Overview
In Certain Electric Skin Care Devices, Brushes and Chargers Therefor, and Kits Containing the Same, Inv. No. 337-TA-959, the US International Trade Commission (ITC or commission) analyzed whether cease and desist orders (CDOs) were appropriate against defaulting foreign respondents. In this investigation, the commission held that CDOs were appropriate.
The complainant, Pacific Bioscience Laboratories, Inc. (PBL) alleged that respondents violated Section 337 through the importation, sale for importation, and sale within the United States after importation of electric skin care devices, brushes, chargers, and kits that infringed its patents. PBL requested remedial relief in the form of both CDOs and exclusion orders against the defaulting respondents.
To determine whether CDOs were appropriate against the defaulting, foreign respondents, the commission evaluated Section 337(g)(1), which governs remedies against defaulting respondents when the following preconditions are met:
“(A) [A] complaint is filed against a person under this section; (B) the complaint and a notice of investigation are served on the person; (C) the person fails to respond to the complaint and notice or otherwise fails to appear to answer the complaint and notice; (D) the person fails to show good cause why the person should not be found in default; and (E) the complainant seeks relief limited solely to that person[.]”
The Section provides that the commission “shall, upon request, issue an exclusion from entry or a cease and desist order, or both” against defaulting respondents. Section 337(g)(1). All of the commissioners agreed that the word “shall” under Section 337(g)(1) mandates remedial relief under that Section, but disagreed as to whether the word “or” gives the court discretion to choose among the remedies provided or merely recognizes the different forms of remedial relief that complainants may request.
The commission majority noted that CDOs are generally issued when complainants show that respondents “maintain commercially significant inventories in the United States or have significant domestic operations that would undercut the remedy provided by an exclusion order.” But if respondents default and do not participate in discovery, it is often difficult for complainants to support this showing with sufficient evidence. Complainants would not have to overcome this challenge to obtain CDOs under the rejected interpretation of Section 337(g)(1), which would compel the commission to grant CDOs upon request. But here, the commission read Section 337(g)(1) to allow discretion in determining whether complainant’s requested form of relief was appropriate.
Two of the commissioners opposed the majority’s reading of Section 337(g)(1) in separate opinions. Commissioner Schmidtlein argued that the word “shall” in Section 337(g)(1) does not give the commission discretion on whether to issue a cease and desist order and contrasted the use of “shall” in this Section to the use of “may” in Section 337(f)(1). Commissioner Schmidtlein argued that to read Section 337(g)(1) as also allowing discretion would render it superfluous as the commission would have the same discretion to issue CDOs regardless of whether the preconditions of Section 337(g)(1)(A)-(E) were satisfied.
Commissioner Kieff also opposed the majority’s reading of discretion into Section 337(g)(1), arguing that even if the words “shall, upon request” did not compel the commission to issue CDOs upon request, even minimal factual allegations supporting a CDO cannot be outweighed by a nullity from the defaulting opponent, given Section 337(g)(1)’s instruction that the commission “shall presume the facts alleged in the complaint to be true.” Further, Commissioner Kieff argued that neither Section 337(f)(1) nor Section 337(g)(1) necessitated a showing of a commercially significant domestic inventory.
In determining whether to issue CDOs in this investigation, the commission noted that it was able to infer from the record and factual allegations in the complaint that the foreign, defaulting defendants maintained commercially significant domestic inventories. The commission cited evidence of the following:
- US distributors’ selling infringing products, including those of the respondents, through online retailers;
- Short lead times between order placement and delivery, low shipping costs, and other indications that US purchases of the respondents’ infringing products were made from US inventories;
- The respondents’ involvement in US business operations with respect to infringing devices; and
- The widespread availability of the respondents’ infringing products via online retailers.
While all of the commissioners agreed with the issuance of CDOs in this investigation, the commission’s opinion may make it more difficult for complainants to obtain a CDO against foreign, defaulting respondents. While 19 U.S.C. § 1337(g)(1) does not require proof of commercially significant inventory or business operations, if the holding in this case is followed, in order to obtain CDOs against foreign, defaulting respondents, complainants will have to provide adequate support, without the benefit of discovery, to establish that the foreign, defaulting respondents maintain commercially significant inventory or business operations in the US.
