Four Pitfalls to Avoid When Seeking to Terminate a Section 337 Investigation by Consent Order

A survey of decisions at the International Trade Commission (“ITC”) reveals several pitfalls practitioners should seek to avoid when drafting consent orders and stipulations to terminate a Section 337 investigation. In general, parties should take great care in preparing motions for termination based on consent orders. This is an area where even slight deviations from the numerous requirements of the ITC’s Rules regarding the contents of the motion, the stipulation, and the proposed consent order often result in rejection by the ALJ or the Commission, requiring re-drafting and re-execution of the necessary papers to effect termination even when there is no opposition to the motion by the litigants.

Termination of an ITC Investigation by Consent Order

Parties before the ITC may move to terminate a Section 337 investigation based on a consent order “at any time.”[1] Consent orders are generally based upon an agreement that respondents will cease further importations of accused goods during the remaining term of an asserted patent. The consent order stipulation may state that the stipulation is for settlement purposes only and does not constitute an admission that an unfair act has been committed.[2] In most cases, the complainant joins in the motion to terminate. However, the Commission’s rule allows a respondent to move unilaterally for termination based on a consent order, and respondents have secured terminations on this basis notwithstanding a complainant’s opposition.[3]

The moving parties are required to submit the proposed consent order, along with the motion for termination and a stipulation that “incorporates” the proposed order.[4] The stipulation must contain a series of statements set forth in Rule 210.21(c)(3), including an admission of all jurisdictional facts, identification of the asserted intellectual property, a waiver of the right to seek judicial review, and an acknowledgement that the consent order will be enforced in accordance with the Commission’s rules. The proposed consent order must contain a series of statements set forth in Rule 210.21(c)(4). Some of those statements overlap with those in the stipulation, including statements that the respondent will not import or sell after importation the subject articles, and that the respondent is precluded from seeking judicial review of the order, or challenging the validity or enforceability of the asserted intellectual property in a proceeding to enforce the consent order. In deciding whether to accept the consent order, the Commission must consider “the effect of the settlement by consent order upon the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States, and U.S. consumers.”[5] Once accepted by the Commission, consent orders, like cease-and-desist orders, are enforced by the Commission.

Parties may execute, and are required to disclose, any side agreements that contain additional terms, such as provisions regarding monetary payments, that go beyond the undertakings allowed in Commission consent orders. Unlike consent orders, the Commission considers such side agreements to be private agreements between the parties that are not enforceable by the Commission.

Because consent orders are Commission orders rather than private settlement agreements, the Administrative Law Judges (“ALJs”) and the Commission rigorously enforce the requirements set forth in Rule 210.21(c) regarding the form and content of both a proposed consent order and an accompanying consent order stipulation. In a number of instances, ALJs have rejected proposed consent order terminations that were supported by the Office of Unfair Import Investigations, and the Commission has reviewed and reversed Initial Determinations (“IDs”) granting terminations based on consent orders that were not challenged by the parties. Thus, although many respondents are ultimately terminated based on consent order motions, such motions are rejected with some frequency, and proposed consent orders then have to be reworked and refiled.

Four common pitfalls to avoid when preparing motions to terminate based on a consent order are discussed below.

Pitfall #1: Deviating from the Language of the Requirements in Rule 210.21(c) or Intermingling Those Requirements

Rule 210.21(c) sets forth explicit requirements for proposed consent orders and related stipulations. Practitioners who paraphrase the language of the rule risk having their motions to terminate denied.[6] In Multiple Mode Outdoor Grills, Judge Lord rejected a consent order that stated it would “become null and void with respect to any claim of the Asserted Patents that has been held invalid or unenforceable . . . or as to any articles that have been found or adjudicated not to infringe the Asserted Patents . . . .” because “[t]his wording is substantively different from the language specified in the Commission Rules.”[7]

ALJs have also rejected motions for termination where parties have deviated from the various and separate requirements for consent orders and consent order stipulations by conditioning or intermingling these requirements. For example, in Modular LED Display Panels, Judge Shaw denied the motion to terminate because the respondent added language that does not appear in the Commission Rules, failed to include required language, and did not provide any reasons for deviating from the language requirements of the Commission Rules.[8]

In Dimmable Compact Fluorescent Lamps, the consent order stipulation recited the required waiver of all rights to “seek judicial review or otherwise challenge or contest the consent order,” but stated that the waiver was “subject to” another paragraph of the stipulation allowing respondents to bring future validity challenges to the asserted patents “in any other proceeding.” In rejecting the waiver provision, Judge Pender explained that the waiver required by the Commission’s rules “must not contain any conditional statements or limitations.”[9]

Similarly, in Digital Photo Frames, Judge Rogers rejected a stipulation that set forth the required waiver provisions, but then applied a condition to these provisions by making them “subject to” limitations in other provisions of the stipulation.[10] Judge Rogers also rejected another stipulation and proposed order in the same investigation that stated the respondent agreed not to import infringing products “until the expiration, invalidation, and/or unenforceability of the . . . patents or until [respondent’s] products are found to be not infringing or until [its] products are licensed.”[11] Judge Rogers found that the emphasized language “eliminates the unequivocal acceptance that is the basic requirement of a consent order.” He then stated that the stipulation and order “must not contain any conditional statements or limitations” and the “only possible exception is one that reads ‘except under consent or license from the Complainant, its successors or assignees.’”[12]

Pitfall # 2: Omitting Statements Required by 19 C.F.R. § 210.21(c)

ALJs will also reject motions to terminate if the motion, proposed consent order, or consent order stipulations omit formal statements required by Rule 210.21(c). In several instances, ALJs have rejected consent order stipulations for failing to explicitly acknowledge that the Commission has subject matter jurisdiction over the investigation in accordance with the requirement in Rule 210.21(c)(3)(i)(A) that the stipulation include “[a]n admission of all jurisdictional facts.”[13]

Similarly, ALJs have denied motions for not adhering fully to the requirements of Rule 210.21(c). For example, in Certain Electronic Nicotine Delivery Systems, Judge Shaw rejected the proposed consent order because it did not contain “[a]n admission of all jurisdictional facts” in violation of 19 C.F.R. § 210.21(c)(4)(xi).[14] And in Certain Tires and Products Containing Same, Judge Bullock denied a motion to terminate by consent order because the motion failed to include the statement that “there are no other agreements, written or oral, express or implied between the parties concerning the subject matter of the investigation,” as required under Rule 210.21(c).[15] In Multiple Mode Outdoor Grills, Judge Lord rejected a provision in a proposed consent order regarding respondent’s cessation of importation and sales because the provision omitted the phrase “except to the extent permitted by the settlement agreement between complainant and respondent,” as required by Commission Rule 210.21(c)(4)(iii).[16]

Pitfall # 3: Ambiguity Regarding the Terms of the Consent

Another basis for the rejection of proposed consent orders has been ambiguity regarding coverage of the orders.

The Commission’s rules require that consent orders in patent-based investigations identify the “subject articles” and include “a statement of any allegation in the complaint that the respondents sell for importation, import, or sell after importation the subject articles in violation of section 337 by reason of asserted patent claims.”[17] For consent order stipulations, the rules require “[a] statement identifying the asserted patent claims . . . and whether the stipulation calls for cessation of importation, distribution, sale, or other transfers . . . of subject articles in the United States and/or specific terms relating to the disposition of existing U.S. inventories.”[18] Commission decisions and the underlying IDs have held that these identifications must be specific and without ambiguity.

In Electric Skin Care Devices, the Commission undertook review of Judge Lord’s termination ID[19] on its own initiative and ordered the parties to revise a consent order containing “ambiguous language at least concerning the identity of the articles subject to the consent order.”[20] Specifically, the Commission took issue with language in the proposed order regarding “any other product containing an oscillating brush head that has been previously adjudicated as infringing . . . .” According to the Commission, this wording failed to “clearly identify the articles subject to the consent order because it does not state what tribunal would do the [sic] referenced ‘adjudicat[ion],’ or whether the adjudication must be final without right to further appeal” and because the term “previously” was undefined and unclear. The parties overcame these deficiencies by modifying the proposed order to include explicit reference, by case number, to the single adjudication between the parties completed before the consent order stipulation was signed.[21]

Problems with ambiguity also arose in Certain Electronic Devices Having Placeshifting or Display Replication Functionality. There, the proposed consent order and stipulation provided that respondents would cease importing and selling “any accused products that infringe the asserted [patent] claims” without defining the meaning of the term “accused products.”[22] Judge Pender deemed the reference to “accused products” to be an “improper and ambiguous limitation in scope.” And in Certain Electronic Candle Products, Judge Lord rejected a consent order stipulation for, inter alia, failing to include an explicit definition of “Subject Articles” in the proposed consent order although the term was used several times.[23]

Pitfall # 4: Inconsistencies Among the Consent Order, Stipulation, and Notice of Investigation

Motions to terminate based on consent orders have also been rejected when ALJs found inconsistencies among the consent order stipulation, proposed order, and/or Notice of Investigation.

For example, in Two-Way Global Satellite Communication Devices, the ALJ denied two motions to terminate a respondent because provisions in a proposed order and stipulations were not commensurate with the scope of the Notice of Investigation. In denying the first motion, Judge Rogers found the respondent’s failure to encompass all of the products covered by the Notice of Investigation (i.e., systems and components, as well as two-way global satellite devices) to be an improper limitation of the proposed order and stipulation.[24] In rejecting a subsequent motion to terminate that removed this product limitation, Rogers found the required admission of “all” jurisdictional facts was deficient because it continued to refer only to “two-way global satellite communication devices” while the Notice of Investigation included “two-way global satellite communication devices, system and components thereof.”[25]

In LED Landscape Lighting Devices, Judge Bullock denied respondents’ motion to terminate based on the presence of a single inconsistency between the stipulation and proposed consent order.[26] The respondents failed to include in the proposed consent order all patent claims included in the stipulation. A similar situation arose in Toner Cartridges, where a motion to terminate was also denied based on the presence of inconsistent provisions in the stipulation and consent order. While the stipulation indicated “without any disclaimer” that respondents could not challenge the validity of the consent order or the validity or enforceability of the asserted patent in a proceeding to enforce the consent order, the proposed order stated that these provisions were “subject to” other paragraphs of the order regarding the effect of expiration of the patents or adjudications of invalidity or unenforceability.[27] Citing the requirement of Rule 210.21(c)(l)(ii) that “a proposal to terminate by consent order shall be submitted as a motion to the administrative law judge with a stipulation that incorporates a proposed consent order,” Judge Shaw denied the motion for termination because the “Proposed Order contains provisions that are inconsistent with the provisions in the Stipulation.”

The denials of these motions for termination illustrate how closely the ALJs review the language of proposed consent orders and associated stipulations, and how strictly they apply each of the rules’ provisions regarding consent order terminations.

[1] 19 C.F.R. § 210.21(a)(2).

[2] 19 C.F.R. § 210.21(c)(3)(i)(F).

[3] See, e.g., Certain Tires and Products Containing Same, Inv. 337-TA-894, Corrected Initial Determination Granting Termination of Respondent Doublestar Dong Feng Tyre Co., Ltd. Based on Consent Order Stipulation and Proposed Consent Order (Feb. 27, 2014).

[4] 19 C.F.R. § 210.21(c)(1)(ii).

[5] 19 C.F.R. § 210.21(c)(2).

[6] See, e.g., Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 15 at 2-3 (December 17, 2013) (“The parties are advised that if another motion to terminate based on consent order is filed, instead of paraphrasing, the parties should use the actual language from the Commission Rules for the Consent Order.”).

[7] Specifically, the rule states that “if any asserted patent claim . . . is held invalid or unenforceable by a court or agency of competent jurisdiction or if any article has been found or adjudicated not to infringe the asserted right in a final decision, no longer subject to appeal, this Consent Order shall become null and void as to such invalid or unenforceable claim or adjudicated article.” 19 C.F.R. § 210.21(c)(4)(x).

[8] Certain Modular LED Display Panels and Components Thereof, Inv. No. 337-TA-1114, Order No. 14 at 2 (August 20, 2018). See also Certain Modular LED Display Panels and Components Thereof, Inv. No. 337-TA-1114, Order No. 15 at 2 (August 20, 2018).

[9] Certain Dimmable Compact Fluorescent Lamps and Products Containing Same, Inv. No. 337-TA-830, Order No. 6 at 3-4 (May 16, 2012).

[10] Certain Digital Photo Frames and Image Display Devices and Components Thereof, Inv. No. 337-TA-807, Order No. 25 at 1-2 (March 14, 2012).

[11] Certain Digital Photo Frames and Image Display Devices and Components Thereof, Inv. No. 337-TA-807, Order No. 37 at 1 (July 3, 2012) (emphasis in original).

[12] Id. at 2. Rule 210.21(c)(4)(iii) requires that the consent order contain a statement that “the respondent shall not sell for importation, import, or sell after importation the subject articles, directly or indirectly, and shall not aid, abet, encourage, participate in, or induce the sale for importation, the importation, or the sale after importation except under consent, license from the complainant, or to the extent permitted by the settlement agreement between complainant and respondent.” (Emphasis added.)

[13] See, e.g., Certain Dimmable Compact Fluorescent Lamps and Products Containing Same, Inv. No. 337-TA-830, Order No. 6 at 2-4 (May 16, 2012); see also Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 11 at 2 (November 19, 2013); Certain Electronic Devices Having Placeshifting or Display Replication Functionality and Products Containing Same, Inv. No. 337-TA-878, Order No. 7 at 4-5 (July 8, 2013).

[14] Certain Electronic Nicotine Delivery Systems and Components Thereof, Inv. No. 337-TA-1139, Order No. 12 at 2 (March 12, 2019).

[15] Certain Tires and Products Containing Same, Inv. No. 337-TA-894, Order No. 8 at 1-2 (November 8, 2013).

[16] Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 15 at 2 (December 17, 2013).

[17] 19 C.F.R. § 210.21(c)(4)(i).

[18] 19 C.F.R. § 210.21(c)(3)(i)(B).

[19] Certain Electric Skin Care Devices, Brushes, and Chargers Therefor, and Kits Containing the Same, Inv. No. 337-TA-959, Order No. 10 (August 28, 2015).

[20] Certain Electric Skin Care Devices, Brushes, and Chargers Therefor, and Kits Containing the Same, Inv. No. 337-TA-959, Notice of a Commission Determination to Review an Initial Determination Terminating the Investigation as to Respondent Nutra-Luxe M.D., LLC Based on a Consent Order at 2 (September 29, 2015).

[21] See Electric Skin Care Devices, Inv. No. 337-TA-959, Joint Submission in Response to Notice of a Commission Determination to Review an Initial Determination (Order No. 10) at 4-5 (October 13, 2015); see also Order Regarding Joint Submission of Complainant and Respondent Nutra-Luxe M.D., LLC at 2 (November 3, 2015).

[22] Certain Electronic Devices Having Placeshifting or Display Replication Functionality and Products Containing Same, 337-TA-878, Order No. 7 at 4 (July 8, 2013).

[23] Certain Electronic Candle Products and Components Thereof, Inv. No. 337-TA-1195, Order No. 32 at 3 (November 4, 2020). See also Certain Multiple Mode Outdoor Grills and Parts Thereof, Inv. No. 337-TA-895, Order No. 11 at 2-3 (November 19, 2013) (rejecting a consent order stipulation for, in part, failing to state “whether [it] calls for cessation of importation, distribution, sale, or other transfers (other than exportation) of subject articles in the United States and/or specific terms relating to disposition of existing U.S. inventories of subject articles,” as required by 210.21(c)(3)(i)(B)).

[24] Certain Two-Way Global Satellite Communication Devices, System and Components Thereof, Inv. No. 337-TA-854, Order No. 20 at 1-2 (March 4, 2013) (recounting also the holding in confidential Order 11).

[25] Id. at 2-3 (emphasis in original).

[26] Certain LED Landscape Lighting Devices and Components Thereof, Inv. No. 337-TA-1261, Order No. 18 at 2 (September 8, 2021).

[27] Certain Toner Cartridges and Components Thereof, Inv. No. 337-TA-829, Order No. 15 at 1-2 (September 14, 2012).