We previously wrote about the ITC Commissioners’ split on the standard for the issuance of cease and desist orders.  In recent opinions, Commissioners Schmidtlein and Kieff have written separately to express their view that ITC precedent requiring a complainant to show commercially significant domestic inventory of accused products in order to obtain a cease and desist orders should be overturned.  This month, in Certain Arrowheads with Deploying Blades and Components Thereof and Packaging Therefor, Inv. No. 337-TA-977, the Commission weighed in on the standard for obtaining a cease and desist order where the respondents default.  The majority held that the ITC will only issue a cease and desist order against a defaulting respondent when evidence of domestic inventory of accused products is provided in the complaint.  In such circumstances, the ITC will presume that the domestic inventory is commercially significant because the respondent defaulted.

The Case

The ITC instituted the investigation on December 22, 2015, based on a complaint filed by FeraDyne Outdoors LLC and Out RAGE LLC alleging that multiple respondents import products that infringe eight patents and a registered trademark.  Eight of the nine respondents defaulted and Complainants withdrew the complaint as to the ninth respondent.  The ALJ granted a motion for summary determination finding a violation of Section 337 with respect to the defaulting respondents and recommended a general exclusion order but not cease and desist orders.

The Commission upheld the ALJ’s initial determination that respondents violated Section 337 and issued a general exclusion order as to all asserted patents and the registered trademark.  With respect to cease and desist orders, the Commission looked to the language of Section 337 to determine the appropriate standard.  The Commission noted that Section 337(d), (f)(l), and (g) provide it the authority to issue permanent relief in the form of an exclusion order and/or a cease and desist order upon finding a violation of Section 337.  The Commission further explained that Section 337(g)(l) provides remedial authority directed to defaulters when requested.  It concluded that the mandatory language of the provision (“shall”), coupled with the use of the coordinating conjunction “or,” requires the Commission to issue relief as to the defaulting respondent in the form of three alternative choices—an exclusion order, a cease and desist order, or both.

The Commission held that a cease and desist order will only issue against a defaulting respondent if the complaint includes allegations of domestic inventory along with accompanying documentary evidence.  The Commission based this decision on its long-standing precedent with respect to non-defaulting respondents that “[a] complainant seeking a cease and desist order must demonstrate, based on the record, that this remedy is necessary to address the violation found in the investigation so as to not undercut the relief provided by the exclusion order.”  It acknowledged that “discovery may be difficult, if not impossible, to obtain from the parties, and hence there are limited facts available in the record,” but that requiring some evidence of domestic inventory in the complaint is “a sensible and reasonable approach for determining an appropriate remedy for each defaulting party, particularly due to the potential challenges to enforcement of a domestic order against a foreign company without any commercially significant inventory or business operations in the United States.”

The Commission applied this standard and found that a cease and desist order should only issue against one respondent.  With respect to that respondent, the Commission found that the complaint included evidence that one shipment of infringing imported articles was shipped domestically from Las Vegas, Nevada.  It further found that because the respondent had defaulted that the Commission presumes that the respondents’ domestic operations and inventory are significant.

Commissioners Schmidtlein and Kieff dissented from the majority’s findings as to cease and desist orders with Commissioner Schmedlein providing additional views.  Commissioner Schmidlein took the position that Section 337(g)(1) requires the issuance of a cease and desist order when there is a finding of a violation of Section 337 as to a defaulting respondent.  She contrasted the permissive language in Section 337(f)(1), which provides that the Commission “may” issue a cease and desist order against a participating respondent, with that of Section 337(g)(1), which provides that the Commission “shall, upon request, issue an exclusion from entry or a cease and desist order, or both.”  She then explained that even if the Commission had discretion under Section 337(g)(1), cease and desist orders are still warranted here because the Commission had previously found that it had personal jurisdiction over the defaulting respondents, and that failing to issue a cease and desist order in these circumstances would provide an incentive for foreign respondents to default.

Takeaway 

The ITC’s final determination expands its standard for the issuance of cease and desist orders to defaulting respondents.  A party seeking relief in the ITC should therefore endeavor, where possible, to include in the complaint allegations and supporting evidence that respondents maintain a domestic inventory of accused products.

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