Protecting IP Rights for Semiconductor Equipment
Using Section 337 Investigations at the U.S. International Trade Commission to Protect IP Rights Relating to Semiconductor Equipment
By Gary M. Hnath, Mayer Brown LLP
Semiconductors have been at the heart of most technological progress in the last few decades, and the equipment used to test and manufacture semiconductors is a vital part of the semiconductor business. Manufacturers of semiconductor fabrication equipment seeking to protect their intellectual property and prevent competition from unfair imports have a powerful remedy at their disposal which many do not even know about — Section 337 investigations at the U.S. International Trade Commission (ITC).
The semiconductor equipment industry is no stranger to patent litigation. Infringement lawsuits have been filed in federal district courts throughout the United States in the last few years by companies such as August Technology (semiconductor wafer inspection equipment), Tegal (plasma etching equipment used to make semiconductor chips), Dainippon Screen Manufacturing (semiconductor manufacturing equipment), Reid-Ashman Manufacturing (test head manipulators and interfacing equipment), Semitool (centrifugal wafer carrier cleaning apparatus and methods for cleaning wafer carriers), MKS Instruments (semiconductor processing equipment), ASM America (equipment used to make semiconductor chips by atomic layer deposition or chemical vapor deposition), Ade (inspection equipment), Intest (mechanical interfacing equipment), Varian Associates (equipment used to sputter coat semiconductor wafers), and Applied Materials (thermal reactor system for semiconductor processing).
Section 337 investigations at the ITC provide a powerful alternative to district court litigation for protecting intellectual property rights. Section 337 prevents unfair acts in the importation of articles into the United States. The ITC has the power to issue exclusion orders which are enforced by U.S. Customs and prevent unfair imports from entering the United States at the border. This article will describe the types of cases that can be brought under the statute, the types of remedies available; how a Section 337 proceeding works; and why semiconductor equipment manufacturers should consider using Section 337 to block infringing imports from coming into the United States.
Types of Cases that Can Be Brought under Section 337
Section 337 of the Tariff Act of 1930 is a statute which prohibits unfair acts in the importation of articles into the United States. Section 337 proceedings take place before the U.S. International Trade Commission in Washington, DC. As the following graph shows, the number of Section 337 complaints filed has more than doubled in the past 5 years and continues to rise rapidly.
There are three basic elements for showing a violation of Section 337 and getting an exclusion order from the ITC. First, it must be demonstrated that there is some unfair act involved. Second, there must be some connection between the unfair act and importation into the United States, or the sale of goods after importation. Third, a complainant must show that a “domestic industry” exists.
As to the first requirement, virtually any unfair act in the importation of articles can be asserted under Section 337. Over 90 percent of the cases at the ITC involve allegations of patent infringement. However, Section 337 complaints have been based on a variety of other unfair acts, including trademark and copyright infringement, trade dress infringement, grey market goods violations, unfair competition, trade secret misappropriation, passing off, and violation of the antitrust laws. The statute could be used for other unfair acts as well. For example, if products were being made abroad using factories that violate environmental laws, or if illegal child labor was being used, or if the imported products violated safety standards, Section 337 could provide a remedy.
While the ITC’s jurisdiction is limited to cases involving imported products, this is not generally a difficult requirement to satisfy. As fewer and fewer products are actually manufactured in the United States, more and more of those products are made outside the U.S. and come within the ITC’s jurisdiction. The importation requirement can be satisfied by any importation; a single sample imported for display at a trade show in the U.S. can suffice. A contract for sale may also satisfy the importation requirement, even if no importation has yet taken place.
A company bringing a Section 337 case must demonstrate that a domestic industry exists. Once again, however, this is not usually a difficult requirement to satisfy. In a case involving “statutory” intellectual property rights, such as patents, registered trademarks, copyrights and mask works, the domestic industry test can be satisfied through a variety of activities. Manufacturing in the United States is one way to satisfy the test but is not required. A company involved in significant or substantial activities relating to engineering, research and development, licensing, or even other activities such as quality control and after sales service, may be able to satisfy the domestic industry requirement if sufficiently related to the intellectual property right being asserted. Even foreign-based companies can also use the ITC to their advantage. Indeed, in 2009, over 25 percent of the complaints filed at the ITC were filed by foreign based companies with U.S. operations.
In a case involving “non-statutory” intellectual property or other unfair acts, such as trade secret appropriation, trade dress infringement, antitrust violations, and so forth, a complainant must show injury to the domestic industry. Injury can be shown, for example, by demonstrating that the unfair imports have been causing a loss of sales, lower prices, or adversely affecting employment in the U.S. When actual injury has not yet occurred, the statute permits a showing of a “threat of injury”. If a company is concerned enough to bring a Section 337 complaint, it is likely that it will be able to prove injury to a domestic industry under the statute.
How a Section 337 Investigation Works
The process at the ITC begins with the filing of a complaint by the complainant, outlining the alleged unfair import practices, the basis for importation, and what constitutes the domestic industry. The Commission has 30 days to decide whether to institute an investigation. Typically, the Commission will institute as long as the complaint complies with the Commission’s rules.
The case is then assigned to an Administrative Law Judge (ALJ). The parties proceed much as in a typical court case, except that everything moves much faster. In general, parties will have 10 days to respond to discovery requests and motions, rather than 30 days or more as in most cases in federal or state court.
The parties in a Section 337 case exchange documents and other discovery and, where appropriate, submit expert reports. Any party can file a motion to resolve both procedural and substantive issues. The case then goes before the ALJ for a hearing, or trial. Typically, trials at the ITC are in the range of 1 to 2 weeks. Any party can call witnesses and submit documents as evidence at the hearing.
After the hearing, the ALJ issues his decision, or initial determination, as to whether or not there has been a violation of the statute. Parties can ask the Commission to review all or part of the ALJ’s decision. The Commission then issues its final determination on whether or not Section 337 has been violated, and if so, the appropriate remedy. A party adversely affected by the Commission’s decision can file an appeal with the Federal Circuit Court of Appeals, but the ITC’s exclusion order is in effect while the case is being appealed unless a respondent is able to obtain a stay of the order, which is unusual.
The Advantages of Using Section 337 in Cases Involving Semiconductor Equipment
Section 337 is ideally suited to protect the intellectual property rights of companies that make semiconductor manufacturing and testing equipment. For one, Section 337 is extremely fast. By statute, cases must be resolved expeditiously. Typically, target dates are set which require the entire investigation to be completed, from initial institution of the investigation until a final Commission decision, within 12 to 16 months. This means that the case is likely to go to trial in less than a year, much faster than most federal or state courts. This is particularly important in an industry, such as semiconductors, where technology changes rapidly. An injunction from a district court that takes several years before a case is resolved will be of little use if the technology in the meantime has become obsolete. Section 337 offers a quicker alternative than most district courts.
One common problem with district court litigation is that an infringer can avoid the effect of an injunction by attempting to “design around” the patent. An injunction would be limited to the specific products at issue in the case, or other products not “colorably different” from those products. An ITC exclusion order, however, can cover all products made, imported or sold by the respondents that are infringing, not only the products found to infringe during the investigation, therefore capturing new products that still infringe the patent.
In addition, in certain situations, a complainant may be able to obtain a general exclusion order that prohibits the importation of all infringing products, regardless of source. These remedies are not available through the courts.
All known companies can be named in a single investigation at the ITC, including companies that are manufacturing infringing products outside of the United States, importing the products into the United States, and selling the product after importation. In a typical court case, it may be necessary to bring multiple cases in different states in order to satisfy jurisdictional requirements.
Another important advantage of Section 337 is that in a court case, it may take several months to serve respondents in some foreign countries, and the complaint and supporting documents may need to be translated. In contrast, the ITC serves the complaint on all proposed respondents by certified mail without the need for translations. Companies named as respondents in a Section 337 investigation must answer the complaint and comply with discovery requests, or a default can issue and their products can be automatically excluded from the United States.
Many semiconductor equipment patents include claims for processes for testing or manufacturing products. Section 337 is particularly useful in such cases. Even if the equipment is being used outside of the United States, Section 337 can prevent the importation of products made using a patented process involving the equipment, thus providing more complete protection against infringing uses of the patent owner’s technology.
Furthermore, the Administrative Law Judges at the ITC are very familiar with handling patent cases, and so you know you will be before a judge that is knowledgeable in these types of matters.
These are just some of the reasons that the ITC is often the forum of choice for companies asserting violations of intellectual property rights and other unfair acts involving imported products.
As this discussion indicates, Section 337 can be a powerful remedy for semiconductor equipment manufacturers to prevent unfair competition from competitors that may be quicker and more effective than federal court litigation. At a minimum, companies should weigh the pros and cons of a Section 337 investigation when considering their options to protect their intellectual property rights.
Gary Hnath is a partner in Mayer Brown's Washington D.C. office. His practice focuses on IP litigation and counseling, including disputes involving patent, trademark and copyright infringement and trade secrets. He is a leading authority in the area of Section 337 litigation and former president of the ITC Trial Lawyers Association. Gary can be reached at firstname.lastname@example.org or (202) 263-3040.
SEMI Global Update
November 2, 2010