On December 19, 2011, the mobile telephone maker, HTC, lost an action to Apple in the International Trade Commission (“ITC”). ITC Investigation No. 337-TA-710. Apple’s original Complaint was substantially pared down by the ITC so that in the end it only covered Claims 1 and 8 of US Patent Number 5,946,647 for a function where your phone can identify and highlight things like email addresses, phone numbers or websites, and then you can click on that highlighted text and your phone automatically dials the number or takes you to that website, etc.
As a result, this would be a simple work around for HTC to build into its new phones – simply eliminate that function. HTC prepared for this result and its new phones supposedly don’t have it. Unfortunately, HTC’s new phones have been held up in US Customs until it can be verified. You would think this would be a relatively simple process, but it is taking some time and costing HTC a lot of money in lost sales and legal fees.
So that raises the bigger question about the enforceability of ITC exclusion orders in general, and the process involved.
When an exclusion order is issued, the real work for US Customs begins. First, US Customs Border Protection (“CBP”) officials have to train the field agents on what to exclude. In addition to the actual study of the ITC’s §337 Investigation and Exclusion Order, CBP works with the parties separately, or ex parte, to identify the products to be excluded.
During this consultation, the Respondent, i.e. the party in HTC’s position, will not only try to narrowly tailor the scope of the Exclusion Order, but it will also attempt to show the CBP that the Order does not apply to its new products. HTC will further be attempting to persuade Apple that the Order does not apply to its new products because if Apple stipulates, then it speeds up the importation of the new products.
Of course, the Complainant, in this example Apple, will want the broadest possible interpretation of the Exclusion Order. Moreover, given the litigious and competitive nature of the market, it is unlikely Apple will agree to stipulate, as the speedy resolution of this issue is not in Apple’s best commercial interests.
If either party is not satisfied with the CBP’s interpretation of the Order, they both have remedies they can pursue. Pursuant to 19 CFR §210.75(a), Apple can commence informal proceedings in the ITC through the Office of Unfair Import Investigations for an Enforcement Proceeding, and if the result of this Motion is not to its liking, it can commence formal proceedings entitled an Enforcement Complaint pursuant to 19 CFR §210.75(b). This proceeding can also result in the amendment of the Order to catch any issues/product aspects that may have been omitted in the original Order. In addition, Apple can seek civil penalties for a violation of the Order.
On the other side, if HTC believes the CBP’s enforcement is overreaching, catching products that are not in violation of the Order, HTC can file a petition under 19 CFR §171, subpart B to get the goods released.
However, this procedure only works where the parties and goods are well defined. Many exclusion orders go unenforced because the CBP is not capable of identifying all of the goods that should be excluded. For example, portable DVD players are imported into the US from many different sources. An exclusion order for a feature that is not obvious without operating the device, such as the one Apple complains of, can easily go undetected by US Customs field agents. They simply don’t have the resources to open the thousands of imports from hundreds of manufacturers and test if the feature is present. In fact, the Complainant may not even know all the companies that are importing infringing goods that should be excluded. Further, if sales are over the internet and shipped directly to the end-user it easily avoids detection. Moreover, if the exclusion order is “limited,” as it is in the Apple-HTC case, then it is “limited” to the Respondent(s), and does not prevent downstream customers from importing it. Under these circumstances, the exclusion order is not effective.
ITC cases are labor intensive, and therefore very expensive. Moreover, once a complainant has won an exclusion order there remains a great deal of work to do in order to enforce it – at great expense. As a result, parties considering this remedy should carefully weigh the costs involved against the ability to enforce the exclusion order before heading down this path.