What Happened to All the Cases: Why So Many Section 337 Cases Give Rise to Relatively Few Exclusion Orders

Guest Post by Michael G. McManus and Rodney R. Sweetland, III. Both authors are partners at the Duane Morris law firm. 

There is something of a paradox regarding the fate of Section 337 cases at the ITC. On the one hand, it is often noted that Section 337 cases are less likely to settle prior to trial than district court patent cases.  One commentator reports that between 2000 and 2008 46% of investigations were settled prior to hearing.[1] While this is a significant number of settlements, it indicates that most Section 337 cases have historically gone to hearing.  On the other hand, with more than three hundred investigations filed since 2005, and Section 337 complainants’ reported win rate of 58%, one would therefore expect to find well over one hundred exclusion orders in place.  In fact, as of this writing, there are only about 50 exclusion orders in effect arising from patent-based 337 investigations.  What happened to all the cases?

The present article will review the course of Section 337 complaints filed in 2008, 2009 and 2010 and describe their fate.

2008

In calendar year 2008, there were 36 Section 337 actions filed.[2]  Of these 36, 16 were decided by ALJ decision and 20 by settlement.[3]  Of the 16 resolved by decision, 3 were decided on summary determination, and 13 were decided by final initial determination (sometimes referred to as an “ID”). 

  • Of the 20 investigations resolved by settlement, 18 were settled prior to hearing and 2 subsequent to hearing. In addition, 2 of the investigations that led to IDs resulted in subsequent settlements for a total of 22 settlements.
  • Of the 36 actions filed in 2008, 21 were resolved prior to hearing (18 by settlement and 3 by SD) and 15 went to hearing (13 led to Final IDs and 2 were settled after hearing).
  • Of the 13 IDs issuing from 2008-filed complaints, 7 found a violation and 6 found no violation for a complainant win rate of 54% at the ID stage.
  • Nine of the 36 cases resulted in exclusion orders (including several arising from default judgments) with eight of the exclusion orders still in effect.

2009

In calendar year 2009, there were 34 Section 337 complaints filed.[4]  Of these 34, thirteen were determined by Administrative Law Judge (“ALJ”) decision and 21 by settlement.  Of the 13 resolved by decision, one was decided on summary determination and 12 by Final Initial Determination. 

  • Of the 21 cases resolved by settlement, 18 were resolved prior to hearing, and 3 were resolved after the hearing, but prior to the Final ID. In addition, 3 of the investigations that led to IDs resulted in settlements for a total of 24 settlements.
  • Of the actions filed in 2009, 19 were resolved prior to hearing (18 by settlement and 1 by SD) and 15 went to hearing (12 led to Final IDs and 3 were settled after hearing).
  • Of the 12 IDs arising from 2009-filed cases, six found a violation and six found no violation for a 50% win rate at the ID stage. Of the six that found a violation, 2 led to LEOs, 2 led to settlement and 2 were reversed by the Commission. Of those IDs that found no violation, five were reviewed and affirmed by the Commission and one settled. 
  • Five of the 34 cases resulted in exclusion orders. Two resulting from final IDs and 3 resulting from defaults. All 5 remain in effect.

2010

In calendar year 2010, there were 58 Section 337 complaints filed.[5]  Of these 58, 21 were decided by ALJ decision and 34 by settlement (the ID for three investigations had not yet issued as of this writing).  Of the 21 resolved by decision, 2 were decided on summary determination and 19 by final initial determination. 

  • Of the 34 investigations resolved by settlement, 33 settled prior to hearing and one settled subsequent to hearing but before the ID. 
  • Of the actions filed in 2010, 35 were resolved prior to hearing, 33 by settlement and 2 by summary determination. 23 went to hearing. Of these 23, 19 resulted in IDs, 1 settled subsequent to hearing, and 3 remain pending. 
  • Of the 19 IDs arising from 2010-filed cases, 8 found a violation and 11 found no violation for a complainant win rate of 42% at the ID stage. 
  • A significant number of 2010 cases are presently undergoing Commission review, however, 5 cases have resulted in exclusion orders thus far. 

Cumulative statistics

Cumulating the foregoing, and disregarding the 3 cases awaiting a Final ID, yields the following:

  • 69 of 125 (55%) investigations settled prior to hearing
  • 6 of 125 (5%) investigations settled after hearing but before ID
  • 44 of 125 (35%) investigations led to an ID
  • 6 of 125 (5%) investigations decided on SD

Further, 4 of the 44 cases with an ID subsequently settled.[6]  Thus, the cumulative settlement rate, considering cases at all stages before the Commission, is 63% (79 of 125).[7]

The ALJ’s issued 44 IDs in the case sample. Of these, 21 found a violation, and 23 found no violation. This yields a complainant success rate of 48% at the Initial Determination stage (there are too many cases that remain pending to derive complainant success rate through the Target Date). 

CONCLUSION

We are now in a position to answer the question, what happens to all the cases? First, the cumulative settlement rate for the time period at issue, 63%, is somewhat higher than expected.  Second, the complainant win rate for the relevant period, at least at the ALJ stage, is somewhat below the historical average. These two factors lead to fewer exclusion orders.

There is no quantitative explanation for the lower settlement rate of ITC cases relative to similar district court case.[8]  It may be that the structure of Section 337 proceedings does not lend itself to settlement.  In a district court jury case, the trial, and particularly the verdict, provide a decisive moment, with the joy of victory and the agony of defeat.  At the ITC, however, there is no comparable inflection point.  The hearing does not end with a decision; rather, the ID issues about 3 months subsequent to the hearing.  The ID yields a winner and a loser, however, in virtually every case the litigants promptly seek review by the full Commission.  The decision-making process is more drawn out and does not drive settlement “on the courthouse steps.”

Moreover, the simple speed of Section 337 proceedings may militate against settlement.  It often takes time for parties’ psychology to move from that of a combatant to a strictly rational economic agent. 

Similarly, there is no definitive explanation for the complainant win rate falling somewhat below the historical average.[9]  There is constant change in the ALJs, the Commission staff, the litigants, the law and the way the Commission is perceived among litigants. Some combination of these factors may affect win rate but the more likely explanation is that it is simply an artifact of the relatively small sample size. 

In view of the foregoing, practitioners can counsel their clients that, in recent years, 1) few cases are decided on summary determination, 2) a slim majority of cases settle prior to hearing and that 3) there is roughly a 50-50 chance of an ID yielding the desired result.


[1] Schaumberg, A Lawyer's Guide to Section 337 Investigations Before the U.S. International Trade Commission at 3.

[2] ITC Inv. Nos. 337-TA-632 through 337-TA-667

[3] For purposes of this article, the term “settlement” includes default judgments and withdrawn complaints.

[4] ITC Inv. Nos. 337-TA-668 through 701.

[5] ITC Inv. Nos. 337-TA-702 through 759.

[6] This article does not track settlements occurring after the Commission’s Final Determination; however, such settlements do occur making the total settlement rate slightly higher than reported here.

[7] This is still somewhat lower than most reported district court settlement rates for patent cases.  See Patstats.org, FY 2009 PATENT CASE DISPOSITIONS BY DISTRICT COURTS (reporting 88.6% settlement rate for 2009 cases); Jay P. Kesan & Gwendolyn G. Ball, How are Patent Cases Resolved? An Experimental Examination of the Adjudication and Settlement of Patent Disputes, 84 WASH. U. L. REV. 237, 259 (2006) (reporting approximately 80% settlement rate).

[8] See, generally, Colleen V. Chien, Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission, Wm. & Mary L. Rev. 60 (2008) at 99-103.

[9] The present article counts defaults as settlements. Were these counted as judgments favorable to the complainant, the complainant win rate would be higher.

 

2 thoughts on “What Happened to All the Cases: Why So Many Section 337 Cases Give Rise to Relatively Few Exclusion Orders

  1. Ha… maybe pleadings in all cases not involving injunctions should start with a required statement, “This matter is strictly about money. The most the court will do is move money from one party to another. The following are to support money being moved towards, or not taken away from, my client.” Then we’d remind people of the point, and they could be more civil about it.

  2. ” It often takes time for parties’ psychology to move from that of a combatant to a strictly rational economic agent. ”

    It often takes time for the reality that their government is bullying them to set in. Eventually it does tho!

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