DOMESTIC OPTIONS FOR PROTECTING YOUR TRADEMARKS IN A GLOBAL ECONOMY

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1 Protecting Your Trademarks In a Global Economy October, 2008 DOMESTIC OPTIONS FOR PROTECTING YOUR TRADEMARKS IN A GLOBAL ECONOMY TRADEMARK LITIGATION VERSES CLAIMS UNDER SECTION 337 OF THE ITC by J. Daniel Harkins Cox Smith Matthews Incorporated Trademark Litigation verses Claims Under Section 337 of the ITC In todayʼs global economy, protecting intellectual property rights, including trademarks, has become increasingly more important. As a consequence, corporate counsel and intellectual property attorneys are now, more than ever, faced with the task of developing a comprehensive legal strategy to protect their corporationʼs domestic and international intellectual property interest against foreign infringers. When confronted with infringement of a corporationʼs trademark by foreign competitors, there are several options that a domestic corporation has. First and foremost among these is the right to sue for trademark infringement in federal district court. However, there are limitations to such actions including, but not limited to, the ability to obtain jurisdiction over the foreign competitor. As an alternative to trademark litigation, trademark owners should consider their rights under Section 337 of the Tariff Act of Under Section 337, the International Trade Commission (the ITC ) is authorized to block imports when importation is found to involve unfair competition such as the infringement of patents, trademarks or copyrights. The purpose of this paper is to briefly compare the advantages and disadvantages of federal trademark infringement litigation to those associated with the filing of an ITC Section 337 complaint. A. General Overview of Section 337 Section 337 was designed to prevent unfair competition originating abroad from injuring the U.S. economy. The statute declares unfair methods of competition and unfair acts in the importation of articles into the United States, sale for importation, or the sale within the United States after importation as being unlawful. 1 In practice, Section 337 has been used primarily to remedy imports that infringe U.S. patents and federally registered trademarks. 2 Nevertheless, Section 337 can also provide relief from imported articles that infringe U.S. copyrights as well as other unfair methods of competition and unfair acts, such as common law trademark infringement, misappropriation of trade secrets and trade dress. 3 Thus, much like the Lanham Act, Section 337 may be very powerful tool for a corporation to use in order to prevent unfair competition and importation of goods which infringe registered or unregistered trademarks. B. Complaint in Federal Court vs. ITC Section 337 Complaint As with a typical lawsuit, a Section 337 Investigation is initiated by the filing of a complaint with the ITC. However, the typical section 337 complaint is much more detailed. In typical trademark infringement litigation filed in Federal Court, the complaint has general allegations of infringement, ownership of rights in a registered or unregistered trademark and a general description of alleged unlawful conduct, generally complaining that the defendantʼs goods infringe the registered or unregistered trademark or trade dress. Under the Federal Rules of Civil Procedure, simple notice pleadings are sufficient to establish a complaint for trademark infringement.

2 Protecting Your Trademarks In a Global Economy Page 2 Under Section 337, in order for the ITC to institute a Section 337 investigation, a complainant must establish, through the filing of a complaint, the following: (1) an unfair method of competition or unfair act (i.e. the infringement of a valid and enforceable registered trademark); (2) involving the importation of articles into the United States, sale for importation, or the sale within the United States after importation; and (3) that an industry in the United States relating to the patent, copyright or trademark at issue exists or is in the process of being established. 4 In cases involving the infringement of registered intellectual property rights under section 337(a)(1), there is no injury requirement. The complainant must file a fact based and detailed complaint, including claims and details about the domestic industry and the opponentʼs infringing sales. If the complaint complies with the ITCʼs procedurals rules, the ITC must institute an investigation. The ITC then provides official notice of the investigation by publication in the Federal Register. The case is then assigned by the ITC to an administrative law judge. Although the proof required in order to establish a cause of action in an ITC proceeding is identical to that which is required in the federal district court, inasmuch as the claim is based on the same violation of the Lanham Act, the administrative law judge in the ITC proceeding often has a substantial expertise in the particular area of intellectual property. Whereas federal district courts have jurisdiction to hear a wide variety of cases, ranging from criminal law to various types of complaints involving various federal statutes, the ITCʼs jurisdiction under Section 337 is significantly limited to hearing complaints alleging unfair acts and unfair methods of competition pertaining to the importation of goods into the United States. As a result, the administrative law judges who preside over Section 337 investigations have developed substantial expertise in the particular area of intellectual property law. When an investigation is instituted, the ITC assigns an Administrative Law Judge to preside over the proceedings and to render an initial decision (referred to as an Initial Determination ) as to whether Section 337 has been violated. The ITC also assigns an investigative attorney from the ITCʼs Office of Unfair Import Investigations, who functions as an independent litigant representing the public interest in the investigation. The staff investigative attorney is a full party to the investigation. C. Jurisdiction and Venue In trademark infringement litigation, the infringement proceeding is often filed in the jurisdiction and venue where the defendant resides or where the trademark infringement occurred. With respect to a foreign defendant, it is oftentimes difficult to obtain jurisdiction or venue over the foreign entity. Thus, one is left to attempt to find jurisdiction over an affiliate company or the entity importing the alleged infringing goods. As a result of the difficulty of determining jurisdiction and venue, there are often numerous disputes over whether the federal district court has personal jurisdiction over one or more of the parties to the suit. Unlike federal district courts, jurisdiction of the ITC is nationwide and is in rem. The second element required for filing a complaint is that the unfair act or method of competition involves imports in the United States, sale or importation, or the sale within the United States after importation. This invokes the in rem jurisdiction of the ITC. Accordingly, when a piece of property is within the United States borders, the ITC has power to grant relief against the property, not the party. As a result, Section 337 investigations are often brought against persons or entities that do not reside within the borders of the United States. This in rem jurisdiction offers significant benefits when pursuing a foreign entity. The in personam jurisdiction issues of federal district courts are alleviated and the dispute over whether a particular defendant has sufficient contacts with the foreign district in order to satisfy the in persona jurisdiction of the court is virtually eliminated. The sole issue is whether the accused product of the potential respondent has been imported, sold or is otherwise located in the United States. Thus, the dispute over jurisdiction is much less complicated than the oftentimes highly controverted issue of whether the individual potential defendant can even be located within the United States.

3 Protecting Your Trademarks In a Global Economy Page 3 D. Discovery and Rules of Procedure Complaints for trademark infringement filed in the federal district court are governed by the Federal Rules of Civil Procedure. Likewise, Section 337 investigations are conducted in accordance with procedural rules that are very similar to the Federal Rules of Civil Procedure. The ITC procedural rules (found in 19 C.F.R. Part 210) are typically supplemented by a set of Ground Rules issued by the presiding Administrative Law Judge. The procedural rules and Administrative Law Judgeʼs Ground Rules provide important details regarding such matters as the taking of discovery and the handling of motions. However, discovery and motions are set on an expedited basis in Section 337 investigations. Whereas a typical trademark infringement action may take several years to get to trial in federal district court, the ITC usually rules within 12 to 18 months after an investigation is instituted. As a result, discovery and proceedings are much more intense and expedited in an ITC proceeding. Typically, discovery and motion responses are due in 10 days and there are no limits on depositions and the number of interrogatories. Moreover, in an average Section 337 case, discovery is completed within approximately five months of the filing of the complaint. The expedited and relatively predictable schedule for Section 337 proceedings provides complainants with various benefits over traditional Federal Court proceedings which typically take several years. The average time to trial in the ITC in 2007 was nine months from initiation of the investigation, with the administrative law judgeʼs Initial Determination being issued within 12 months. Obviously, one of the advantages of a Section 337 investigation is a quick resolution of the dispute. However, this requires the complainant to be fully prepared before filing and offers very little opportunity to refine theories or change strategy. Also, if the complainant is not fully prepared before filing the complaint, the respondent can almost immediately propound discovery against the complainant and burden the complainant with significant discovery. Thus, it is critical that the 337 complainant be fully prepared before it files its complaint. E. Remedies In a typical trademark infringement action filed in Federal Court, the trademark owner seeks injunctive and monetary relief against the infringer. Under the Lanham Act, upon prevailing under a claim of trademark infringement, the trademark owner is entitled to recovery monetary damages, including loss profits and the profits of the infringer, as well as attorneyʼs fees and costs, and in appropriate circumstances, an injunction preventing the infringer from selling the infringing goods. Under Section 337, the prevailing party is only entitled to injunctive relief. Damages are not recoverable at the ITC. Upon a finding of infringement, the ITC can issue a limited or general exclusion order. A limited exclusion order directs the United States Customs to preclude entry into the United States any infringing products made or being imported by the respondent named in the investigation. The limited exclusion order applies only to the infringing goods associated with the respondent. A general exclusion order however excludes from the United States not only products associated with a particular respondent, but all products that infringe the trademark, regardless of whether the entity making, importing, selling or using it has been named as a respondent in the notice of investigation. Because the general exclusion order affects all products, including owners who were not before the ITC, a general exclusion order is difficult to obtain. 5 In general, a limited exclusion order is more commonly granted. Nevertheless, a limited exclusion order prevents the infringing products of the respondent from being imported into the United States. Additionally, the ITC has the right to issue a cease and desist order to prevent the sale of product that has been imported into the United States. To issue such relief, the ITC requires a complainant to show that there exist within the United States commercially significant inventories of the infringing articles. This remedy is designed to prohibit sale of infringing goods by U.S. subsidiaries that were previously imported into the United States. As stated before, the ITC does not have the power to grant monetary damages or attorneyʼs fees and costs. While this is a limitation of ITC proceedings, it is often the case that it is difficult, if not impossible, to locate sufficient assets which a federal district court can attach to satisfy a judgment. In such instances, what is most important is to prevent the importation and sale of the infringing goods.

4 Protecting Your Trademarks In a Global Economy Page 4 F. Counterclaims Finally, with respect to Federal Court trademark infringement litigation, it is often the case that the defendant will file counterclaims against the plaintiff alleging other causes of action against the plaintiff, including claims of anti-trust violations and unfair competition. In an ITC proceeding no counterclaims are permitted. Thus, preparation before commencement of the investigation gets a tremendous advantage to the complainant in the fast-moving ITC proceeding. In such proceeding, the focus is generally on the respondentʼs conduct and infringing goods. The respondent is often caught unaware of the complaint and is in a significant disadvantage in responding to the complaint. G. Role of ITC Staff One unusual aspect of an ITC proceeding is that the ITC staff takes an active role in the proceeding. As stated above, the ITC staff attorney is a party to the proceeding, and participates in the proceeding, including the taking of discovery and presenting evidence at the hearing. The ITCʼs staff attorney serves the role of protecting the public interest. The ITC staff attorney is a neutral party with no stake in the ultimate outcome of the proceeding. However, when the staff attorney makes known his or her position on the issues, it is typically granted a great deal of weight by the administrative law judge. H. Jury Trial Although most trademark infringement actions in Federal Court are tried to a jury, such is not the case in a Section 337 hearing. Instead, a Section 337 case is tried to the administrative law judge who proceeds in a manner similar to a civil trial before a Federal District Judge. However, as noted earlier, inasmuch as the administrative law judge handles only these types of cases, he is often well versed in the law. Following a hearing and post hearing briefs, the administrative law judge is required to issue an Initial Determination on whether a violation exists no later than three months before the target date and a recommended determination concerning remedy and bonding within 14 days after the Initial Determination. 6 I. Default Judgments Under Section 337, defaulting respondents are put as a significant disadvantage. The statute creates a presumption that the facts alleged in the complaint are true and requires the ITC, upon request, to issue a limited exclusion order or cease and desist order against the respondent who fails to appear and answer in the complaint. The ITC may issue a general exclusion order if no one contests the alleged violation and their violation is established by substantial evidence. 7 This could substantially effect the importation of infringing goods. J. Conclusion Given the broad injunctive relief that the International Trade Commission has been vested with by Section 337, proceeding under this section can be a significant and potent tool for trademark owners seeking to enjoin the importation of infringing goods. The fast-track nature of the proceeding also provides litigants a significant advantage, provided that the litigant is well prepared prior to the filing of the proceeding. Although an ITC proceeding does not provide a litigant with an opportunity to recover monetary damages, it does provide a significant tool to enjoin the importation of the infringing goods.

5 Protecting Your Trademarks In a Global Economy Page 5 1 See 19 U.S.C. 1337(a). For additional information on Section 337 Investigations, see U.S. International Trade Commission Publication No 3708, Section 337 Investigations, Answers to Frequently Asked Questions 2 Section 337 specifically declares the infringement of the following statutory rights to be unlawful import practices: a U.S. patent or a U.S. copyright registered under Title 17, a registered trademark, a mask work registered under chapter 9 of Title 17, or a boat hull design protected under chapter 13 of Title 17. See 19 U.S.C. 1337(a)(1)(B)-(E). 3 See Certain Ink Markers and Packaging Thereof, Inv. No. 337-TA-522, USITSC Pub. No. 3971(Commʼn Op.) (2007)(granting general exclusion order prohibiting the entry of certain ink markers and packaging thereof that bear Sanfordʼs federally registered SHARPIE trademarks and protected trade dress rights). 4 See 19 U.S.C See Certain Ink Markers and Packaging Thereof, Inv. No. 337-TA-522, USITSC Pub. No. 3971(Commʼn Op.) (2007)(complainant seeking a general exclusion order must show both (1) a widespread pattern of unauthorized use of its patented invention and (2) certain business conditions from which one might reasonably infer that foreign manufacturers other than the respondents to the investigation may attempt to enter the U.S. market with infringing articles) C.F.R (a)(1). 7 See Certain Ink Markers and Packaging Thereof, Inv. No. 337-TA-522, USITSC Pub. No. 3971(Commʼn Op.) (2007)(ITC empowered to issues general exclusion order in trademark and trade dress action when no person appears to contest an investigation concerning violation of this section, if certain conditions are met). This article is for informational purposes only and is not intended as basis for decisions in specific situations. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Copyright 2008 USLAW NETWORK, Inc. All rights reserved.

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