Most Chinese companies actively respond to US Section 337 lawsuits, which is a very gratifying phenomenon. Because an exclusion order based on a minimal infringement determination is powerful enough to prevent the defendant from continuing to operate. A series of Chinese products were accused by the U.S. International Trade Commission ("ITC") of infringing intellectual property rights, such as lighters, printer cartridges, lysine products, batteries and other products. In the past, many Chinese companies chose to ignore the complaints, and most responded actively. This is a very gratifying phenomenon. This article will discuss how to deal with Section 337 administrative litigation in the United States. The plaintiff filing a Section 337 lawsuit in the United States can be either a U.S. company or a foreign company, such as a Japanese company or a German company that owns intellectual property rights in the United States. Section 337 stipulates that if any import behavior is unfair (mainly for infringement of patent rights or trademark rights, but also includes copyright infringement, improper use of trade secrets, infringement of common law trademark rights and other commercial infringements), and it affects the U.S. industry May result in suppression or monopoly, which may be investigated by the U.S. International Trade Commission. The indictment submitted to the ITC must prove that the products covered by the relevant patents have formed a domestic industry, or that the above-mentioned industries are emerging in the United States. The requirements for "domestic industry" are divided into two parts, one involving technology and the other involving economics. On the technical side, the plaintiff must prove that the product covered by the patent is already manufactured or sold in the United States. In terms of economics, the plaintiff must prove that it has invested a considerable amount in manufacturing facilities and equipment, expended a large amount of manpower and financial resources, or made substantial investment in product development, including engineering, research and development, or licensing. If the ITC confirms after investigation that the imported products infringe intellectual property rights, it can issue two orders in accordance with Section 337: one is a "cease order" and the other is a temporary or permanent "injunction" or "exclusion" make". The former is similar to an injunction issued by a U.S. District Court, which requires the defendant to immediately cease infringement. If the defendant insists on importing and selling infringing products into the United States despite such an order, he may be fined heavily. The latter explicitly prohibits infringing products from entering the United States. The ITC can issue a comprehensive exclusion order, which does not target specific importers, but targets infringing products, prohibiting the import of all infringing products of a specific type into the United States. Even a limited exclusion order applies to all of the defendant’s infringing products. The ITC's exclusion order does not identify specific models, but gives a general description of the infringing products that are prohibited from being imported. Therefore, if the U.S. market is a major market for the defendant, an exclusion order targeting a minimal infringement would be enough to prevent the defendant from continuing to operate. Injunctions also serve to prevent defendants from selling inventory of infringing products that have been imported into the United States. Section 337 divides unfair trade in U.S. imports into two categories: 1. Ordinary unfair trade. The so-called ordinary unfair trade practices refer to unfair competition methods and unfair behaviors in the process of importing products into the United States by owners, importers or underwriters, or in the process of selling products after importation. However, two conditions must be met to constitute it illegal: first, the relevant industry exists in the United States or is in the process of being established; second, the damage has reached a considerable level. 2. Unfair trade related to intellectual property rights refers to the sale in the United States of products that infringe copyrights, patent rights, trademark rights and other rights protected by U.S. law. As long as an industry related to the industry exists or is being established in the United States, unfair trade practices involving intellectual property rights are illegal and do not require proof of harm to U.S. industries. There are two characteristics of Article 337. First, it is a short and fast investigation procedure (limited to the conclusion of the investigation within 12 or 15 months), and second, it is very severe remedial measures. Once found to be infringing, not only the defendant's related products may be permanently banned from entering the United States, but similar products of the defendant's domestic industry may also be permanently banned from entering the U.S. market. Article 337 litigation is an administrative litigation. In addition to a quick ruling and an injunction, it does not provide financial compensation to the plaintiff. Therefore, plaintiffs often take a two-pronged approach, filing administrative lawsuits in the ITC and filing civil infringement lawsuits in federal district courts to obtain financial compensation. Federal district courts often suspend hearings on civil claims while administrative proceedings proceed. Enterprise response measures Before exporting products to the United States, they should first increase their awareness of intellectual property rights and nip problems in the bud.

Chinese companies should be prepared in advance and first conduct a patent search to determine whether there is any possibility of infringement of U.S. patents involving the product or U.S. patents involving the manufacturing method of the product, including asking experts to analyze the patent protection status of the product in the United States. Compared with the loss of losing the lawsuit, the cost of patent search is really negligible. If any possible infringement of a U.S. company’s patent rights is discovered, the product should be modified in a timely manner to avoid infringement of intellectual property rights. If there is a possibility of infringement, other methods can be used to circumvent the patent and avoid infringement. If some core patents cannot be bypassed, you can also obtain a license to use the patent from the patent owner, or make an agreement with the importer, who will bear the liability for infringement. For Section 337 investigation cases, if the "ostrich policy" of non-prosecution is adopted, the ITC will make a default judgment, which means that the products under investigation will lose the U.S. market for a long time or even permanently. Once the defendant actively responds to the lawsuit, it can at least gain bargaining chips and strive to win the lawsuit or settle with the plaintiff out of court. Some defendant companies believe that they can avoid the consequences of a default judgment as long as they close the company, register a new company and make a comeback. This approach is very fallacious. As mentioned above, the ITC's injunction or exclusion order targets infringing products, not specific companies. Even if the company changes its name, it will still be unable to enter the US market as long as it still produces the same infringing products. China is transforming into an export economy, and there are often many companies producing similar products in an industry. Section 337 lawsuits often target many Chinese companies at the same time. In this case, Chinese companies can join together to respond jointly to reduce litigation costs. Industry chambers of commerce can often organize and coordinate. For example, in the Wenzhou lighter litigation, the Wenzhou Cigarette Accessories Chamber of Commerce played an indispensable role. Strategies for responding to lawsuits There are three intertwined situations in the actual operation of ITC investigations that become obstacles for defendants in proceedings involving multiple patent allegations: (1) The time to collect evidence from plaintiffs and third parties is very limited; ( 2) The administrative law judge has very limited time to hold hearings and issue his or her ruling; and (3) the Commission requires the administrative law judge to rule on every issue raised at the hearing. Therefore, even if the ALJ determines that there is no infringement because the patent is invalid, he must still rule on all disputes raised at the hearing involving said patent. Time constraints can be very advantageous to plaintiffs and continue to put pressure on defendants as the number of disputes increases and hearings approach. Defendants can reduce the pressure exerted by plaintiffs and reduce risks through motions for summary judgment. Proposals for summary judgment may only address the main disputes, such as the absence of infringement, the invalidity or unenforceability of the patent, and the lack of domestic industry. If successful, a summary ruling removes the patent from investigation without the need for a final hearing. Even if the plaintiff has an irrefutable position of infringement and patent validity, the above-mentioned patent will not be included in the scope of the committee's investigation. The defendant will be able to use more time to make further arguments on the remaining patents at the hearing and provide sufficient evidence for each defense. Even if the motion for summary judgment is unsuccessful, it can still help narrow the scope of the dispute. At least the above motion will test the ALJ's position on this defense. If the motion is denied outright, the defendant may waive the above defenses and present other defenses at the hearing. If the ALJ denies the motion but is interested in the defense, the defendant may redevelop the argument and present additional evidence, either at the hearing or in a subsequent motion for summary judgment. During the hearing process, the defendant can also argue that its product does not infringe the other party’s patent rights. Patent rights may include one or more technical elements. Infringement can only be determined when the accused product involves all technical elements of the right, otherwise it does not constitute infringement. In addition, the defendant can also argue that the plaintiff's patent rights are invalid, such as: the coverage of the patent rights is too broad, similar technology already existed when the plaintiff applied for the patent, the patent lacks novelty, etc. Strategies after losing the lawsuit If after analysis, the defendant may lose the lawsuit, or the defendant may be found to have infringed upon the defense and lose the lawsuit. This does not mean that the whole army will be wiped out. First, the defendant can redesign the product by bypassing the patent based on the analysis or the infringement determined by the ITC and regain the US market. If you encounter a core patent that cannot be bypassed, you can negotiate with the plaintiff and strive to become the defendant's OEM manufacturer, that is, produce products bearing the plaintiff's brand. Doing so will of course make the plaintiff more profit, but if the market is huge, the defendant can still survive by making small profits but quick turnover. Secondly, the defendant can also negotiate with the plaintiff to obtain a license to use the patent and pay a reasonable license fee.

This approach is more beneficial to the defendant because the patent license fee can be based on the licensee's profits and paid from the profits. This is a win-win situation. Even if the patent holder insists on using sales as the basis, the licensee can negotiate to minimize the license fee by using the value of the patented parts instead of the entire product as the basis. In addition, the defendant can also negotiate with the plaintiff to establish a joint venture, with the plaintiff providing patented technology and manufacturing products in China. Due to China's low labor costs, many foreign companies are willing to jointly produce with Chinese companies to reduce costs. This is also a win-win situation.