The U.S. International Trade Commission (“ITC”) continues to be a popular venue for patent litigation under Section 337 of the Tariff Act of 1930. The speed at which Section 337 investigations proceed and the significance of an adverse decision can create circumstances that may lead to allegations of improper conduct. Similar to patent litigation in U.S. District Court, the presiding judge in a Section 337 investigation has the power to sanction the parties for improper behavior. However, a party must act quickly and follow the ITC’s rules to have any chance to have sanctions imposed on another party.
The framework for seeking sanctions in an ITC Section 337 investigation is provided by 19 CFR § 210.25. Subsection (a)(1) states that a motion for sanctions must be filed “promptly after the allegedly sanctionable conduct is discovered.” Subsection (a)(1) also requires that before filing a motion for sanctions, the party seeking to file the motion must serve a copy of the motion on the allegedly offending party in accordance with 19 CFR § 210.4 (d)(1) and provide that party at least seven days to correct the offending conduct before filing the motion. This so-called “safe harbor” provision is similar to the safe harbor provision found in Rule 11 of the Federal Rules of Civil Procedure.
The importance of this framework became clear in In the Matter of CERTAIN VIDEO PROCESSING DEVICES, COMPONENTS THEREOF, AND DIGITAL SMART TELEVISIONS CONTAINING THE SAME, Inv. No. 337-TA-1222 (Sanctions Proceedings I and II), Commission Opinion. The take-away from this decision is clear – when seeking sanctions, be sure to follow the rules!
The underlying investigation was instituted on October 19, 2020 based on a complaint filed by DivX, LLC against more than a dozen respondents. Many of the respondents settled throughout the investigation. On July 8, 2021, two days before the hearing, DivX filed an unopposed motion to terminate the investigation with respect to RealTek Semiconductor Corporation due to withdrawal of the complaint. The Administrative Law Judge (“ALJ”) orally granted the motion and on July 16, 2021, the ALJ issued an initial determination (“ID”) terminating RealTek from the investigation.
On October 4, 2021 – just 10 weeks after the ID terminating RealTek from the investigation – RealTek filed a motion for sanctions against DivX for allegedly making false and misleading representations regarding infringement and for using Section 337 proceedings for harassment and other improper purposes. DivX opposed the motion.
The First Decision Denying Sanctions
On April 22, 2022, the ALJ denied RealTek’s motion on procedural grounds.
First, the ALJ denied the motion based on RealTek’s failure to act “promptly” in filing the motion as required by Commission Rule 210.25(a)(1). RealTek allegedly informed DivX that its claims were frivolous and should have been dismissed by at least by March 2021, but waited until October 2021 – at least seven months after the allegedly sanctionable conduct was discovered – before moving for sanctions.
Second, the ALJ denied the motion because he found that RealTek failed to comply with the “safe harbor” provisions of Commission Rule 210.4(d)(1) because RealTek did not serve on DivX a draft sanctions motion at least seven days before filing it. The ALJ found that a series of informal notices (e.g., emails) of the alleged improper conduct failed to satisfy the Commission’s notice requirement of the “safe harbor” provisions of the Commission’s Rules.
The Second Decision Denying Sanctions
On June 1, 2022, RealTek filed a petition for the Commission to review the ALJ’s Order and on June 16, 2022, DivX filed its own motion for sanctions. DivX argued that RealTek’s petition for review was baseless and that RealTek continued to pursue sanctions for purposes of harassment.
The Commission first adopted the ALJ’s Order without further amendment or comment. The Commission then denied DivX’s motion for sanctions, also finding that DivX failed to act “promptly” in filing its motion as required by Commission Rule 210.25(a)(1). In particular, DivX’s motion raised issues that pre-dated RealTek’s June 1, 2022 petition and could have been raised as much as nine months earlier.
If seeking sanctions in an ITC Section 337 investigation, it is important to move quickly – within days to a few weeks, not months – after the sanctionable conduct is discovered. It is also imperative to provide a full draft motion to the allegedly offending party at least seven (7) days before filing such a motion. Failure to do so is likely to jeopardize any such motion.