© 2015 Locke Lord LLP Section 337 Proceedings Before the U.S. International Trade Commission & U.S. Customs & Border Protection Michael Bednarek Partner Locke Lord LLP Mobile Bednarek’s Strategies for Success: ITC & Customs

Suggestions for Chinese Companies ■ Be Prepared for Litigation – Litigation comes with success in America ■ The best way to avoid IP litigation is to identify an IP Team and task them with making your organization an IP savvy enterprise. ■ A modest investment in IP strategy can yield benefits: ■ Litigation Avoidance ■ IP Assets 2

Be Prepared for Litigation ■ Chinese Companies must understand the central role of litigation in resolving disputes in American culture ■ America is a litigious society – “a country founded by lawyers and run by lawyers” ■ Americans have a reverence for law that is different from other countries ■ Litigation is a “fact of life” for those doing business in the United States ■ IP Litigation is used as a strategic tool for generating and protecting market share and generating revenue. ■ Chinese companies should view U.S. litigation strategy proactively as tool, not reactively as an impediment. 3

Patent & Other IP Litigation ■ What triggers IP litigation in the United States? ■ IP Owner Pursuing One or More Objectives ■ Protect Market ■ Generate Revenue ■ Who can be sued for patent infringement in the United States? ■ Those who make, use, sell, offer to sell and/or import products for the US market (Direct Infringement) ■ Those who contribute to or induce others to infringe (Indirect Infringement) ■ Those who sell to customers who infringe (Indemnification Obligations) ■ Who IS sued most often? Successful Companies ■ Patent litigation is often part of the price of success in the US market ■ Plaintiffs cannot achieve their objectives by suing unsuccessful companies. 4

Avoiding IP Litigation ■ The best way to avoid intellectual property litigation is to become an “IP savvy” enterprise ■ Learn to use IP strategy as a tool ■ Develop a strategic relationship with IP counsel (local and US) that will help you identify and avoid risks in advance. ■ Investing in a strategic relationship with US IP counsel early on yields benefits for years both with regard to enhancing your own portfolio and avoiding litigation ■ An IP savvy enterprise can avoid some patent litigation ■ Pay attention to trends affecting the industry ■ Obtain Patent Clearance/Freedom to Operate advice for new product/service offerings – the sooner the better ■ Use contacts in the US for “early warning” 5

Spend money to save money? ■ The investment required to develop a strategic relationship with IP counsel is a small fraction of the cost of even one IP lawsuit ■ In the United States, IP savvy organizations, have found that they save money by investing in IP strategies that help them avoiding patent litigation or improving litigation posture. ■ Strategic patent counseling ■ Strategy ■ Clearance ■ USPTO Challenges (IPR, PGR, Reexamiantion) ■ Patent portfolio acquisition and building ■ Maintaining Market Access ■ In contrast, Chinese companies have learned that finding the lowest cost response on a case by case basis is unlikely to be the least expensive solution and certainly will not be the best way to maintain market share. ■ Especially true in the ITC and other “rocket docket” type forums 6

Dream Team ■ An ideal “team” of IP advisers for a Chinese company doing business in the U.S. includes input from both a local (Chinese) adviser and U.S. counsel – Why? ■ While the plaintiff may be focused on revenue generation in addition to market protection, the principal concern of the Chinese defendant is market access ■ It doesn’t make sense to fight if access to the US market (present and future) is not important ■ But if access to the US market is important, it makes no sense to fight ineffectively -- must understand all available tools and strategic options ■ Example: Chinese companies that do not appreciate the central role of litigation in resolving disputes in American culture will underestimate the strategic value of a counter attack – Americans love the home court advantage and don’t trust other courts 7

Delaying/Quickly Resolving Litigation ■ Even with the best advice, litigation cannot always be avoided ■ When litigation cannot be avoided, it may be possible to delay and/or quickly resolve the litigation ■ Ways to delay patent litigation ■ Inadequate Pleading ■ Transfer Strategy ■ Stay Pending IPR ■ Quick resolution may be possible with early assessment and communication with patent owner 8

Advance Preparation Minimizes Impact ■ If you do business in the US, there is always some risk of being involved in IP litigation ■ When litigation cannot be avoided, it is still possible to minimize the impact of litigation on business objectives ■ IPR Strategy ■ Design Around Strategy ■ Shift cost when possible ■ Indemnification ■ Joint Defense Arrangements ■ Essential to have IP Team in place before litigation – scrambling to find counsel is never a good strategy 9

Overview ■ Introduction to the ITC ■ Procedure for Obtaining Relief ■ Proving a Violation ■ Remedies & Enforcement ■ The Role of Customs ■ Conclusion 10

Part One Introduction to the U.S. International Trade Commission (ITC) 11

U.S. Int’l Trade Commission ■ Independent non-partisan agency ■ Administers U.S. trade remedy laws ■ Provides trade expertise to President & Congress ■ Located in Washington, D.C. 12

ITC History ■ Section 337 of the Smoot ‐ Hawley Tariff Act of 1930 empowered the Tariff Commission to conduct investigations of unfair trade. ■ The Trade Act of 1974 established the International Trade Commission as an independent agency with authority to issue exclusion orders, subject to reversal by the President on policy grounds. ■ Mandatory Time Limit: 1974 Act required the ITC to conclude its investigations "at the earliest practicable time, but not later than one year (18 months in more complicated cases)" after commencement of the investigation. ■ Congress amended Section 337 in 1988 to soften the domestic injury requirement and eliminate the injury requirement for statutory intellectual property investigations. 13

ITC History (Continued) ■ Late 1980s, a GATT panel ruled that aspects of Section 337 violated the national treatment provision of the General Agreement on Tariffs and Trade. ■ 1994 Congress mended Section 337 to comply with GATT. Eliminated mandatory time limits, now just a requirement to complete investigations "at the earliest practicable time." Also permitted respondents to lodge counterclaims. ■ Spring 2013, ITC publishes new rules regarding discovery ■ Specific limitations on electronically stored information ■ General limitations on fact discovery ■ Procedures to claim and mitigate waiver of privileged Information ■ New requirements for complaints ■ June 2013, ITC starts pilot program for early ruling on dispositive issues (e.g., domestic industry, importation, standing) 14

■ Conducts investigations of trade violations: ■ Dumping ■ Countervailing Duties ■ Global Safeguard ■ Unfair Acts including intellectual property infringement ■ Provides remedies ■ Enforces remedies Administration of Trade Laws 15

■ Section 337 of the Tariff Act of 1930 ■ Includes a variety of unlawful actions: ■ Infringement of patents, trademarks & copyrights ■ Importing gray market goods ■ Misappropriation of trade secrets & trade dress ■ False advertising & passing off What is an “Unfair Act”? 16

■ Commissioners ■ Office of Unfair Import Investigations (OUII or “Staff”) ■ Administrative Law Judges ■ General Counsel’s Office Who’s Who at the ITC 17

Commissioners ■ 6 Commissioners ■ Role in Section 337 investigations: ■ Vote on institution of an investigation ■ Review Judge’s determination ■ Issue remedies ■ Advised by General Counsel’s Office throughout process 18

■ 6 Judges ■ Experienced judges ■ Familiar with intellectual property ■ Dedicated to Section 337 investigations ■ Role: ■ Preside over investigation ■ Recommend remedy Administrative Law Judges 19

Administrative Law Judges ■ Chief ALJ Bullock - appointed chief in 2011, ALJ in 2002 ■ ALJ Essex – appointed 2007 ■ ALJ Rodgers – appointed 2007 ■ ALJ Gildea – appointed 2008 ■ ALJ Pender – appointed 2011 ■ ALJ Shaw – appointed

■ Each investigation is assigned an OUII Staff attorney ■ The staff attorney acts as another separate party who represents “the public interest” ■ Role in Section 337 investigations: ■ Advise potential complainants about filing of complaint and information needed ■ Recommend to Commissioners whether or not to institute investigation ■ Participate heavily in discovery and trial ■ Judge often considers staff’s arguments carefully Office of Unfair Import Investigations (OUII) 21

Part Two Procedure for Obtaining Relief 22

“A Section 337 investigation is not mere litigation among private parties.” ■ In Rem Jurisdiction - ITC has jurisdiction over goods imported into the US ■ Protecting the Public Interest & Domestic Industry ■ Monetary damages are not available. ■ Scope of Discovery ■ Role of Customs This is not mere litigation 23

Similar to District Court Litigation ■ Patent Analysis and Legal Doctrines ■ Use of Experts ■ Discovery techniques ■ Cross Examination 24

Different from District Court Litigation ■ ITC jurisdiction is in rem ■ No jury and no Article III Judge, ALJ ■ OUII Staff – a 3 rd party to every investigation ■ Detailed fact pleading required ■ Scope of Discovery (nearly unlimited in the past, but now being moderately reined in) ■ Speed of Case ■ Standard Protective Order ■ Judge Ground Rules ■ Timing of Responses (10 days instead of 30) 25

■ Institution ■ Pre-Hearing (Discovery) ■ Hearing & Initial Determination ■ Commission Review & Final Determination ■ Presidential Review ■ Appeal Stages of USITC Investigation 26

■ Complainant prepares and files complaint ■ Fact pleading is required ■ May consult with OUII during drafting stage ■ Complainant must be owner or exclusive licensee of IP rights ■ OUII evaluates merits of complaint ■ May contact complainant or proposed respondents for more information ■ 30 day review period ■ Makes recommendation to Commissioners Institution: Filing a Complaint 27

■ The Respondent can be ■ Manufacturer of products sold to be imported into U.S. ■ Includes sales via foreign distributors ■ Manufacturer may be ignorant of importation ■ Importer of products into U.S. ■ Distributor/retailer of products within the U.S. ■ BUT often not targeted because they are the Complainant’s customers or potential customers Institution: The Respondent 28

■ Commissioners vote on whether to institute ■ Majority vote controls ■ If negative vote, Complainant can re-file a revised complaint ■ If institution is approved ■ Notice is published in Federal Register ■ Commission serves respondents ■ Investigation assigned to Judge Institution: Commission Vote 29

■ Section 337 requires investigation to be concluded “at the earliest practicable time” ■ Judge sets target date for completion ■ Usually months from institution ■ For a 12 month schedule: ■ Hearing occurs 6 months after institution ■ Judge’s initial determination issued 3 months after hearing ■ Commissioners have 3 months to review and issue final determination Pre-Hearing: Case Schedule 30

■ Provide rules for the investigation ■ Rules are in addition to Commission Rules ■ Somewhat analogous concept to Local Rules ■ Ground Rules are individual to the ALJ ■ Ground Rules and Commission Rules are different than the Federal Rules Pre-Hearing: Ground Rules 31

■ Protective orders are standard practice ■ Judge issues as a matter of course ■ All counsel and OUII must agree to abide by protective order ■ Limits access to confidential business information ■ Parties cannot view each other’s confidential business information ■ BUT counsel for parties, OUII, and experts can ■ Only counsel signed onto protective order can access confidential information Pre-Hearing: Protective Orders 32

■ Extremely broad scope of discovery ■ Products in development ■ Plant inspections common ■ Fact discovery less limited than in district courts ■ Only 10 calendar days to respond to discovery requests Pre-Hearing: Discovery 33

■ Depositions ■ Previously: unlimited depositions ■ Now: ■ Complainants will be limited to a maximum of five fact depositions per respondent, or no more than 20 fact depositions, whichever is greater. ■ Respondents, as a group, will be limited to a maximum of 20 fact depositions. ■ Staff may take 10 fact depositions ■ Interrogatories ■ Previously: usually unlimited ■ Now: Limited to 175, including subparts (compared to 25 in district court litigation) Fact Discovery 34

■ Rare to have issues extensively narrowed before hearing ■ Summary determination motions rarely granted ■ Parties may stipulate to domestic industry issues ■ Claim construction ■ Usually no Markman hearing, though that trend has been changing ■ Expert testimony may be extensive ■ May include technology “tutorial” for the Judge ■ Typically presented by experts ■ Often involves demonstration, video, or slide show Hearing: Issues Addressed 35

■ ALJs often choose to use witness statements instead of live direct testimony ■ Cross examination done live ■ Fact and expert witnesses prepare witness statements ■ Witness statements due with exhibits Hearing: Witness Statements 36

■ Pre-hearing briefs ■ Extensive arguments permitted (250+ pages) ■ Expert reports (or witness statements) may be relied on heavily ■ Exhibits & direct testimony pre-submitted ■ Post-hearing briefs ■ Must include proposed findings of fact ■ Must include proposed conclusions of law Hearing: Briefing 37

■ Governed by Administrative Procedure Act ■ Usually one to two weeks long ■ Live witness testimony ■ May be questioned by Judge ■ All parties (including OUII) may cross-examine ■ Often interpreters are used ■ Witness statements often used instead of live direct testimony ■ No jury ■ Special procedures to maintain confidentiality Hearing: Procedure 38

■ Judge prepares decision after hearing ■ Initial determination on violation ■ Recommended determination on remedy and bonding ■ Decision is very detailed and includes: ■ Opinion (often 100+ pages) ■ Findings of fact ■ Conclusions of law Hearing: Initial Determination 39

■ Within 45 days from ID ■ Commissioners decide whether to review Judge’s determination ■ Parties may file Petition for Review ■ Commissioners can review even if no party requests it ■ If Commissioners do not review, Judge’s determination becomes the ITC’s Final Determination Commission Review 40

■ If Commissioners do decide to review, they can review in part or in whole ■ May request briefing on particular issues from the parties ■ Usually decided on the briefs (no oral arguments) Commission Review 41

Commission Review ■ If Final Determination  No Violation ■ May appeal immediately ■ If Final Determination  Violation ■ Remedial orders issued ■ Determination subject to Presidential review ■ Respondent cannot appeal until after Presidential review period 42

■ Only occurs if violation of Section 337 found ■ 60 day period in which President can disapprove determination and proposed remedy for policy reasons ■ Disapproval is rare, but may be invoked as stakes grow, e.g., smartphone wars Presidential Review 43

■ All appeals to U.S. Court of Appeals for the Federal Circuit ■ Can appeal 60 days after decision is final ■ Decision of no violation is final when made ■ Decision of violation becomes final after end of Presidential review period, if not disapproved Appeal: Process 44

Part Three Proving a Violation of Section

■ Unfair act or method of competition ■ For instance, patent infringement ■ Importation ■ Domestic industry Elements of a Violation 46

■ Must prove: ■ Importation or ■ Sale for importation or ■ Sale within U.S. after importation ■ Considerations ■ De minimis importation (single product) ■ “Imminent” importation (on the verge of beginning imports) ■ Electronic importation, e.g., transmission over internet ■ Re-importation of domestic goods Importation 47

■ Focus is on activities within the U.S. ■ No U.S. citizenship required ■ Two prongs: ■ Technical ■ Economic ■ Need not be large industry ■ HOT TOPIC: Non-Practicing Entities (“patent trolls”) Domestic Industry 48

■ Complainant or licensee must be practicing intellectual property right ■ If alleged unfair act is patent infringement ■ Complainant or licensee must practice at least one claim ■ Need not be same claim that is allegedly infringed by Respondent ■ Is litigation expense enough? Technical Prong 49

■ Significant U.S. investment in: ■ Plant and equipment ■ Labor and capital ■ Exploitation of IP right ■ Engineering ■ Research & development ■ Licensing Economic Prong 50

Part Four Remedies and Enforcement 51

■ No damages ■ Commissioners consider whether relief is in the “public interest” ■ President can (but very rarely does) disapprove for policy reasons ■ Pressure to act in high stakes cases, e.g., smart phone wars. Limitations on Relief 52

■ Factors considered include: ■ Public health and welfare ■ Competitive conditions in U.S. ■ Production of competitive articles ■ Effect on U.S. consumers ■ Exemplary cases: ■ Fluidized Supporting Apparatus ■ Automatic Crankpin Grinders ■ Inclined Field Acceleration Tubes Public Interest Limitations 53

■ Policy reasons: ■ National economic interests ■ U.S. foreign relations ■ Public interest ■ Exemplary cases: ■ Stainless Steel Pipe and Tube ■ Dynamic Random Access Memories Policy Considerations 54

■ Exclusion order ■ General OR ■ Limited ■ Cease & desist order ■ Consent order (settlement) Available Remedies 55

■ Prohibits importation of infringing goods ■ General (GEO)  all goods ■ Limited (LEO)  only goods of named respondents ■ May also require importers to make a certification about products ■ Duration ■ Usually until patent expires ■ Can be indefinite, e.g., for trade dress Exclusion Orders 56

■ Appropriate if ■ “Pattern of unauthorized use” ■ Easy to avoid a limited exclusion order ■ Difficult to identify source of infringing goods General Exclusion Order 57

■ Gap between LEO and GEO often filled by including “downstream products” made or sold by: ■ Respondents ■ Non-respondents  Now ruled improper ■ A downstream product is one that contains or incorporates the infringing product ■ Telephone including infringing tone dialer chip ■ Computers containing infringing DRAM Downstream Products 58

■ Must name respondents to exclude their downstream products with a LEO ■ Can only exclude non-respondent products with a GEO ■ GEO difficult to obtain ■ ITC now less friendly to complainants ■ More attorneys attacking validity of patents ■ Decide whether to sue customers Non-Respondents & Downstream Products 59

■ U.S. Customs & Border Protection (Customs) enforces exclusion orders ■ Intellectual Property Rights (IPR) Branch interprets exclusion order and issues guidance to ports ■ Customs Ports of Entry (“Ports”) officials stop suspect products at all ports of entry into U.S. ■ If excluded, officially notify importer by letter (copied to ITC) ■ Subsequent shipments subject to seizure and forfeiture ■ Customs Labs ■ Main research lab in Virginia ■ 7 regional labs, including San Francisco lab specializes in electronics ■ Parties can work with Customs to provide guidance on enforcement Exclusion Order Enforcement 60

■ Directed to specific respondent ■ May issue in conjunction with or instead of exclusion order ■ Apply only to conduct inside the U.S., e.g.: ■ Marketing infringing goods ■ Selling infringing goods in inventory Cease & Desist Order 61

■ ITC enforces cease & desist orders ■ ITC brings civil action against non-compliant respondents ■ Maximum fine is the greater of 2X domestic value of imported item or $100,000 per day ■ ITC also enforces consent orders ■ Significant fines ■ Federal Circuit has upheld ITC authority Commission Enforcement 62

■ Rarely sought due to tight deadlines ■ Same test as for preliminary injunction in federal district court ■ Likelihood of complainant’s success in proving Section 337 violation ■ Must show irreparable harm to domestic industry (not presumed) ■ Temporary exclusion orders available Temporary Relief 63

■ Enforcement ■ Modification Proceedings ■ Must show “changed circumstances” ■ Issue is whether to change remedial order ■ Advisory Opinion ■ Must show “compelling need” for advice ■ Issue is whether new product infringes Other Commission Proceedings 64

Part Five The Role of Customs & other Agencies 65

Overview ■ The ITC has the primary, but NOT exclusive role in investigations under Section 337 of the Tariff Act of 1930 ■ You can lose the battle at the ITC and still win the war by gaining access to the U.S. market by working with other agencies: ■ Customs and Border Protection (CBP) is tasked with enforcing exclusion orders ■ Antitrust agencies (DOJ & FTC) have expressed concern over the pursuit of injunctive relief over standard-essential patents (SEPs) 66

Understanding the Role of Customs (CBP) ■ The Importance of Working with Customs ■ Customs Mixed IPR Mandate ■ Customs’ Offices that Deal with IPR ■ The IPR & Restricted Merchandise Branch (IPR Branch) ■ Getting Customs on Your Side 67

The Importance of Working with Customs ■ When an Exclusion Order is issued, the battle shifts to Customs ■ Customs will decide the applicability of exclusion order to new products, e.g., design around products ■ Customs also decides details of enforcement Certification & Bonding ■ You can win the war by getting Customs on your side 68

U.S. Customs and Border Protection – IPR Branch ■ Customs and Border Protection (CBP) ■ Now part of Department of Homeland Security ■ Customs has a mixed mandate with regard to IPR ■ Agency tasked with both enforcement of ITC exclusion orders and given ex officio authority to exclude products that infringe registered copyrights & trademarks ■ Customs’ “mixed mandate” can cause confusion with regard to the differences between exclusion order enforcement and stopping counterfeits. 69

Various Offices within CPB play a role in IPR ■ Field Operations -HQ & Port Personnel ■ 329 points of entry (land, air & sea) ■ More than one million passengers a day ■ 57,000 + containers every day ■ Import Specialists (product expertise) ■ Entry Specialists (handle protests) ■ Fines, Penalties and Forfeitures Office ■ (at each port, handle petitions) 70

Part Six Trends 71

Notable Trends ■ Chinese Companies Targeted ■ Broader Range of IP Rights ■ Trade Secret ■ Design Patent ■ Copyright ■ ITC Refuses to Stay Investigation Pending Inter Partes Review ■ Introduction of Inter Partes Customs Proceedings 72

Part Seven Summary 73

Advantages of Section 337 ■ Speed ■ Nationwide jurisdiction ■ Broad discovery ■ Effective protection of confidential information ■ Experienced forum ■ Patent claim interpretations usually not modified by later judges in other cases ■ Effective remedies 74

Disadvantages of Section 337 ■ Speed ■ No damages ■ Often no Markman hearing ■ No jury ■ Expensive ■ Domestic industry requirement ■ Public interest considerations ■ Presidential review 75

Special Considerations in ITC Actions ■ Relationship with ITC Staff counsel is key ■ Do not delay in discovery ■ “Choose your battles” ■ Summary judgment unlikely ■ Settlement terms are public & ITC must approve ■ Design-arounds – be careful with timing ■ If an exclusion order issues, work with Customs 76

Thank You! Michael Bednarek Partner Locke Lord LLP Mobile 77

Conclusion/Q&A 78