The Federal Circuit Limits the ITC’s Exclusion Order Authority

Titc-imagehe International Trade Commission (ITC) is an independent federal agency whose purpose is to protect American companies from foreign companies that attempt to import goods in an anti-competitive manner. For example, an American company can file a complaint with the ITC if a foreign company is importing goods they fear violate their patents. Pursuant to Section 337 of the Traffic Act of 1930, once a complaint is filed the ITC has 30 days to decide whether an investigation (a.k.a. "337 investigation") should be instituted. On only rare occasions will the ITC decline to investigate.

Vested with authority from 35 U.S.C. 1337(d), the ITC can issue two types of exclusionary orders prohibiting the importation of goods if the foreign company is found to be culpable: general exclusionary orders (GEO), and limited exclusion orders (LEO). An LEO prohibits only the parties involved in the investigation from importing infringing goods. By contrast, a GEO prohibits the goods from being imported from any party, even parties that are not included in the investigation. However, two exceptional circumstances must apply for the ITC to issue a GEO. The first circumstance is when a previously issued LEO is being circumvented (e.g., a named party simply pays a third party to import the goods). The second circumstance is when several complaints are filed regarding the same imported product, but the source is difficult to identify. Since it is much harder to show these two circumstances, most of the orders issued are LEOs.

Previously, the ITC has issued LEOs where the respondent manufactures an infringing component that is made and sold abroad and then assembled into a downstream product before finally being imported to America. Recently, the ITC has been issuing LEOs that not only exclude the component from importation, but also excludes the downstream product containing the component from importation. This allowed US patent holders to file a complaint against component manufacturers, even if they themselves didn’t import the component. Such was the case in Kyocera Wireless Corp v ITC.

In Kyocera Wireless Corp. v. ITC, the ITC issued an LEO to all downstream cell phone manufacturers that contained the Qualcomm chip found to infringe. This angered cell phone manufacturers who joined in on the remedy phase of the suit. The Federal Circuit, which has appellate review of the ITC, held that the ITC did in fact overstep its authority by issuing an LEO that excluded the downstream cell phone manufacturers from importing cell phones. The statute only allows an LEO to be issued against named respondents, so the cell phone manufacturers could not be affected by the LEO.

The Federal Circuit’s decision currently affects several other cases where a downstream manufacturer has been included in an LEO. In light of Kyocera, these manufacturers will likely seek a modification of those orders. As for the US patent holders, it’s likely that more complaints filed with the ITC will have more named respondents. Of course, it‘s also possible that the current economic downturn can spark legislative reform which could institute protectionist measures and broaden the leverage once held by US patent holders.