Recent decisions by the Commission highlight a split among the Commissioners over the proper standard for issuing cease and desist orders.

The majority of Commissioners appear to agree that the determination regarding whether to issue a cease and desist order is based on whether the respondent has commercially significant domestic operations or inventory of infringing products, even though those standards are not set forth in Section 337 in the United States.  The Commission majority takes a similar position with respect to issuing cease and desist orders against defaulting respondents.

Chairman Schmidtlein considers the presence of some infringing domestic inventory, regardless of its commercial significance, enough to provide a basis to issue a cease and desist order.  Further, in her view, issuance of a cease and desist order is mandated for defaulting respondents where the statutory requirements are met unless such relief is contrary to the public interest.

Commissioner Kieff believes that cease and desist orders should be more "favored" than under the current approach taken by the Commission majority and that commercially significant inventory should not be the only path to a cease and desist order.  With respect to defaulting respondents, it is Commissioner Kieff's view that even if the statutory framework is not ultimately interpreted to compel the issuance of a cease and desist order against a defaulting party upon request, some force and effect must be given to the text of the statute, which provides that the Commission "shall presume the facts alleged in the complaint to be true."  19 U.S.C. § 1337(g)(1).

Origins of the Commission Divide – Certain Dental Implants (337-TA-934)

The Commissioners' differing viewpoints with respect to the standard for issuing cease and desist orders first arose in Certain Dental Implants, Investigation No. 337‑TA‑934.  In that Investigation, the Commission determined that certain dental implants imported by JJGC Indústria e Comércio de Materiais Dentários S/A ("JJGC") and its subsidiary infringed two patents owned by Nobel.  Certain Dental Implants, Inv. No. 337-TA-934, Comm'n Op. at 23 (May 11, 2016).  The Commission issued a limited exclusion order blocking JJGC and its subsidiary from importing their infringing dental implants.  Id. at 49.  But the Commission declined to issue a cease and desist order because the Commissioners were divided evenly, three‑to‑three, on whether it was appropriate.  Id. at 49-51 & fn.29-33.

Commission Majority

Then-Chairman Broadbent, Vice Chairman Pinkert and Commissioners Williamson and Johanson wrote separately to emphasize their collective view that cease and desist orders are generally issued pursuant to 19 U.S.C. § 1337(f)(1) when, with respect to the imported infringing products, respondents maintain commercially significant inventories in the United States or have significant domestic operations that could undercut the remedy provided by an exclusion order.  Certain Dental Implants, Inv. No. 337-TA-934, Additional Views of Chairman Broadbent, Vice Chairman Pinkert and Commissioners Williamson and Johanson (May 11, 2016).

In the 934 Investigation, Vice Chairman Pinkert and Commissioners Williamson and Johanson concluded that a cease and desist order against JJGC's subsidiary was not appropriate.  Certain Dental Implants, Comm'n Op. at fn.30.  They found that Judge Shaw had reasonably concluded that domestic inventories of the accused products would have dropped below a commercially significant amount by the time the target date of the investigation was reached, and thus Nobel failed to meet its burden of proof.  Id.

Chairman Schmidtlein

Chairman Schmidtlein did not write separately in the Commission's final determination in the 934 Investigation, but in a footnote she took the position that Section 337(f)(1) leaves the determination of whether to issue a cease and desist order to the discretion of the Commission and does not establish any particular test or standard aside from consideration of the public interest factors.  Id. at fn.32.  Chairman Schmidtlein did not see the value gained by requiring the parties and the Commission to expend time and resources addressing the extent of domestic inventory levels or operations as a predicate to issuing cease and desist orders.  Id.  In her view, there is little harm if an order issues even though a respondent does not maintain a commercially significant domestic inventory.  Id.  On the other hand, in her view, the requirement of commercially significant inventory carries the risk of harm for the complainant since the Commission may decide not to issue a cease and desist order, which may undermine exclusion order relief.  Id.

Commissioner Kieff

Commissioner Kieff filed separate views, in which he noted that he would benefit from additional input on the following two issues:

  1. Whether the ITC has a practice of not issuing cease and desist orders in the absence of commercially significant inventory in the United States; and
  2. Perhaps because of this potential practice, whether the law provides a presumption against a cease and desist order unless the patentee proves the existence of such inventory.

Certain Dental Implants, Inv. No. 337-TA-934, Additional Views of Commissioner Kieff (May 11, 2016).

Further, Commissioner Kieff stated that a decision about whether to grant a cease and desist order inevitably allocates the risk of getting the exact amount of inventory incorrect.  Id.  He noted that the true state of such inventory is that it is either relatively high or relatively low.  Id.  In his view, there is no harm in issuing a cease and desist order if the inventory is relatively low because it will have little impact.  Id.  If the inventory is relatively high, then a cease and desist order will have a large impact that is at least appropriate, if not required, to protect a legal right that was just adjudicated to have been infringed, while at the same time the ITC will be exercising in personam jurisdiction only over the individual party who has been adjudicated to be infringing.  Id.

Chairman Broadbent, Commissioner Schmidtlein and Commissioner Kieff found that a cease and desist order was appropriate in Certain Dental Implants.  Certain Dental Implants, Comm'n Op. at fn.31.  They found the number of accused products in existence in U.S. inventory at the time of the evidentiary hearing to be commercially significant, and they found Respondents' remedy briefing projections to be unsupported and unreliable, providing no indication that the proven inventories had fallen below commercially significant levels.  Id.

The Commission Divide Continues – Certain Table Saws Incorporating Active Injury Mitigation Technology (337-TA-965)

In Certain Table Saws, Investigation No. 337-TA-965, the complainant requested, and Judge Pender recommended, that the Commission issue a cease and desist order directed against Robert Bosch Tool Corp. ("Bosch").  Certain Table Saws Incorporating Active Injury Mitigation Technology, Inv. No. 337-TA-965, Comm'n Op. at 6 (Feb. 1, 2017).  Judge Pender found that the parties had stipulated that Bosch possessed a certain number of REAXX saws and activation cartridges in the United States as of January 20, 2016, and he concluded that this inventory was commercially significant.  Id.  Based on the record evidence relied on by Judge Pender, the Commission issued a cease and desist order against Bosch with respect to table saws that infringed certain claims of the patents-in-suit.  Id.

Chairman Schmidtlein

In a footnote, Chairman Schmidtlein once again expressed her view that the existence of a commercially significant infringing inventory in the United States should not be a prerequisite to issuing a cease and desist order.  Id. at fn.2.  Chairman Schmidtlein explained that she failed to see any benefit to requiring the parties and the Commission to expend time and resources addressing the extent of domestic inventory levels as a predicate to issuing a cease and desist order.  Id.  In her view, such a requirement unnecessarily carries risk for the complainant since even the presence of one infringing product in domestic inventory can undercut the exclusion order and prevent complete relief.  Id.  Because of this, Chairman Schmidtlein believes that the presence of some infringing domestic inventory, regardless of the commercial significance, provides a basis for issuing a cease and desist order.  Id.  She agreed that a cease and desist order was appropriate for Respondent Bosch in the 965 Investigation due to its maintenance of infringing domestic inventory, regardless of the commercial significance.  Id.

Commissioner Kieff

Commissioner Kieff again filed separate views to address the Commission's cease and desist order standards.  Certain Table Saws Incorporating Active Injury Mitigation Technology, Inv. No. 337-TA-965, Separate Views of Commissioner F. Scott Kieff Concurring as to CDO Remedy and Dissenting as to Bond Determination (Feb. 1, 2017).  Commissioner Kieff supported the Commission majority's determination in this investigation to issue a cease and desist order directed at Bosch and explained that "our statutory framework's specific wording and legislative history make clear that access to the CDO remedy should generally be significantly more favored than suggested by the approach taken by the Commission Majority in these cases."  Id.  Commissioner Kieff noted that the majority's mention of commercially significant inventory implies that the search for evidence of the degree of such inventory is the only appropriate inquiry regarding issuance of a cease and desist order.  Id.  But in his view, commercially significant inventory should not be the only way to show that a cease and desist order is appropriate.  Id.  Commissioner Kieff explained two reasons why increased access to cease and desist orders is prudent:

  1. A cease and desist order is granted only after a full and fair opportunity to litigate all defenses to enforcement of a complainant's purported right against unfair competition, including a patent's invalidity, unenforceability, non-infringement, as well as any public interest factors potentially militating against the imposition of a remedy; and
  2. A cease and desist order operates only in personam against the particular parties who had the full and fair opportunity to litigate and lost and only against the practice of particular activities adjudicated to be unfair competition.

Id.

Defaulting Respondents – Certain Electric Skin Care Devices, Brushes and Chargers Therefor (337-TA-959)

Certain Electric Skin Care Devices, Brushes and Chargers Therefor, Investigation No. 337‑TA‑959, dealt with cease and desist orders against defaulting respondents.  All of the Commissioners agreed that the statutory provision relating to defaulting respondents, Section 337(g)(1), and not Section 337(f)(1), authorizes the Commission to issue remedy orders for violations by defaulting respondents.  Certain Electric Skin Care Devices, Brushes and Chargers Therefor, Inv. No. 337-TA-959, Comm'n Op. at 24, Separate Views of Commissioner F. Scott Kieff Concurring as to Remedy for Respondents in Default, Separate Views of Chairman Rhonda K. Schmidtlein on Cease and Desist Orders (Feb. 13, 2017).

Commission Majority

Section 337(g)(1) provides that "the Commission shall presume the facts alleged in the complaint to be true and shall, upon request, issue an exclusion from entry or a cease and desist order, or both, limited to that person" unless the Commission determines that it is not in the public interest to issue such relief.  19 U.S.C. § 1337(g)(1) (emphasis added).  Even though Section 337(g)(1) includes this "shall" language, the majority of Commissioners have determined that this provision provides the Commission with discretion to choose whether to issue a cease and desist order where defaulting respondents are found in violation of Section 337.  Certain Electric Skin Care Devices, Comm'n Op. at 24-25.

It was the use of the term "appropriate relief" in the legislative history that led the majority of Commissioners to conclude that Section 337(g)(1) allows for discretion to determine whether to issue a cease and desist order despite the "shall" language in the statute.  Id. at 25.  A Conference Committee Report prepared at the time the default judgment provision was added to Section 337 in 1988 clarified that under the new default provision, the Commission has authority to issue "appropriate relief" for defaulting respondents.  Certain Electric Skin Care Devices, Comm'n Op. at 25; H. Conf. Rep. No. 100-576, at 636.  This reference to the Commission's authority to issue "appropriate relief" to defaulting respondents refers to the language of Section 337(g)(1), setting forth the types of relief the Commission may choose from—"an exclusion from entry or a cease and desist order, or both"—and echoes the House and Senate Report statements concerning the Commission's authority to select "appropriate" relief as to participating respondents depending on the circumstances in connection with the concurrent amendment to Section 337(f).  Certain Electric Skin Care Devices, Comm'n Op. at 25.  In addition, Section 337(c) includes Section 337(g) within the list of statutory provisions concerning "the appropriate remedy" that is subject to judicial review under Section 706 of Title 5.  19 U.S.C. § 1337(c); Certain Electric Skin Care Devices, Comm'n Op. at 25.

As noted above, the majority of the Commissioners continue to require evidence of commercially significant inventories in the United States or significant domestic operations to issue a cease and desist order.  Certain Electric Skin Care Devices, Comm'n Op. at 26.  In Certain Electric Skin Care Devices, the Commission majority explained that in default cases, the Commission examines the record, including facts alleged in the complaint that are deemed to be true, as well as any other information the complainant has been able to obtain, and have found it appropriate to draw certain inferences from this evidence in favor of the complainant to provide the necessary relief.  Id. at 28.  Specifically with respect to cases where the respondent is located in the United States and has defaulted under Section 337(g)(1), the Commission majority noted that, due to the domestic presence and lack of participation, the Commission has historically granted a complainant's request for a cease and desist order regarding U.S.-based activities.  Id. at 28-29.  But the Commission majority also explained that it has declined to automatically presume the presence of inventories in the United States to support the issuance of a cease and desist order against a defaulting respondent located outside the United States.  Id. at 29.  Instead, the Commission will examine whether the complaint alleges facts that support the inference that the defaulting foreign respondent or its agents maintain commercially significant inventories in the United States or whether circumstantial evidence such as online offers for sale, sales and distribution of infringing products supports the allegations in the complaint that the foreign defaulting respondents maintain commercially significant U.S. inventories and/or engage in significant commercial business operations in the United States.  Id. at 29-30.

In Certain Electric Skin Care Devices, the Commission found that issuance of cease and desist orders against all defaulting respondents—both domestic and foreign—was appropriate.  Id. at 31-33.

Chairman Schmidtlein

Chairman Schmidtlein wrote separately to outline her view that use of the term "shall" in Section 337(g)(1) mandates issuance of a cease and desist order for a defaulting respondent where the following statutory requirements are met, unless such relief is contrary to the public interest:

  1. A complaint is filed against a person under this section;
  2. The complaint and a notice of investigation are served on the person;
  3. The person fails to respond to the complaint and notice or otherwise fails to appear to answer the complaint and notice;
  4. The person fails to show good cause why the person should not be found in default; and
  5. The complainant seeks relief limited solely to that person.

Certain Electric Skin Care Devices, Separate Views of Chairman Rhonda K. Schmidtlein on Cease and Desist Orders, at 1-3.  Chairman Schmidtlein pointed out that the majority's view renders the remedial language of Section 337(g)(1) superfluous in view of the remedial relief provided in Sections 337(d)(1) and (f)(1), which requires the Commission to provide some form of relief against a party in violation but grants the Commission discretion to decide whether to issue a limited exclusion order, a cease and desist order or both.  Id. at 5.

Chairman Schmidtlein also disagreed with the majority's adoption of a commercially significant inventory/business operations test for statutory defaulters as a threshold for issuing cease and desist orders, as that approach presumes the exercise of discretion.  Id.  She noted that Section 337(g)(1) does not mention inventory and does not explicitly establish a commercially significant inventory requirement in order for the Commission to issue a cease and desist order.  Id. at 2, 5.  In Chairman Schmidtlein's view, the majority's approach may make it harder for a complainant to obtain a cease and desist order against a foreign defaulting respondent than against a foreign participating respondent because, without discovery, a complainant may have no basis to ascertain the existence and levels of inventories.  Id. at 5.

In the Electric Skin Care Devices Investigation, Chairman Schmidtlein ultimately agreed with the Commission majority's determination that issuance of cease and desist orders against all defaulting respondents—both domestic and foreign—was appropriate.

Commissioner Kieff

Finally, Commissioner Kieff joined the Commission's determination to issue a cease and desist order as to each of the defaulting respondents, both domestic and foreign.  Certain Electric Skin Care Devices, Separate Views of Commissioner F. Scott Kieff Concurring as to Remedy for Respondents in Default, at 1.  Commissioner Kieff's view is that the majority's approach to cease and desist orders with respect to defaulting respondents under Section 337(g)(1) is similar to its approach to Section 337(f)(1) but even more strained.  Id. at 7.  He was skeptical of the majority's reliance under Section 337(g)(1) on the word "appropriate" in the legislative history as the basis for the Commission's view that it has discretion in granting relief against respondents.  Id.  In Commissioner Kieff's view, a citation by the Federal Circuit to one example of undercutting the effectiveness of an exclusion order where significant domestic inventory exists does not make domestic inventory the only legally recognized type of undercutting to be remedied by a cease and desist order, and the majority's focus on that standard alone does not answer the question of whether other factors may be appropriate to consider when determining whether exclusion orders may be undercut.  Id. at 7-8.

Commissioner Kieff went on to explain that any argument about implied delegation with respect to cease and desist orders in general would have to at least address the specific and explicit mandate in Section 337(g)(1), which at least on its face appears to compel the grant of a cease and desist order in the specific case of a defaulting party, upon request of the petitioner, where no public interest considerations weigh against such relief.  Id. at 9.  In Commissioner Kieff's view, even if Section 337(g)(1) is not ultimately interpreted to compel the issuance of a cease and desist order against a defaulting party upon request, some force and effect must be given to the text stating that the Commission "shall presume the facts alleged in the complaint to be true."  Id. at 9-10.

Potential Impact of the Commission Split Over the Legal Standard for Cease and Desist Orders

While the Commissioners appear divided on the proper standard for cease and desist orders, the views of Chairman Schmidtlein and Commissioner Kieff suggest that it may be easier for complainants in certain cases to obtain cease and desist orders against respondents in ITC investigations.  While Chairman Schmidtlein takes the view that the presence of some infringing domestic inventory, regardless of its commercial significance, is enough to justify a cease and desist order, Commissioner Kieff believes that there should be alternative paths to obtain a cease and desist order beyond commercially significant inventory.  If Chairman Schmidtlein and Commissioner Kieff are able to persuade a few of their colleagues at the Commission, we may begin to see an easing of the evidentiary burden for obtaining a cease and desist order.  While Commissioner Kieff has stated that cease and desist orders should not be awarded automatically or in every instance, issuing a cease and desist order based on the existence of any infringing domestic inventory or based on some other cogent reason plead by the complainant eases the burden on complainants for this relief.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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