Little Hope of Legislative Solution to CBP Exclusion Order Enforcement Problems, Industry Officials Say

CBP Needs to Amend Opaque Process, Industry Said

The Office of the U.S. Intellectual Property Enforcement Coordinator announced in June its intention to launch an interagency effort to diagnose exclusion order enforcement problems (here). Public comments from patent holders largely focused on the opaque ex parte process, one that they say prevents them from contributing insight or evidence of violation (see 13072502). Increased involvement from patent holders may heighten broader surveillance and, in effect, enforcement. “Patent holders should be paying careful attention to possible infringement anyway. But getting patent holders more closely involved would help the enforcement effort,” said Vann Pearce of Orrick, Herrington & Sutcliffe. “Patent holders may want to go talk to Customs or they may file enforcement actions at the ITC if they perceive someone as violating exclusion orders. I’m sure Customs resources are stretched pretty thin, considering they need to monitor all border facilities. The patent holders may want to independently make sure exclusion orders are enforced.”

In the longer term, CBP could potentially issue a rule that alters the ex parte procedure for contesting alleged violations, industry representatives said. The exclusion orders are issued by the ITC, and enforced by CBP, based on Section 337 of the Tariff Act of 1930 (here). “I imagine they could amend Title 19 and the particular statute that applies. That’s something that people have talked about before as an option,” said Pearce. “Customs could just give the patent holders some right to respond. The way it could potentially increase enforcement is by getting patent holders involved at an earlier stage and giving them notice.” Customs did not respond for comment.

ITC Assistance Could Improve Enforcement

The Customs regulation that pertains to exclusion enforcement says complainant petitions are decided by the “appropriate” Customs officer, based upon the value of the article under seizure. The ITC does, however, continue to provide some recourse options, according to industry representatives, particularly in circumstances where the technological sophistication levels of patents go beyond the reach of CBP expertise.

“There is a procedure where a complaining party can go back to the ITC for clarification on a modification, a design around, for on an exclusion order. In practice, that hasn’t worked well because proceedings are lengthy and drawn out. And if you have to go back and re-litigate your case, it is a significant waste of time and money,” Deanna Tanner Okun, an attorney at Adduci, Mastriani & Schaumberg. Tanner Okun spent 12 years as a member of the ITC. “The scope of the exclusion orders at ITC is written broadly. When it goes to Customs and a respondent is trying to get a product in, in my view, Customs should be able to call up the ITC and say ‘we have an issue here.’ Then the ITC can say ‘yes, no or maybe’ or call for an expedited decision.”

CBP's ability to detect infringement is far inferior to ITC, said Tanner Okun, along with other industry representatives. That expertise could potentially be improved through the infusion of more resources, but that is an unnecessary objective, in light of the ITC expertise already at the disposal of CBP, said Tanner Okun. “To have Customs, with limited staff and a focus on trade facilitation, make those sophisticated technology determinations…I think Customs officials even would say that’s very difficult,” said Tanner Okun. “Customs on occasion is permitting products to pass through because they are not able to make an infringement determination. That shows a broken system. The ITC spent months issuing an exclusion order. The ITC needs to change practice and procedure, so parties can get back to it quickly, after going through Customs.”

Problems Draw Increasing Criticism from Congress

Congressional lawmakers in both the House and Senate have expressed concern, in separate letters to Department of Homeland Security (DHS) officials over recent weeks and months, regarding CBP enforcement of intellectual property (IP) exclusion orders. Senators Ron Wyden, D-Ore., Maria Cantwell, D-Wash., John Thune, R-S.D., and Rob Portman, R-Ohio, submitted a request for exclusion order enforcement clarification on Oct. 22 in a letter to Acting CBP Commissioner Thomas Winkowski. The Senators requested clarification on the following specific areas:

• For calendar year 2012, how man exclusion orders are actively in place and how many times did CBP seize or turn away imports subject to a 337 exclusion order?
• Where are the bulk of CBP’s actions in terms of the nature of the merchandise?
• Under what circumstances may importers self-certify that merchandise is not subject to a 337 order? What disciplines does CBP have in place governing self-certification?
• Does CBP track how many self-certifications it accepts and, if so, how many self-certifications did CBP accept in 2012? How many audits of such self-certifications did CBP conduct in 2012?
• Does CBP communicate with the ITC when determining whether products do or do not infringe? What other resources are available to CBP in making such determinations?
• What challenges does CBP face in making infringement determinations? What additional resources would be helpful in improving the process?
• With respect to the parties that sought the exclusion order in effect, are those parties notified when CBP is considering whether the products at issue infringe? Does CBP provide its reason to those parties? Are they given an opportunity to respond?
• How many times was a Part 177 ruling (relating to an approval of a redesign) requested in 2012? Of those requests, how many resulted in a public ruling?

“We have heard reports that CBP allows some importers of merchandise subject to a 337 order simply to ‘self-certify’ that the products do not infringe on intellectual property and are therefore not subject to the 337 order,” said the letter. The Senators said CBP enforcement is insufficient, requesting clarification on six areas revolving around CBP seizure and collaboration with the ITC. Spokespeople for Senators Wyden and Cantwell did not respond for further comment.

Congressman Howard Coble, R-N.C., expressed similar criticism in an Aug. 2 letter to then DHS chief Janet Napolitano. “Mounting evidence indicates CBP’s process for implementing exclusion orders is broken,” said Coble in the letter. “Little progress has been made to address persistent concerns about the lack of transparency and due process safeguards that result from the ex parte nature of CBP’s enforcement process.” Coble also requested DHS conduct an independent review of CBP exclusion order procedure, as part of its plans for FY 2014 (see 13101820). Coble is the chairman of the House Judiciary Committee Subcommittee on Courts, Intellectual Property and the Internet. DHS has yet to issue an official response to the request, said a Coble spokesman.

Chances of Legislative Solution Nonetheless Bleak

But the prospect for a legislative approach to addressing insufficient exclusion orders, through providing more resources to CBP or changing the issuance and enforcement proceedings, appears bleak in the both the House and Senate, said industry officials. The Senate Finance Committee leadership introduced the Trade Facilitation and Trade Enforcement Reauthorization Act of 2013, S. 662 (here), in March, but the bill does not address exclusion order enforcement. “There’s no mention of patents in the legislation. The exclusion orders can encompass other IP rights and trade secrets, but they mostly target patents,” said Andrew Riley of Finnegan Henderson. “It seems like a lot of background going on and a lot of specific requests. But legislation for ITC exclusion orders hasn’t come out yet.”

Sens. Max Baucus. D-Mont. and Orrin Hatch, R-Utah, submitted a letter to the Government Accountability Office (GAO) in July requesting information on CBP’s procedures for determining the scope and coverage of an ITC exclusion order (here). The GAO has not yet responded to the Finance inquiry, a committee spokesman said, while declining to comment on legislative proposals the committee leadership would prefer to address insufficient exclusion order enforcement. The debate surrounding preservation of intellectual property, patents and trademarks has surfaced in 2013 in a number of House Judiciary Committee bills, though none directly address exclusion orders. Congressman Bob Goodlatte, R-Va., introduced the Innovation Act, H.R. 3309 (here), on Oct. 23. The Foreign Counterfeit Merchandise Prevention Act, H.R. 22 (here), was referred in January to the House Judiciary Subcommittee on Crime, Terrorism, Homeland Security, and Investigations.

The ITC is a Ways and Means Committee jurisdiction issue, however, rendering Judiciary bills nearly incapable of addressing exclusion order issues through the mark-up process, according to a Coble spokesman. “To include ITC provisions in legislation coming from Judiciary would complicate the process exponentially. Often times when you vote on a bill that has jurisdiction of another committee, it’s viewed with suspicion,” said a Coble spokesman. “It would be almost have to be a Ways and Means Committee bill that Judiciary would comment on, if it had the ITC in it.” The Ways and Means Committee press office did not respond for comment.

Ways and Means Committee Republican and Democratic leaders introduced in December 2012 two House Customs Reauthorization bills, H.R. 6642 and H.R. 6656 respectively. Both died in committee. Different antidumping/countervailing duty language emerged as a contentious issue between the two pieces of legislation (see 13071817). Although neither included exclusion order provisions, lawmakers could conceivably tack on ITC exclusion order amendments on similar, Ways and Means-introduced bills in the future.

Despite the attention, the alleged insufficient exclusion order enforcement may be disenchanting patent holders to seek federal recourse, said Pearce. “The number of ITC 337 cases filed over the past five years has gone down significantly. It hit a high point around 2010-2011,” said Pearce. “One reason for that might be a concern that exclusion orders are being enforced insufficiently. ITC 337 cases are really expensive. If it’s a case where both sides are participating, the case could cost $5 million or more.” -- Brian Dabbs

Email ITTNews@warren-news.com for a copy of the two congressional letters to DHS officials.