Practice and Procedure
The ITC’s Recent Sua Sponte Use of 100-Day Expedited Adjudication Procedure
Over the last few years, the International Trade Commission (“ITC” or “Commission”) has developed procedural mechanisms geared toward identifying potentially dispositive issues for early disposition in its investigations. These procedures are meant to give respondents an opportunity to litigate a dispositive issue before committing the resources necessary to litigate an entire Section 337 investigation.
In 2018, the ITC adopted 19 C.F.R. § 210.10(b)(3), which provides that “[t]he Commission may order the administrative law judge to issue an initial determination within 100 days of institution . . . ruling on a potentially dispositive issue as set forth in the notice of investigation.” Although the ITC denies the majority of requests by respondents to use this procedural mechanism, the ITC has ordered its ALJs to use this program in a handful of investigations to decide, among other things, whether the asserted patents claim patent-eligible subject matter, whether a complainant has standing to sue, whether a complainant can prove economic domestic industry, and whether claim or issue preclusion applies.
In a recent complaint filed in Certain Selective Thyroid Hormone Receptor-Beta Agonists, Processes for Manufacturing or Relating to Same, and Products Containing Same, Inv. No. 337-TA-1352, Complainant Viking Therapeutics, Inc. (“Viking”) alleged that respondents had misappropriated trade secrets to create their own drug candidates to compete with Viking’s VK2809 (phase 2) clinical drug candidate. As required by Section 337(a)(1)(A) governing trade secret cases, Viking alleged that the respondents’ unfair acts caused injury and threatened to cause injury going forward to Viking’s domestic industry. Viking’s theory of injury was based on the assumption that Viking’s VK2809 drug candidate and respondents’ ASC41 and ASC43F drug candidates would both receive FDA approval, would both launch into the same market, and would compete with one another. Viking’s complaint stated that its domestic industry product drug candidate, VK2809, will be brought to market in 2028.
Unlike past instances where the ITC employed 100-day proceedings, the Commission took the remarkable step of placing this investigation into a 100-day proceeding sua sponte on the issue of injury, even though no respondent raised the issue of injury as a basis to deny institution or order expedited adjudication. See Notice of Institution (Jan. 20, 2023). Respondents had not even argued that Viking’s injury allegations were deficient in their pre-institution filing. Commissioner Schmidtlein wrote separately to express her disagreement with the majority’s decision to order and expedited proceeding, noting that “these issues [are not] suitable for resolution within 100 days.”
While the Commission did not issue an order or notice setting forth its reasoning for invoking the 100-day procedure, it is likely that Viking’s allegations concerning injury gave the Commission pause because, even if true, the actual economic harm from the misappropriation would not occur until 2028 at the very earliest.
Although the ITC often makes its determinations whether to institute without providing its rationale, the ITC’s recent decision demonstrates that the ITC continues to look for ways to streamline its docket. The case is currently pending before Chief Administrative Law Judge Clark Cheney.
Post-Pandemic Hearing Procedures
The ITC has been back to the office since last fall. During the pandemic, the ITC was effective at holding virtual hearings to keep its docket moving. And, even though the ITC hearing rooms are open for hearings, ALJs at the ITC are continuing to use remote platforms when circumstances dictate, e.g., if the hearing rooms are booked. For example, ALJ Elliott recently held a virtual Markman hearing in Certain Video Processing Devices and Products Containing Same, Inv. No. 337-TA-1323. All of the ALJs currently have provisions in their Ground Rules governing the use of video technology. It remains to be seen whether ALJs will allow witnesses to provide remote hearing testimony for in-person hearings when it would be burdensome or not possible to travel to Washington D.C. to attend a hearing.
Chief Administrative Law Judge Cheney has issued a few orders that suggest that his practice will be to hold hearings primarily in person. For example, in Certain Pillows and Seat Cushions, Components Thereof, and Packaging Thereof, Inv. No. 337-TA-1328, CALJ Cheney issued an order “Requiring Appearance in Person at Upcoming [Markman] Hearing on February 8, 2023,” indicating that “[a]ny party who fails to appear at the hearing will waive any right to contest any issued scheduled for discussion at the hearing.” Order No. 17 (Jan. 23, 2023). In Certain Solar Power Optimizers, Inverters, and Components Thereof, Inv. No. 337-TA-1327, CALJ Cheney ordered oral argument on a summary determination involving collateral estoppel immediately following a Markman hearing. Order No. 9 (Jan. 20, 2023).
A Split Among Commissioners Means the ITC Will Continue to Close its Doors to “Mere Importers”
After considering its final disposition for ten months, the Commission issued its decision in Certain Artificial Eyelash Extension Systems, Products, and Components Thereof, Inv. No. 337-TA-1226 (“Artificial Eyelash Extension Systems”) in late 2022.
Lashify, Inc. (“Lashify”) is a company that makes, sells, and distributes at-home eyelash extension kits. It has 100 employees at a variety of office locations throughout the United States. The CEO of Lashify invented the domestic industry article when she was working out of her home in California and, once the company grew, Lashify employed contract manufacturers to manufacture the domestic industry article abroad.
When it came time to examine domestic industry, the Commission affirmed the ALJ’s finding of no domestic industry in the October 28, 2021 final ID. The Commission based its conclusion on, among other things, (1) its view that many of the domestic industry activities relied on by complainant Lashify Inc. (“Lashify”) were those of a “mere importer” and (2) its view that Lashify had failed to provide “credible and reliable” evidence of its domestic industry.
The Majority. The Commission majority (Commissioners Johanson, Kearns, and Stayin) found, on review, that Lashify failed to prove existence of a domestic industry. The majority began its analysis with the fact that Lashify’s domestic industry products were manufactured abroad, Comm’n Op. at 46, and, from there, proceeded to examine each domestic industry activity in that context before concluding that none of these activities should be counted toward domestic industry. Comm’n Op. at 46. In its explanation, the Commission majority faulted Lashify for what it repeatedly called “overinclusion” and “exaggerat[ion]” of expenses in domestic industry. E.g., Comm’n Op. at 49. The Commission majority declined to credit (1) quality assurance activities, (2) warehousing, and (3) distribution, among other activities. Comm’n Op. at 50-51. The Commission majority found that Lashify could not count sales and marketing because it “did not demonstrate that it has other significant qualifying expenditures.” Comm’n Op. at 53.
The Dissent. Commissioners Schmidtlein and Karpel dissented and would have found that Lashify satisfies the domestic industry standard. The dissent criticized the Commission majority’s findings that the Lashify’s evidence was unreliable and not credible as nothing more than “an affirmation of the ID’s finding that the majority of Lashify’s asserted investments . . . are not cognizable.” Comm’n Op., Dissent at 35. According to the dissent, “[t]here is no statutory basis to categorically exclude certain of Lashify’s claimed expenditures.” Comm’n Op., Dissent at 36.
The disagreement between the majority and the dissent is crystallized in the following passage from the dissent:
Concerns that a complainant could be a mere importer and therefore not afforded the protections of Section 337 is not something that can be evaluated by looking at complainant’s asserted activities one by one and dismissing investments in activities that may also be undertaken by “mere importers.” Rather, it is something that can only be evaluated looking at complainant’s activities as a whole to determine if the nature and extent of those collective activities distinguish it from a “mere importer.” . . . Nothing in the statutory language of subsection 337(a)(3) indicates that only certain types of investments in plant and equipment or labor or capital may contribute toward satisfying the domestic industry requirement.
Dissent at 39.
The ITC’s decision in Artificial Eyelash Extension Systems and the accompanying dissent provide a fairly clear picture of the disagreement among the Commissioners governing domestic industry. On the one hand, it appears that Commissioners Johanson, Kearns, and Stayin believe that any activities that a “mere importer” would engage in should be excluded categorically from the domestic industry analysis. On the other hand, it appears that Commissioners Karpel and Schmidtlein favor taking a more holistic approach of examining the industry before making any exclusions. Viewed another way, is the domestic industry inquiry governed by the language of Section 337(a)(3) or the Federal Circuit’s 1983 discussion of activities of a “mere importer” in Schaper Mfg. Co. v. US Int’l Trade Comm’n, 717 F.2d 1368 when viewed against the discussion of sales and marketing in the legislative history of the 1988 Amendments? It may be that the ITC’s “mere importer” test has taken on a life of its own to make it difficult for non-manufacturing industries to get protection from the ITC. The irony is that Lashify is not a mere importer by definition—it developed a product and then built a market for that product, all within the United States.
The Lashify opinion leaves many questions unanswered.
- Can a company that manufactures its product entirely abroad satisfy the domestic industry requirement?
- What is the Commission’s definition of a “mere importer” and does it extend to companies that engage in activities other than importation?
- For non-manufacturing industries, what non-importation activities are “qualifying” or “cognizable”?
- Are there any activities other than manufacturing, engineering, research, development, and licensing that the Commission would consider not to be those of a “mere importer”?
- If sales and marketing can only be counted when “there are significant expenditures in other qualifying activities,” Comm’n Op. at 39, is there ever a time when sales and marketing would matter?
- Does what constitutes mere importation depend on the type of industry at issue? Or are mere importation activities the same for all industries?
- Why do R&D activities for “low-tech” products and designs seemingly get less credit in the domestic industry analysis than R&D activities for high-tech products?
This case largely mirrors the Commission’s approach in recent cases. For example, in Certain In Vitro Fertilization Products, Components Thereof, and Products Containing the Same, Inv. No. 337-TA-1196 (Oct. 6, 2021), the same majority of Commissioners found—over the dissent of Commissioners Karpel and Schmidtlein—that no cognizable domestic industry existed, based on its finding that “many of Complainant’s investments are those of a mere importer. . .” Comm’n Op at 17. Unfortunately, it seems the current Commission is locked in this debate until the makeup of Commission changes. Currently, Commissioners Johansen and Schmidtlein are serving on expired terms and there is one open Commissioner seat.
The case is on appeal to the Federal Circuit (Appeal No. 23-1245).
Around the Agency
The ITC has selected a sixth administrative law judge. Doris Johnson Hines, a partner at Finnegan Henderson, has been appointed ALJ at the Commission to replace ALJ David Shaw who left the agency in 2022 to assume the post of Chief Copyright Royalty Judge at the Library of Congress. Ms. Johnson Hines has decades of experience litigating intellectual property cases in district court, the ITC, the PTAB, and the Federal Circuit. She has a degree in electrical engineering from Rensselaer Polytechnic Institute and a law degree from George Washington University.
With Ms. Johnson Hines’ appointment, the ITC is poised to have a full bench of active ALJs for the first time since early 2021. Given that the ITC is facing a rising case load—including a record-high number of active Section 337 investigations in 2022—the addition of a sixth ALJ is a welcome development that will ensure investigations are completed “at the earliest practicable time.” See 19 U.S.C. § 1337(b)(1).
For more information, the ITC issued a press release last week: https://www.usitc.gov/press_room/news_release/2023/er0223_63579.htm.