Risk of not responding to a USITC complaint

The US International Trade Commission (ITC) is a quasi-judicial federal agency located in Washington, DC. Among other responsibilities, the ITC investigates unfair practices in import trade, including patent infringement. If the ITC determines that articles being imported into the United States infringe on a US patent, the ITC it has the power to issue orders that bar such products from entry into the United States.

The process at the ITC

In the typical scenario involving a patent infringement investigation, a patent holder (called the complainant) files a complaint with the ITC. The complaint identifies a company or companies that sell products to be shipped to the United States, where those products are accused of infringing on the complainant's patent. These companies that are the target of the complaint are known as respondents.

Based on the complaint, the ITC typically decides to institute an investigation, which is a litigation proceeding where the complainant, the respondents, and the government participate. If an investigation is instituted, notice of the investigation is published in the US Federal Register. This notice identifies, among other things, the name of the patent holder, the names of the respondents, and the type of relief that was requested.

The power of the ITC

The ITC has the authority to issue orders that prohibit certain products from being imported into the United States. Such an order might be directed only to the products of the respondents (the companies that were specifically named in the complaint). This is called a limited exclusion order or LEO because it is limited to only those companies that were named in the complaint. However, if certain additional facts are proven, the ITC can also issue a general exclusion order or GEO, which can bar all products of a certain type from a country, regardless of whether the company that makes the product was specifically identified as a respondent in the complaint.

This power of the ITC, especially the authority to issue LEOs and GEOs, can have significant impact on businesses in China that seek to ship products to the United States. It can even impact businesses that do not directly ship products to the United States, but sell products to customers who put the products into goods that are shipped to the United States.

The risks

If an investigation is instituted, a notice of investigation is published, and the complaint and related papers are sent to a company named as a respondent. It is then that company's responsibility to respond to the complaint by filing the appropriate papers with the ITC. If a respondent fails to respond, the ITC can find that party in default. If a company is found in default, all facts in the complaint are deemed to be true and the ITC can find against the party, including a finding of patent infringement. The defaulting company also loses the right to participate in any further matters in the investigation, including the proceeding where the breadth of any exclusion order is discussed.

In fact, if a party is found to be in default, the ITC can immediately issue an LEO barring that company's products from entry into the United States, even if other respondents are still participating in the investigation. Thus, a finding of default can accelerate the issuance of an exclusion order by as much as 15 months.

Another issue to keep in mind If the complaint asked for a GEO, and all respondents failed to respond to the complaint, the ITC can issue a GEO if it determines that certain factors are met. This is significant because it means a general exclusion order barring an entire category of products from being imported into the United States can issue quickly, thereby impacting a company's business even though it was never identified as a respondent in an ITC complaint. Thus, it is always wise for a company to track the U.S. Federal Register to see if any investigations involving that company's business industry have been instituted where the complaint seeks a GEO. If so, there are ways to monitor the ITC proceedings to see if any respondents are in default. Also, there are methods for a company to participate in the protection of its business interests, even if the company was not named as a respondent.

Given the consequences of defaulting, it is almost always wisest to respond to an ITC complaint. In fact, even if a company does not want to put up a vigorous defense, it should still respond to the complaint in order to preserve its rights. The impact of a default is too great, especially the risk of accelerating the time that an exclusion order could issue. If a company responds to a complaint, it can then limit its participation in the investigation to the most efficient and minimal amount possible. This would save costs while protecting rights and extending the time of a possible exclusion order by at least 15 months. One should note, however, that total refusal to cooperate in the process after responding to the complaint can also lead to negative consequences, such as sanctions or adverse factual inferences.

Another benefit to responding to an ITC complaint is that it increases the possibility of a positive settlement. In a case of a default, the defaulting company loses all rights, and the patent holder has no pressure or incentive to discuss settlement with the defaulting company. However, if a party responds to the complaint, the patent holder knows that it will have to expend the money and effort to conduct a trial and it will not see any results for at least 15 months. Thus, once a party responds to the complaint, the chances of settlement increase dramatically.

A further benefit in responding to an ITC complaint is the potential to gain a competitive advantage over one's business rivals. In one ITC case, a number of Chinese companies were named as respondents. Only one company responded to the complaint, while the others failed to respond and were thus found in default. Those companies were then subjected to an LEO and their products were barred from the United States. However, the one company that did respond to the complaint was able to negotiate a settlement that permitted it to continue shipping products to the United States, making it the only Chinese company with the ability to do so. Thus, the minimal expense of responding to the complaint resulted in an enormous business advantage.

The author is an intellectual law partner in the Silicon Valley office of Dechert LLP. He can be reached at andrew.thomases@dechert.com. The opinions in this article are the author's own and should not be attributed to Dechert or its clients.