LAW & ORDERS

Foreign Knock-Offs Hurting Your Bottom Line? Block Them With the ITC

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Foreign Knock-Offs Hurting Your Bottom Line? Block Them With the ITC

Stopping foreign knock-off products can be difficult. Sellers flood online marketplaces, stealing away legitimate sales and diluting your brand. Often, the source of the troublesome products can be difficult or impossible to determine, making litigation expensive and likely ineffective. But there is a powerful and efficient weapon designed to cut through the fog of foreign supply chains and online retailing to stop infringement. The broad remedies available from the U.S. International Trade Commission (ITC) can be a company’s best option for stopping mass-market infringement.

What Is the ITC?

The ITC is a federal agency with a mission to protect domestic companies from unfair competition related to imported products. Congress requires the ITC to commence Section 337 investigations when a complaint details the import of products that infringe upon intellectual property (IP) or otherwise inflict damage upon the complaining company. In most ITC investigations, the unfair act is patent infringement, but any intellectual property—registered or unregistered—can be named in a complaint. Moreover, the unfair act can go beyond IP to include false labeling, trade secret theft, or breach of contract, among others.

Can Anyone Use the ITC?

The ITC was established to protect “domestic” industries. But a company doesn’t need to manufacture its product inside the United States or even be headquartered there to qualify as a domestic company.

If the complaint is based on registered IP, such as a patent, trademark, or copyright, then the company must show two things: That it produces a product (or contracts for production) that employs or embodies that registered IP, and that it invests domestically in facilities, personnel, capital spending, or research and development efforts. The product affected doesn’t need to be manufactured in the United States as long as the company makes qualifying domestic investments.

Other complaints must show investment similar to that for registered IP, but with a couple of notable differences: There is no requirement that unregistered IP (e.g., trade secrets or trade dress) actually be practiced by the company’s products, and the company must show injury or threat of injury to the domestic industry resulting from the unfair imports. Such injury can include lost profits, price suppression or erosion, underselling, or consumer confusion.

If a company alleging an unfair act meets the domestic industry requirement and shows that at least one accused article was imported into the United States, the ITC will serve a complaint on the accused parties by overnight mail, and the case will begin immediately. By contrast, federal district court cases begin only after the plaintiff serves the complaint on the defendant under the complicated rules of The Hague Convention, a process that can take months.

How Does an ITC Investigation Work?

A significant advantage of an ITC investigation is that it allows a complaining party (complainant) to efficiently join many unrelated parties (respondents) in a single action. For example, 20 or more respondents can be brought into a single legal action, even if they have no relationship to one another. This is a major distinction from federal district court, where defendants can be brought into a single lawsuit only if all were involved with the alleged act.

Once underway, the case is assigned to an administrative law judge, who sets a date for completing the case in no longer than 16 months. Cases involving knock-offs often reach a final decision in as little as 12 months.

What Happens When the ITC Finds a Violation?

Two forms of relief are dispensed by the ITC: exclusion orders and cease-and-desist orders (CDOs). Exclusion orders come in two forms: limited and general. Limited exclusion orders (LEOs) exclude only the infringing products of the respondents specifically named in the investigation.

The more powerful general exclusion orders (GEOs) block importation of all products connected with the unfair acts from any source—even if that source was not named in the investigation. To win a broader GEO, a party must show that the bad actors are difficult to identify or likely to circumvent a LEO—facts that are usually present in the circumstances of widespread, mass-marketed infringement.

In most ITC investigations, the unfair act is patent infringement, but any intellectual property—registered or unregistered—can be named in a complaint.

The ITC also issues CDOs against respondents. These prohibit respondents from disposing of domestic inventories and advertising the sale of the accused products. Significantly, the penalties for violating a CDO can be severe—up to $100,000 per violation day—and the ITC regularly assesses massive civil penalties even for technical violations. Such steep penalties usually dissuade respondents from ignoring a CDO.

Together, exclusion orders and CDOs can make the U.S. market unattractive and unprofitable for would-be importers of problem products.

Who Uses the ITC?

Pursuing matters before the ITC may seem like something only “other companies” do, but that’s not the case. Companies of all sizes have woken up to the speed and efficiency of the process compared to traditional action in a federal court.

In fact, some of the heaviest users of the ITC in recent years have been small to mid-size companies battling mass-marketed online sales of infringing products. For these companies, exclusion orders and CDOs can substantially reduce or eliminate the import of unfair imports, clearing the way for them to grow their brands without unfair competition from knock-offs sold online alongside authentic products.

The ITC’s efficiencies and broad remedies make it an ideal forum for companies battling unfair competition online. If your company invests domestically and is losing money due to unfair imports, experienced counsel who understand the ITC’s unique rules and strategies can help you determine whether an ITC action is the best option in your specific situation.