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Ropes & Gray attorneys provide timely analysis on legal developments, court decisions and changes in legislation and regulations.
Matt Rizzolo: Welcome back to Talkin’ Trade, a podcast where we explore the ins and outs of Section 337 investigations at the U.S. International Trade Commission. I’m Matt Rizzolo, and with me today are my fellow Ropes & Gray IP attorneys Matt Shapiro and Cole Dunn. Glad to have you here. It’s been a long time—far too long—since our last episode, and we won’t even try here to catch everyone up on all the goings-on at the ITC that have occurred in 2024. Instead, we’re here today to talk about how a landmark Supreme Court decision from this year may affect Section 337 proceedings in the years to come. This case, which is called Loper Bright, involved the question of whether the National Marine Fisheries Service could require Atlantic herring fishermen to pay for observers on their fishing vessels. And that seemingly mundane and esoteric dispute turned into a vehicle for the Supreme Court to dispense with the decades-old doctrine of Chevron deference.
Matt Shapiro: Well, Matt, it’s the case that may open the administrative lawsuits “can of sardines,” if you will…
Matt Rizzolo: I don’t even know how to react to that. Cole, lets just leave that there. I don’t think we want to get too in the weeds here, but can you give our listeners a bit of a background on what Chevron deference is and what the Supreme Court did in Loper Bright?
Cole Dunn: Loper Bright is all about how much leeway the courts should give to agencies when interpreting laws. For the past four decades, courts have applied the principle of "Chevron deference," named after a 1984 Supreme Court case. This principle essentially said that if a law wasn't crystal clear in its language, the courts would defer to how the agency responsible for administering or enforcing that law decided to interpret and apply it. Needless to say, this gave a lot of power to administrative agencies, including the ITC. But over the past several years, Chevron has fallen out of favor as criticism of the so-called “administrative state” has ramped up, and many courts have been hesitant to rely on it. In fact, the Supreme Court hasn’t applied Chevron to defer to an agency statutory interpretation since 2016, in the Cuozzo case from the U.S. Patent and Trademark Office.
Matt Rizzolo: So, Chevron is dying a slow death over the years, and here comes Loper Bright to put the nail in the coffin?
Cole Dunn: Right. Loper Bright finally and emphatically discarded Chevron deference, meaning courts are now supposed to scrutinize agency interpretations more closely. No more assuming that if the statute is ambiguous, the agency knows best. But the Supreme Court did warn those who may be sharpening their knives to overturn longstanding precedent that the holdings of prior cases that relied on Chevron deference are still subject to statutory stare decisis and will not automatically be overruled.
Matt Rizzolo: Thanks for that background. So, let’s bring this back to the ITC. Matt, the ITC is an administrative agency and has had a lot of power to define gray areas in the law, hasn’t it?
Matt Shapiro: Yes, absolutely. Over the years, the ITC has been presented with many opportunities to interpret seemingly ambiguous language in Section 337 in a wide variety of areas. In many of these cases, the Federal Circuit has unsurprisingly applied Chevron and deferred to the ITC’s interpretations. And in some of these cases, critics have argued that the ITC has given itself more power than Congress ever intended.
Matt Rizzolo: Let’s talk about some of the areas where the Federal Circuit has deferred to the ITC in the past—these may where the Loper Bright decision could possibly change 337 practice going forward.
Matt Shapiro: Well, an obvious place to start would be with the phrase “articles that infringe.” As most of our listeners likely know, the ITC is empowered to exclude “articles that infringe” a valid U.S. patent from importation into the United States. The ITC has taken the stance that this statutory language is broad and doesn’t mean that a product is infringing at the time it crosses the United States border—in other words, the ITC has rejected a time of importation requirement for articles that infringe. For example, the ITC has found violations of Section 337 by companies who import goods that are non-infringing when imported but were later combined in the United States with other parts or software, making them infringing.
Matt Rizzolo: This is the well-known Suprema case, right?
Matt Shapiro: Yes, it’s probably the most well-known example of the Federal Circuit applying Chevron deference in reviewing an ITC decision. The Federal Circuit's en banc opinion there emphasized the ambiguity of the “articles that infringe” language in Section 337 and concluded that the ITC's interpretation of Section 337 was reasonable and entitled to Chevron deference. And it’s notable that in doing so, the Federal Circuit expressly acknowledged that it “has consistently deferred to the Commission.” And even though Suprema concerned allegations of indirect infringement, the ITC has since extended its reasoning to apply to post-importation direct infringement even where the products, as imported, are not “infringing.”
But post-Loper Bright? This is certainly going to be a target, as companies have argued that it gives the ITC too much power. In fact, one recent en banc petition urging the Federal Circuit to overturn Suprema was just denied without any explanation for the denial. But I also think it’s worth noting that four judges dissented in Suprema and warned that deference to the ITC meant that the interpretation of the statute “may change when the administration changes.” And that was a common criticism of the Chevron doctrine.
Matt Rizzolo: Thanks, Matt. Cole, what other areas of Section 337 practice have involved Chevron deference, and may now be subject to change?
Cole Dunn: Another huge one is every ITC practitioner’s favorite bugaboo, defining the "domestic industry." The ITC has been very flexible here, saying a domestic industry is a context-dependent, fact-specific inquiry. For example, in the 2012 InterDigital case, the ITC had found that the complainant satisfied the domestic industry requirement through its investments in licensing its patents, even though the licensed products were manufactured abroad. The Federal Circuit approvingly cited the ITC's history of finding that licensing activities can be a domestic industry and went on to note that “[i]f there were any ambiguity as to whether the statute could be applied to a domestic industry consisting purely of licensing activities, the Commission's consistent interpretation of the statute to reach such an industry would be entitled to deference” under the principles of Chevron. On the flip side, in a 2011 case called John Mezzalingua Associates, the Federal Circuit deferred to the ITC’s more narrow definition of domestic industry expenses. There, the ITC had rejected the complainant's attempt to include patent litigation expenses as part of its “licensing” activities for purposes of establishing a domestic industry. The Federal Circuit noted that Section 337 “does not specify whether litigation expenses incurred in enforcing a patent may later be used as evidence that the required domestic industry requirement exists.” And deferred to and affirmed the ITC's interpretation.
Matt Rizzolo: Thanks. This is a good time, I think, for a little shameless plug alert, as Ropes & Gray recently filed a cert petition on behalf of one of our clients in the Supreme Court, that asked the Supreme Court to rule on a question involving the appropriate interpretation of the phrase “with respect to the articles protected by the patent,” and that’s part of the domestic industry requirement. That case is titled Roku v. ITC, and the Supreme Court has called for a response to that petition, due October 28.
So, we’ve got articles that infringe, and we’ve got domestic industry. What other areas have we seen the ITC rely on Chevron deference?
Matt Shapiro: Well, we’re just getting started here. The statute prohibits not just the importation of infringing goods, but sales of those goods either for or after importation. The Federal Circuit in the Enercon case deferred to the ITC’s interpretation of the word “sale,” finding that the term can encompass contracts for sale of future goods even where an actual delivery of goods hasn’t yet occurred. And in the Kinik case from 2004, the Federal Circuit was tasked with determining whether certain exemptions from Section 271(g) of the Patent Act fell within the scope of the “legal and equitable defenses that may be presented in all cases” before the ITC. The ITC had determined that it did not, and the Federal Circuit affirmed—noting that to the extent there is any uncertainty or ambiguity in this interpretation of the statute, deference must be given to the ITC. It’s certainly possible that this may be revisited in a future case, such as a biotech-related Section 337 investigation. And Chevron deference has been mentioned in other ITC appeals concerning matters like the ITC’s ability to remedy foreign trade secret misappropriation, and its power to impose civil penalties on those who violate its orders.
Matt Rizzolo: That last issue is a fascinating one for me personally, as violations of cease-and-desist orders can come with heavy financial civil penalties—up to $100K per day or twice the value of the goods imported in violation of the order. Typically, these civil penalties are assessed and imposed by the ITC after so-called “enforcement actions,” and then may be recovered by the ITC in district court proceedings. In that San Huan v. ITC case that you’re referring to, the appellant argued that the ITC lacked statutory authority under Section 337 to impose civil penalties and that the respondent there had a right to a district court trial on the issue of a violation and the amount of civil penalty, as opposed to that being imposed by the ITC in an enforcement proceeding. But the Federal Circuit applied Chevron deference and noted the ITC’s “long-standing” interpretations of the statute and its own rules implementing those interpretations. This particular precedent may be affected not just by Loper Bright, but by the Supreme Court’s decision this year in another case, SEC v. Jarkesy. There, the Court restricted the imposition of civil penalties by another independent agency—the SEC—in an administrative forum, finding that if a civil penalty was going to be imposed, a jury was required. So, we’ll see what happens there.
Matt Shapiro: I’m pretty sure we could do an entire episode on the Jarkesy decision and its potential effect on the ITC.
Matt Rizzolo: I am sure that we could, but that’s for another day. In the meantime, here’s what’s clear in the post-Loper Bright world and the ITC:
• Section 337 is still a powerful tool. It's not going anywhere, and it’s popular with both operating companies and non-practicing entities (NPEs), but it has been facing some scrutiny from commentators and politicians. On that latter note…
• Congress might step in. With all this uncertainty, there's a chance that Congress could clarify Section 337's language in part, either reinforcing the ITC's authority or putting up some guardrails. I know we’ve talked in past episodes about the Advancing America’s Interest Act, for example, and that’s still pending, although it has yet to get any traction on the Hill.
• We can expect more legal challenges. Despite the Supreme Court’s warning that Chevron-based precedent is not automatically undermined by Loper Bright, companies are certainly going to use Loper Bright to push back against the ITC's interpretations.
• Also, the ITC's power could be redefined. We might see courts siding with some of these challenging, broad interpretations, leading to a narrower scope for Section 337. We’ve named some of these areas today, but we’ll see where the next statutory interpretation battle may be.
And with that, that’s all the time we have for this episode of Talkin’ Trade. Thank you, Matt, and thank you, Cole. As always, we appreciate feedback from our listeners, so if there’s a topic that you’d like to hear more about, or you have ideas on ways to improve the podcast, let us know. You can find this and other Ropes & Gray podcasts on Apple Podcasts, Spotify or ropesgray.com/podcasts. Until next time, I’m Matt Rizzolo, and on behalf of Matt Shapiro and Cole Dunn, thank you all for listening.