success. Nevertheless, the program is an important first step in minimizing the number of complaints with questionable merit that are filed at the ITC.