16 January 1989

3.10 In response, the Community made the following points:

(b) General arguments concerning the treatment of imported goods under Section 337

3.11 The Community said that United States law made a distinction between procedures applicable in litigation in patent disputes according to whether goods alleged to infringe United States patents were imported or domestically produced. In the case of imported goods, the complainant could take action under the procedures applied by the USITC under Section 337 of the United States Tariff Act of 1930 or, where product patents were concerned, in federal district court. In the case of domestically produced products alleged to infringe a petitioner's patent, the matter could not be raised in a proceeding brought under Section 337 but only in a United States federal district court. The Community considered that, as the procedures applied by the USITC under Section 337 subjected imported goods to treatment that was radically different from, and less favourable than, the treatment accorded by United States federal district courts to domestic goods in patent infringement suits, the procedures at issue constituted a violation of the national treatment rule set forth in Article III:4 of the General Agreement.

3.12 The Community identified seven features of Section 337 procedures which it believed subjected imported goods to less favourable treatment:

3.13 The United States, without prejudice to its position that Section 337 should be considered as a "measure" to secure compliance with laws on the protection of patents and not as a "law, regulation or requirement" falling under Article III:4, maintained that the procedural differences between Section 337 proceedings and district court litigation did not result in less favourable treatment for importers and manufacturers of imported products. The alleged differences raised by the Community, where they existed, were present (i) to permit application of one of the statutory benefits accorded respondents under Section 337, (ii) as a result of the nature of border enforcement or (iii) to place parties in the same position that they would be in after obtaining a preliminary injunction in a federal district court.

3.14 The United States argued that, if the Panel were to examine the consistency of Section 337 with Article III:4 of the GATT, it should examine its effect as a whole rather than evaluating each of its features separately. Examination of the results of Section 337 investigations would result in the conclusion that respondents in those investigations were not accorded less favourable treatment than defendants in district court litigation, because:

3.15 In evaluating the treatment accorded to imported goods under Section 337, the United States urged the Panel to consider all of those elements that directly affected the result of an investigation, i.e., the dispositive issues. The substantive elements of Section 337, such as industry and injury requirements, demonstrably affected the outcome of investigations. Only to the extent that the Community could prove that procedural rules had a dispositive effect should such rules be taken into account in offsetting benefits flowing from the substantive requirements. The United States could not accept the Community's argument that the substantive elements had no effect in cases where they were not dispositive; proof of these elements had to be presented on these matters in all cases, including default cases.

3.16 The United States said that the USITC had reached a negative determination in forty-eight per cent of the Section 337 cases on which it had made a final determination. If one excluded thirty-seven "default" cases in which foreign respondents either had not contested the case at all or had had only limited participation, sixty-eight per cent of the contested cases resulted in negative determinations, i.e. in favour of continuing imports. In twenty-four per cent of the contested cases, the "industry" and "injury" issues had been decisive in precluding relief. This had led many persons in the United States to conclude that Section 337 was biased in favour of respondents.

3.17 The Community argued that, in applying Article III:4 of the General Agreement, unrelated features should not be offset against each other. There was no basis in GATT for balancing or offsetting that could justify or legitimise discrimination against imports. If a contracting party chose, for whatever reason, to subject companies complaining against imported goods to certain requirements which did not apply to petitioners in similar complaints against domestic goods, that fact did not entitle it to impose some other, unrelated, disadvantages or requirements on imported goods. There could be no reason to believe that the two sets of requirements would be relevant or significant in the same cases, or the same kinds of cases. Even if by chance they did arise in the same case, there would no reason to expect that they would create equal burdens for both parties. National treatment could not be denied to a defendant suffering procedural or substantive law handicaps merely because other defendants in other cases and in other situations were able to rely successfully on other unrelated, procedural or substantive, rules. The basic rule under Article III was that each rule of law must give imports no less favourable treatment. If this were not the case, there would be no criteria in GATT or elsewhere to limit the rules of law which could be used to offset other rules which, in themselves, clearly infringed Article III:4. Such an approach would be impossible to apply in practice, because it would be impossible to say when a rule discriminating against imports was offset and when it was not. Only if two, or more, rules applied in all the same cases and concerned the same subject, could one look at the effect of them together to decide if the joint effect was no less favourable; this might arise where two rules applied respectively to imports and domestic goods and had the same aim or purpose, or where, within one regime applicable to imports, two rules were directly and always linked with one another.

3.18 In the Community view, Article III:4 of the GATT was to be interpreted as requiring de facto national treatment. This would prohibit not only formal de jure discrimination, but also de facto discrimination. Such an interpretation was necessary to prevent concealed protectionism, to ensure that contracting parties could not do by non-tax measures what they were prohibited under Article III:1 and III:2 from doing by tax measures, and to provide a workable standard which ensured that discrimination could be identified and prohibited in every individual case. De facto national treatment would not prevent trivial differences in treatment which were incapable of having an economic effect. But the greater the difference, the greater was the onus on the party concerned to prove that it was incapable in individual cases of having an economic effect or that it always and necessarily gave imports the same treatment as, or more favourable treatment than, that accorded to domestic goods.

3.19 The Community said that the reasons adduced for not balancing unrelated disadvantages or requirements in applying Article III:4 applied fully in the case before the Panel. The substantive requirements imposed on complainants in Section 337 actions, but not in federal district court actions, and the procedural disadvantages facing respondents in Section 337 actions relative to those in federal district court proceedings, could not be offset against one another. Most of the procedural disadvantages created difficulties for respondents in all Section 337 cases, whereas the substantive requirements on complainants were important only in a few. The Community also argued that, even if the substantive requirements and the procedural disadvantages of respondents were weighed against one another, the disadvantages of respondents were not compensated for, or outweighed. According to the Community's calculations, these requirements had prevented relief in only five per cent of Section 337 cases. One reason why these economic requirements had little practical effect was that the procedural disadvantages facing respondents handicapped them in challenging the complainant's claims on these points - in particular the short time-limits and the inability of respondents to see, or discuss with their lawyers, confidential information covered by protective orders.

3.20 In response, the United States said that an examination of individual elements of Section 337 could not yield a complete assessment of its effects given the uncertainty in the interplay of the various elements. The only way of examining Section 337 was on the basis of the results of individual cases, either by determining the consistency of an individual decision with Article III:4 or, if the use of Section 337 in general were to be addressed, by discerning a pattern of conformity or non-conformity in the results. Assessing any individual component or partial group of components in isolation would require the Panel to make a subjective, speculative determination regarding the effect of that particular element. Respondents prevailed in the majority of contested cases and an extremely high percentage of USITC decisions was affirmed by the United States Court of Appeals; this did not indicate a pattern of less favourable treatment or inability on the part of respondents to defend themselves in Section 337 proceedings. Moreover, application of the provisions of United States patent law and Section 337 indicated that these laws and Section 337 proceedings were not protectionist in nature.

(c) Contentions by the EEC that less favourable treatment is accorded to imported goods

Counterclaims

3.21 The Community argued that the inadmissibility of counterclaims in a Section 337 case was less favourable to respondents than the corresponding rules and practice in federal district court cases:

3.22 The United States asserted that defences that might also be the subject of a counterclaim, such as those going to invalidity and unenforceability of the complainant's patent, could be raised in Section 337 proceedings. The inability of respondents to raise counterclaims that were not defences to patent infringement had no effect on whether a Section 337 order was issued. All legal and equitable defences that could prevent a finding of patent infringement, and thus prevent issuance of a Section 337 order, were permitted. Moreover, the complainant as well as the respondent was limited in the issues that could be raised under Section 337; the permissive claim joinder rules that applied in federal district courts did not apply under Section 337.

3.23 The United States further said that the respondent could bring a separate cause of action against the complainant, either under Section 337, if it could meet the jurisdictional requirements regarding importation and domestic industry, or in a federal district court. Counter-complaints under Section 337 could be consolidated by the USITC with the original complaint into a single investigation. Inability of the respondent to bring a counterclaim under Section 337, as opposed to a separate cause of action in a federal district court, did not diminish any incentive on the complainant to settle litigation that might exist. On the contrary, the damages and injunctive relief available in court should provide a greater incentive to settle than a Section 337 order. The United States also did not accept the contention that settling all causes of action in one forum would necessarily entail less time and expense than doing so in two fora. Documents, depositions and other records produced in one proceeding could be and sometimes were used in the second proceeding. Finally, the United States contended that patent litigation in federal district courts did not avoid the problem of multiple proceedings, but could even exacerbate them. District courts might themselves try counterclaims in separate proceedings. They might also hold separate hearings in patent infringement cases on the issues of validity and infringement, and almost always held separate hearings on damages.

Protective orders on confidential information

3.24 The Community argued that, unlike in patent litigation in federal district courts, the USITC's confidentiality procedures concerning information made available by each party, in response to requests from the other party during the discovery phase of Section 337 proceedings, effectively deprived respondents of the right to participate in their own defence. Although they applied to both parties, these procedures in fact prejudiced respondents in Section 337 cases and put them in a relatively worse situation compared to complainants than did procedures in federal district court. The Community gave the following reasons:

3.25 The Community contended that, in the Certain Aramid Fibre case, most of the documents on which Du Pont relied could not be seen by any employee of Akzo, but only by Akzo's outside United States counsel and experts. Akzo's in-house experts had also been barred from attending most of the USITC proceedings. Akzo's treatment as respondent, under USITC proceedings, had been quite different from that accorded to Du Pont as defendant in related actions brought by Akzo in federal district courts. In the latter instance, designated in-house counsel of both parties had been entitled to have access to all the information of the other party covered by a protective order. The in-house personnel of both parties had had access to all the evidence considered during trial and had been present in the court room when the other side had presented its case.

3.26 The United States said that confidential information received the same treatment in Section 337 proceedings as it received in federal district court litigation. In regard to the Certain Aramid Fibre case, the Court of Appeals for the Federal Circuit (CAFC) had rejected Akzo's contentions on this point, noting that:

The United States said that the issues litigated between Akzo and Du Pont in district court had differed from those litigated before the USITC because the court case did not involve the question of injury to the domestic industry. The most sensitive information relating to Du Pont's internal operations, customers, and future business plans had not been relevant to the federal district court litigation and thus had not been considered in determining who would have access to information under a protective order. In federal district court cases where confidential information similar to that at issue in a Section 337 investigation was subject to protective order, the courts imposed limitations on access and procedures for challenging the claim of confidentiality similar to those used by the USITC. The CAFC's reference to the circumstances present in this case concerned the type and scope of information at issue. During Akzo's appeal of the USITC decision, the USITC had cited district court cases supporting its position and the CAFC had relied upon these cases and its own practice in reaching its decision on this issue.

3.27 The United States further said that protective orders under Section 337 proceedings applied equally to complainants and respondents. If the treatment of confidential information under Section 337 was more restrictive than that in federal district court proceedings, that would be more disadvantageous to the complainant than to the respondent, since the burden of proof on most issues rested on the complainant. As regards the Community claim that protective orders impaired a respondent presenting a defence of patent invalidity, it had to be borne in mind that such defences were often based on published material, e.g. defences of anticipation and obviousness.

3.28 In response, the Community said that the CAFC had expressly limited its finding in the passage cited by the United States to "the circumstances present here", which clearly referred to the treatment of allegedly confidential information by the USITC. The CAFC had not decided that federal district courts would also have denied Akzo's in-house counsel access to this type of information. The Community's view was that the judgment of the CAFC in the Akzo case showed conclusively that USITC treatment of confidential information was different from the practice of federal district courts. The Community found it significant that the United States had not cited any court decision upholding confidentiality restrictions similar to those of the USITC, nor had Du Pont or the USITC before the CAFC.

Time-limits

3.29 The Community contended that in federal district court proceedings the pace at which a case moved forward varied, depending on a number of factors, most notably the complexity of the case. In setting deadlines, courts were sensitive to the need to allow plaintiffs and defendants reasonable time to finish their preparations. The short time-limits under Section 337 put respondents in a worse position, relative to complainants, than they would be in federal district court actions for the following reasons:

3.30 The United States maintained that the time for completing Section 337 investigations compared favourably with the time for disposition of patent litigation in federal district courts.

3.31 The United States also contested the Community claim that the time-limits in a Section 337 action put respondents in a less advantageous position, relative to complainants, than they would be in federal district court litigation. The United States argued that:

3.32 The United States also maintained that expeditious proceedings could benefit either party. An expeditious finding of non-infringement or non-violation of Section 337 was favourable to the respondent because it eliminated uncertainty in the market resulting from patent litigation and because it reduced the costs of extended litigation.

3.33 In response, the Community said that a Section 337 order could not be regarded as analogous to preliminary relief ordered by a federal district court. Preliminary relief in court was subject to reconsideration later before final determination, whereas a Section 337 exclusion order (other than a temporary exclusion order) was not subject to reconsideration, since it was itself a final determination. Further, a preliminary court injunction was normally conditional on posting of a bond guaranteeing compensation to the defendant in the event of an outcome favourable to the latter; a Section 337 order, being definitive, did not require any security on the part of the complainant. The fact that temporary exclusion orders, which were analogous to preliminary relief, were available in Section 337 proceedings proved that final Section 337 orders were not comparable to preliminary injunctions.

3.34 The Community also did not accept that a Section 337 complaint gave a respondent significantly greater information about the case than notice pleading in federal district court. A Section 337 complaint might be somewhat longer than a typical complaint before a federal district court but this was attributable to the extra requirements of Section 337, not to any greater information about the circumstances of the alleged patent infringement.

Decision-making by the USITC

3.35 The Community claimed that the decision-making process of the USITC put the respondent in a less favourable position relative to the complainant than a defendant before a United States federal district court. As a basis for its claim, the Community said that there were two major differences between the respective decision-makers in the two fora:

3.36 The Community argued that these differences, when considered in conjunction with the other differences between Section 337 and federal district court proceedings to which it had drawn attention, put the respondent in a relatively less advantageous position compared to the complainant for the following reasons:

3.37 The United States challenged the assertion of the Community that USITC Commissioners were necessarily less qualified than decision makers in federal district courts. USITC Commissioners had gained in practice considerable experience in intellectual property cases and had available to them legal and technical assistance far in excess of that available to a federal district court judge. USITC administrative law judges were experienced attorneys and, because their dockets focused exclusively on Section 337 investigations, they had considerable experience in deciding patent issues. Jury trials were available in federal district courts on the request of either party. In federal district courts, cases were decided by a jury or a single judge, whereas the USITC reached its decision by a majority vote and issued majority and dissenting opinions stating the reasons for the decision. Presently, only one federal district court judge in the United States was a patent attorney. Many USITC Commissioners, past and present, were lawyers. Examination of USITC opinions demonstrated that it had no reluctance to address patent issues. The expertise of the USITC in dealing with patent and other intellectual property law matters was illustrated by the enviable record of its decisions being upheld by the Court of Appeals for the Federal Circuit (CAFC) that reviewed all patent cases in the United States. The standard of review employed by the CAFC was essentially the same for USITC and federal district court determinations on issues of law; as to factual findings, those of the USITC and of juries in patent cases were subjected to the same "substantial evidence" standard. Expert opinion was divided on whether there was any significant difference between the "clearly erroneous" standard used for the review of findings of fact by federal judges and the "substantial evidence" standard used to review findings of fact by the USITC.

3.38 As in the case of federal judges, USITC Commissioners were nominated by the President and confirmed by the United States Senate. The method of selection and confirmation of Commissioners reflected a concern that the USITC be an independent bipartisan body. The availability of a neutral forum in which decision-makers were experienced in considering intellectual property was one of the advantages of Section 337 for respondents.

3.39 The United States further said that the fact that Section 337 cases were decided by an administrative agency and that USITC Commissioners and administrative law judges were not appointed under Article III of the United States Constitution as federal judges made it possible to provide for Presidential review of affirmative USITC findings. This was one of the differences between Section 337 and federal district court proceedings that worked in favour of respondents. The separation of powers under the United States Constitution precluded the President from reviewing and taking action on judicial decisions. This also explained why USITC decisions had no formal res judicata effect.

3.40 The United States objected to the Community's statements regarding limitations on a respondent's ability to choose between two fora and the right to bring a second cause of action in federal district court after a finding of patent infringement. A respondent could file an action for a declaratory judgement on validity and/or non-infringement of the Section 337 complainant's patent in federal district court. At the same time, that respondent could also request a Section 337 investigation if it could meet the same jurisdictional requirements that applied to the complainant. Moreover, there was nothing to preclude a respondent from filing a district court action even if the USITC had found that respondent in violation of Section 337. Of course, in regard to process patent infringement based on the use outside the United States of a process patented in the United States, neither party could bring suit in federal district court; consequently, there was no choice for either party.

Simultaneous proceedings

3.41 The Community argued that, where imported goods were challenged with infringing patent rights and the matter concerned a product patent, the respondent could face simultaneous proceedings on the same complaint in the USITC and in a federal district court, whereas in similar cases involving domestically produced goods this was not possible.

3.42 The United States said that strictly speaking this was not a question of Section 337 procedure, since the possibility of simultaneous proceedings did not govern proceedings in any Section 337 investigation. Dual proceedings were not possible if the matter concerned a process patent or if it were not possible to obtain personal jurisdiction over the respondent in a federal district court. In those cases where it was possible to seek recourse both in federal district court and before the USITC, the patent owner might choose not to commence court action for any of several reasons, including: possible necessity for multiple court actions when all of the foreign defendants could not be brought into the same district court; unenforceability of any judgment; delays of court proceedings and consequent uncertainties in the market place; and preference for an exclusion order rather than recovery of damages. In instances where a concurrent court proceeding was initiated, a stay of court proceedings pending disposition of the Section 337 case or suspension of the Section 337 case pending disposition of the court action was possible. The United States also said that the respondent, as well as the complainant, could initiate concurrent court action, since a declaratory judgment that the complainant's patent was invalid and not infringed could be sought from a federal district court.

In rem orders

3.43 The Community said that for imported goods an in rem order could be made in Section 337 cases. USITC in rem orders could be directed at products of exporters who had not been parties to the Section 337 proceeding in question. Where domestically produced goods were concerned, no equivalent remedy was available. Moreover, in rem orders were enforced by the United States Government, whereas injunctions issued by a federal district court could only be enforced at the expense of the complainant. In the Community view, all this meant that imported goods were treated less favourably than like domestic products.

3.44 The United States said that in rem exclusion orders, like any remedy, necessarily benefited the complainant more than the respondent. Moreover, such exclusion orders were not procedural in nature, and were thus not relevant to the findings that the Community had requested the Panel to make. Notwithstanding its position on the relevance of this issue to the Panel's task, the United States said that the practical effect of an in rem order was the same as that of a judicial decision against a manufacturer of infringing goods in the United States. An injunction prohibiting further production of infringing goods eliminated the source of the product and made it unnecessary to bring actions against sellers of the product. An in rem order had the same effect of shutting off the source of infringing goods. A complainant might obtain an in rem order only if he could prove a widespread pattern of unauthorised use of the patented invention or process and the existence of certain business conditions from which the USITC could reasonably infer that foreign manufacturers other than respondents to the investigation might attempt to enter the United States market with infringing goods. USITC orders applied only to infringing goods just as district court orders applied only to infringing goods.

TO CONTINUE WITH SECTION 337 OF THE TARIFF ACT OF 1930