CHAPTER 3 THE EVOLUTION OF LIMITED EXCLUSION ORDER RELIEF
3.3 E NFORCEMENT W OES
Restricted by above doctrines, the USITC’s enforcement of in rem exclusion order relief gave rise to apparently difficult technical problems. Not only did the enforcement of process patents prove difficult, but the choice between exclusion orders and cease-and-desist orders often proved incapable of rational decision-making.
3.3.1 Product Patent Woes
Even a relatively simple product patent could result in inappropriate detention of non-infringing articles.
171 Hollow Fiber Artificial Kidneys, Recommendation that Notice of Investigation be Amended (Order No. 3), Inv. No. 337-TA-81 (1980). (“The Commission has wide discretion in determining whether a practice constitutes an unfair act. In re Von Clemm, 229 F.2d 441 (C.C.P.A. 1955). If the Commission allows two separate counts in the investigation, one count could support an exclusion order and the other could support an order to cease and desist”).
172 E.g., Breach of contract as a cause of action, as suggested by the opinion.
In 1979, the U.S. Customs detained a batch of allegedly patent-infringing golf balls.173 On March 22, 1979, the golf balls entered a U.S. port. On April 17, 1979, a preliminary analysis found that the golf balls could have been patent infringing. On November 2, 1979, the U.S. Customs Service finally cleared the shipment. By the time of release, many potential golf ball users in the north would had stopped playing golf because it was already too cold. It took the Customs more than seven months to clear the golf balls because the “Infringement Test Procedure” supplied by complainant was overbroad.174 If the USITC failed to catch this error, the complainants, infringing respondents and the public might not have the incentive to correct the mistake in advance.
3.3.2 Process Patent Woes
The relief problem created by process patents can be best illustrated by analysis of an early investigation that resulted in a troubled exclusion order, Multicellular Plastic Film, USITC Inv. No, 337-TA-54.
In Multicellular Plastic Film, the patented article was a swimming pool cover. This covering material was made of two thin plastic sheets sandwiched with numerous protruding air cells.175 The air pockets insulate pool water from the freezing cold air during winter.
Although the product was “old in the art,” Sealed Air had managed to obtain a patent covering a new and, arguably, non-obvious process for making the film.
During the investigation, the ALJ has found at least one Taiwan-based respondent practiced a non-infringing process for making equivalent multicellular plastic film. The ALJ, USITC and the Customs were aware of the difficulty in distinguishing infringing articles from non-infringing ones. Notwithstanding substantial evidence militating away from broad relief, the USITC determined to issue an exclusion order:176
We find that an exclusion order is the appropriate remedy for the violation of section 337 we have found to exist. … A cease and desist order would not, in our judgment, be an appropriate remedy in this case because such
173 Based on an exclusion order issued pursuant to Molded Golf Balls, Inv. No. 337-TA-35.
174 14 Cust. B. & Dec. 984, 986.
175 This pool covering material is essentially oversized Bubble Wrap® which is also a popular Sealed Air product. Bubble Wrap®, plagued by its over-popularity, may also become a genericized trademark.
176 Multi-Cellular Plastic Film, USITC Pub. 987, Inv. No. 337-TA-54 (1979).
order would not include within its scope foreign manufacturers and domestic importers not named in the order.
Because this case involves a process patent …, issuance of an exclusion order may present difficulties of administration for the U.S. Customs Service.
These difficulties arise from the fact that there is evidently no way to distinguish, either visually or by laboratory testing, multicellular plastic film manufactured by the patented process from film manufactured by noninfringing processes. The Commission’s order in this investigation addresses this problem by providing in paragraph 3 that persons … desiring to import multicellu[l]ar plastic film may petition the Commission to institute further proceedings for the purpose of determining whether the film sought to be imported should be allowed entry into the United States. With respect to film produced by foreign manufacturers who were not respondents in the Commission’s investigation, paragraph 3 is intended to insure that only such film found upon further investigation not to have been manufactured by a process infringing claims 1 and 2 of the ’984 will be allowed entry. The effect of paragraph 3 is to place the burden of establishing noninfringement upon would-be importers rather than to require complainant, the aggrieved party in this matter, to prove infringement.
The USITC was reluctant to issue Cease-and-Desist Order remedy despite of its availability because of the number of potential U.S. buyers and worldwide infringers. In majority’s view, a Cease-and-Desist Order would be useless against potential future infringement. Based on the remedial matrix analysis introduced previously, the large number of infringers and buyers did make this case highly eligible for in rem exclusion order relief (Fourth Quadrant).
Makers
Few Many
Few (II) (I)
Cease-and-Desist Order Buyers Many (III) (IV)
Possibly 337-TA-54
TABLE 3-3 A REMEDIAL MATRIX FOR INV.NO.337-TA-54
However, it was difficult to distinguish infringing articles from non-infringing ones.
This serious drawback made the case not only unsuitable to Cease-and-Desist Order relief, but also not suitable for traditional in rem exclusion order relief. The USITC decided to issue an
in rem exclusion order anyway. Later, the appellate court affirmed this unsophisticated
determination.The U.S. government was well aware of the hidden costs of exclusion orders.
However, issuing Cease-and-Desist Orders against U.S. domestic business could lead to an even more undesirable outcome.
3.3.2.1 Subsequent Exclusion Difficulties
The exclusion order issued pursuant to Multicellular Plastic Film initiated one of the first major conflicts in the USITC’s early history. On June 29, 1979, ALJ Saxon issued a process based exclusion order. Since the Customs can hardly distinguish patent-infringing films, the USITC required importers to make a “petition the Commission to institute further proceedings for the purpose of determining whether the film sought to be imported should be allowed entry into the United States.”177 This cumbersome requirement practically excluded all pool-covering film.
The burden of showing infringement used to be carried by patentees. By the new rule, the importers must show proof of non-infringement for every incoming shipment of
“suspicious” goods. This shift of burden posed a chilling effect on international trade, because the time and money spent on non-infringement proof could render a small shipment of plastic film or other products unprofitable. It immunized the patentee from small-scale competitions (e.g., small competitors or limited shipments).
3.3.2.2 The Unsuccessful First Challenge
The first petitioner against the Multicellular Plastic Film’s exclusion order was a self-asserted non-infringing Canadian manufacturer. It filed a petition to the USITC questioning the legality of the exclusion order. The USITC denied the petition, and further denied the request for an expedited proceeding. It then requested the CCPA to issue a writ of mandamus to the USITC to vacate the exclusion order.178
The
Multicellular Plastic Film investigation initiated another consolidated lawsuit, Sealed Air Co. v. U. S. International Trade Commission (C.C.P.A. 1981), where the USITC’s in rem exclusion practice was alleged to constitute an unfair practice in the import trade. The
177 Id.
178 Canadian Tarpoly Co. v. United States International Trade Commission, 649 F.2d 855, 855 (C.C.P.A. 1981).
CCPA rejected such an affirmative defense. Chief Judge Howard Markey authored the majority opinions for both cases and held:179
The ITC could exclude all such products from entering the U.S., … . That remedy risked unfairness to a foreign manufacturer entitled to entry, … .
Alternatively, the ITC could allow [other foreign manufacturers] to continue to ship … such products into the U.S. until Sealed Air could file another complaint against [new respondents] … . That alternative risked unfairness to American industry injured by importation during the period necessary to reach those determinations.
The ITC chose to resolve the issue in favor of American business. … In view of the ITC’s expertise in evaluating the likelihood of injury to American business, and absent a showing of loss of protectable rights, it is not the function of a court to substitute a different remedy of its own design for that chosen by the ITC, or to substitute its view of the public interest for that of the ITC.
It is noteworthy that Judge Markey’s first paragraph (“exclude all such products”) implied General Exclusion Order; his second paragraph (“could allow [others] to continue to ship”) recognized the possibility of more limited relief, which the USITC refused to grant at the time of that decision. Failure for the Canadian company to prove “loss of protectable rights” was the reason for the court to make above decision.
In both cases, the CCPA affirmed the USITC’s determinations. Judge Helen Nies dissented and Phillip Baldwin joined. Judge Nies took special exception to the USITC’s abuse of power in blocking an entire industry with a process patent-based exclusion order:180
I have previously expressed my views that the ITC may not issue an exclusion order broader than the investigation it noticed and conducted.
[Canadian Tarpoly Co.]. In this case, it is particularly offensive that the ITC has invoked sanctions against an entire industry throughout the world on the basis of technical “defaults” by two named respondents.
Under the Limited Exclusion Order doctrine, difficulties in surveying process patents can hardly justify product type-based generalized exclusion.
179 645 F.2d at 988-89.
180 Id.
3.3.2.3 The Applicability of Cease-and-Desist Order Relief
To alleviate exclusion order’s ill effects, the USITC might issue a Cease-and-Desist Order directed at U.S.-based parties and leave out non-U.S. manufacturers and exporters. In Inv. No. 337-TA-82, Headboxes, the USITC Chairman Bill Alberger dissented the final determination to issue an exclusion order because:181
The cease and desist order I envisioned would be directed to the [U.S.-based importers and buyers] only. It would direct that [they] cease and desist from importing [patent-infringing] multi-ply headboxes … . If, at some future time, [complainant] became aware of additional infringing importations …, it could then petition the Commission for additional relief as necessary. … With an exclusion order, importers of noninfringing multi-ply headboxes might be subjected to administrative burdens at Customs with a shifted burden of proof. … An exclusion order is overkill. A cease and desist order is the appropriate relief.
Canada made an unsuccessful complaint at the GATT questioning the legality of the exclusion order under Article XX(d) of the GATT. Even though the GATT panel did not rule for the Canadian complainant, Section 337 was successfully challenged several years later on similar grounds (see Section 3.6.1).
Headboxes and Canadian Tarpoly (see Section 3.3.2.2) both involved non-infringers
adversely affected by overbroad exclusion orders. However, a major factual difference separates the industries involved in the Headboxes and Canadian Tarpoly investigations.Headboxes are heavy, customized and expensive industrial machinery182 manufactured by only a very few manufacturers and would remain so. In contrast, multicellular plastic films were made by countless small-scale light industries and the entry barrier was very low.