16 January 1989

3.45 The Community said that Section 337 could not be employed against the importation of goods alleged to infringe United States patent rights unless that act affected an United States industry. This meant that Section 337 could be used to protect goods of United States origin covered by a United States patent, but not goods produced abroad by (or under licence from) the holder of a United States patent. Thus, imported goods were treated less favourably than like goods of national origin. Moreover, it was obviously easier for United States firms to meet the "industry" requirement than for foreign owners of United States patents.

3.46 The United States said that the requirement that there be substantial injury to an industry in the United States applied to persons; United States firms had to meet the same requirements as foreign owners of United States patents. Activities that were considered by the USITC as relevant indicia of the existence of an industry included not only production-related activity, but also research and development, quality control, repair and maintenance activities connected with sales. In a case where the product was manufactured partly in the United States and partly abroad, the USITC examined the nature and significance of the activities in the United States. Owners of United States patents that undertook only licensing activities in the United States or did not otherwise exploit the patent in the United States could not prove violation of Section 337.

(d) Contentions by the United States that more favourable treatment is accorded to imported goods.

Substantive "economic" requirements

3.47 The United States said that under Section 337 the petitioner had the burden of proving certain substantive economic elements that did not have to be proven in federal district court patent litigation, namely that an industry efficiently and economically operated in the United States was experiencing substantial injury or the threat of substantial injury as a result of the importation of the infringing goods in question. Not only was each of these elements dispositive if insufficient proof was provided, but also in a procedural sense these requirements were relevant in all cases since they had to be proven in every case. The Community replied that the fact that these elements were dispositive in only a limited number of cases demonstrated that they had no real effect in other cases. The Community did not believe that these economic requirements put a significant procedural burden on petitioners, nor that any such burden could be related to the less favourable procedural treatment to which respondents were subjected. Moreover, respondents were handicapped in disproving a United States complainant's claim that the economic requirements of Section 337 were met because of the procedural disadvantages from which respondents suffered, notably the limitations on access to the evidence of the complainant and the short time-limits.

3.48 The industry requirement: The United States said that a petitioner under Section 337 had to establish that activities in the United States of the patent owner and its licensees devoted to the exploitation of the patent at issue, including the products that resulted, constituted an "industry". The effect of this requirement was to limit the number of complaints filed and remedies issued. Of the 127 Section 337 investigations on which the USITC had made final determinations since 1975, eight of the sixty-one negative determinations had been negative due to failure to establish the existence of a domestic industry and in two cases the USITC had found no prevention of establishment of an industry. The Community considered that the industry requirement should be considered an element of less rather than more favourable treatment of imported goods since it had the effect of denying non-United States goods the right to challenge the importation of infringing goods (see paragraph 3.45 above). According to the information presented by the Community, which concerned 263 Section 337 cases, of which 123 had been fully litigated, the USITC had ruled that the United States complainant did not represent a United States industry (existing or in the process of being established) in only four cases.

3.49 The efficient and economic operation requirement: The United States said that the petitioner had to prove that its industry was efficiently and economically operated. The Community said that the USITC had never ruled against any petitioner on this ground.

3.50 The injury requirement: The United States said that the petitioner had to demonstrate that the effect or tendency of the import of the goods that it claimed infringed its patent was to destroy or substantially to injure an industry or to prevent the establishment of an industry. The petitioner had to demonstrate not only the required degree of injury to the industry but also a causal link between the injury and the infringing imports. According to the United States, of the sixty-one cases on which the USITC had rendered a negative determination under Section 337, the USITC had found that the complainant had failed to prove injury in twelve cases. Apart from its general comments summarised in paragraph 3.47, the Community said that, according to its information, the USITC had entered a negative determination on the grounds of injury in only six cases.

Public interest and Presidential review

3.51 The United States said that, even after proving patent infringement and substantial injury to a domestic industry, Section 337 relief might be modified or not applied on public interest or policy grounds. This was not possible in federal district court litigation. The Community said that, while this might affect the outcome in a few cases, it had no bearing on the treatment accorded respondents in many other cases.

3.52 Public interest: The United States said that the USITC had refused to provide relief in two final determinations on the basis of public interest considerations. On the same grounds, it had also turned down two requests for temporary relief, leading the complainant in those investigations to withdraw the complaint and to request termination of the investigation. Even where the USITC did not totally deny relief for reasons of public interest, these considerations could be a factor in limiting the relief provided. For example, in the Certain Aramid Fibre case, the USITC, over the dissent of one Commissioner, had limited the type of aramid fibre product covered by the exclusion order. One of the reasons for this decision had been the conclusion that a broader order would be inconsistent with the public interest of avoiding a burden on legitimate trade.

3.53 Presidential review: The United States said that in five investigations the President had disapproved remedies for policy reasons. In three of those investigations, the USITC had subsequently issued a determination ordering a more limited remedy, which the President had not disapproved.

More favourable procedural requirements

3.54 The United States argued that Section 337 imposed some procedural requirements on complainants that put respondents in a more favourable position than under federal district court litigation:

3.55 The Community said that there was in fact little difference between the amount of information on patent matters contained in a Section 337 complaint and that contained in a pleading in federal district court. The Community also said that the requirements in respect of "default" cases did nothing to affect the situation in contested cases; the Community was concerned about the treatment accorded respondents in contested cases.

(iii) Article XX(d)

(a) Scope of the complaint

3.56 Both parties were of the view that, for the purposes of Article XX(d):

3.57 The United States argued that Section 337 was "necessary", within the meaning of Article XX(d), to secure compliance with United States patent law and that it met the other conditions in that Article, namely it was "not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade". In the United States view, the only coherent analysis of consistency with Article XX(d) that was possible was based on consideration of Section 337 as a whole. The question was not whether individual facets of Section 337 procedures were necessary for the enforcement of United States patent laws, but whether Section 337 as a system was necessary for this purpose.

3.58 The Community maintained that the United States had not demonstrated, and could not demonstrate, that the several features of Section 337 procedures that it had contested could be justified under Article XX(d). In the Community view, those features did not meet the requirement in the provision that they were "necessary" to secure compliance with United States patent law. The Community contended that, if it were accepted, as the United States argued, that the issue under Article XX(d) was whether Section 337 as a system was necessary for the enforcement of United States patent laws, this would imply that any special arrangement which a contracting party found necessary for the enforcement of patent laws in relation to imports, no matter how discriminatory or protectionist, would be permitted by Article XX(d)

(b) "Necessary to secure compliance"

3.59 The United States said that the "necessary to secure compliance" requirement in Article XX(d), as applied to United States patent laws, meant that the measure at issue must serve to prevent circumvention of the United States patent regime. The requirement did not impose an obligation to use the least trade restrictive measure that could be envisaged; this would invite continuous disputes regarding measures that the CONTRACTING PARTIES had clearly intended to exempt from the obligations of the General Agreement. The concept of necessity should be interpreted taking into consideration the overall effectiveness of the measure, the inherent characteristics of imports, and the need for flexibility in achieving the objective of securing compliance with laws and regulations consistent with the General Agreement.

3.60 The Community considered that the "necessary to secure compliance" standard in Article XX(d) could only be used to justify less favourable treatment of imported goods for objective reasons - whether these reasons were objective practical ones, for example when laws such as patent laws could not be applied to imported goods in precisely the same way as to domestic goods, or whether they were objective legal ones not under the control of a GATT contracting party, such as limitations under international law on the scope for extra-territorial application of its legislation. A contracting party could not make something "necessary" by merely writing its legislation in such a way that one type of enforcement measure was applicable to imported goods and another was applicable to domestic goods in otherwise similar situations. If there were objective practical or legal reasons of the kinds indicated, a contracting party would be free to apply enforcement procedures to domestic goods that could not be applied, without modification, to imported goods at the moment of their arrival at the frontier. But, if it did, any difference between the two enforcement mechanisms that might be required to adapt the domestic measures to deal with imports must be confined to what discriminated least against imported goods. Since Article XX(d) was an exceptions provision and applicable only in so far as national rules infringed other rules of the GATT, each such infringing rule should be examined to see whether it was necessary or not.

3.61 The United States said that no contracting party had ever enacted or enforced measures based on the Community's proposed standard. The United States believed that the standard proposed by the Community would result in the GATT requiring uniformity of all standards and procedures affecting imported and domestically produced goods. Under the Community's proposed standard, adoption by a contracting party of a regime different from that adopted by other States, for example for the protection of human, animal or plant life and health or of public morals, could never be justified under Article XX(d), since it would have a trade restrictive effect and could not be shown to be objectively "necessary".

3.62 The United States said that Section 337 provided the only means of enforcement of United States patent rights against imports of products manufactured abroad by means of a process patented in the United States. The Community said that it had not been able to discover anything that would make it "necessary" to deal with imported goods alleged to infringe a United States process patent through the USITC and not through ordinary courts. In any event, this could not justify as "necessary" the procedural features of Section 337 that it considered gave less favourable treatment to imported goods.

3.63 The United States said that Section 337 was also necessary because it provided a way of dealing with situations where effective enforcement of rights through federal district courts was precluded due to special problems connected with imports, namely service of process on, and enforcement of judgments against, foreign parties. Adequate service of process against foreign parties in accordance with the Federal Rules of Civil Procedure applicable in federal district court litigation was frequently difficult and could be avoided by the party in question. For example, maintaining a separate corporate entity for purposes of importation, or transferring ownership prior to importation, could prevent effective service of process and could preclude personal jurisdiction in the United States. Even if a foreign corporation did not take these steps, it could avoid service of process by simply refusing to accept delivery of mail. The Community said that, if service of process on foreign parties in district court litigation presented problems, these problems could have been resolved a long time ago; that in any event they were problems not confined to (or exceptionally difficult in) patent infringement cases; and, finally, that federal district courts had apparently devised practical solutions to problems encountered by United States plaintiffs in serving process on foreign defendants.

3.64 With respect to enforcement problems, the United States argued that:

3.65 The Community did not believe that these arguments justified as "necessary" the ability to enforce in rem exclusion orders against imports only and not against domestically produced goods. Although in rem orders were more likely to be useful against imported goods, because firms exporting to the United States may not be easy to serve with process, the Community saw no reason why the differences between USITC proceedings and federal district court proceedings made it "necessary" to have in rem orders only in USITC cases. The Community was not aware of any international obligations that would prevent the United States from modifying any rules of procedure on service of process which were felt to be unreasonably restrictive. The United States was not entitled simply to rely on its own existing legislation to show that "discrimination" was necessary.

3.66 The United States also said that many of the procedural aspects of Section 337 reflected the need to provide expeditious prospective relief against infringing imports. Moreover, procedural aspects such as USITC Commissioners not being judges under Article III of the United States Constitution, and the lack of formal res judicata effect of USITC determinations on patents, were necessary so that Presidential review, which was to the advantage of respondents, could exist. This was part of a carefully designed system in Section 337 that balanced the need for effective enforcement of patent laws with equity, public interest and policy concerns. The Community said that Presidential review was not an argument for necessity in terms of Article XX(d).

(c) "Not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail"

3.67 The United States said that Section 337 investigations were conducted in such a way as to give all affected parties every opportunity to be heard. In the pre-initiation informal inquiry into the complaint, the USITC Investigative Attorney attempted to ensure that the complainant had named in the complaint all potential respondents reasonably known to the patent owner. Publication of the notice of investigation provided an opportunity for non-respondents to receive notice and to intervene in the investigation if they had an interest. Exclusion orders were issued and enforced only against goods that infringed the patent at issue. The USITC frequently limited the coverage of the exclusion order to cover infringing imports from parties that had been named as respondents in the Section 337 investigation.

3.68 Other protections existed to prevent extension of an order to non-infringing imports. The exclusion order in the Certain Aramid Fibre investigation, for example, had included a customs procedure whereby an importer could simply certify that Du Pont had manufactured the aramid fibre. A third party could request an administrative ruling from the Customs Service on the application of an exclusion order to prospective transactions, and, in the event of an adverse ruling, seek a declaratory judgment proceeding in the United States Court of International Trade and, if unsuccessful in that action, appeal to the United States Court of Appeals for the Federal Circuit (CAFC). If its goods were excluded from entry, a third party could file a customs protest with the Customs Service and, if unsuccessful, appeal first to the Court of International Trade and then to the CAFC. In addition, any person might seek an advisory opinion from the USITC regarding whether a particular article infringed the relevant patent and thus was subject to a general exclusion order.

(d) "Not applied in a manner which would constitute ... a disguised restriction on international trade"

3.69 The United States said that this condition of Article XX(d) was met since Section 337 orders resulted from a process in which all affected parties could participate and were openly enforced. The Community said that this was a misinterpretation of Article XX(d). This condition was intended to ensure that measures taken avowedly for one of the purposes in the ten sub-paragraphs, (a) to (j) of the Article, were not in reality taken primarily to restrict trade, through being more restrictive than necessary to achieve the avowed result.

3.70 The United States added that, in a Section 337 investigation, a third party could move to intervene as a party to defend its interest. Third parties could make submissions on questions of remedy, public interest and bonding. They could also move to persuade the President to disapprove a USITC order for policy reasons. A patent owner could obtain a general exclusion order only if it could prove not only a widespread pattern of unauthorised use of its patented invention or process but also that certain business conditions existed, from which the USITC might reasonably infer that foreign manufacturers other than respondents to the investigation might attempt to enter the United States market with infringing goods. Third parties also had a number of judicial and administrative means to contest both the USITC's findings in the Section 337 investigation and enforcement of any order issued to enforce a finding of violation. A third party could appeal the USITC's determination and order to the Court of Appeals for the Federal Circuit if it could show that it was "adversely affected" by that determination and order. At any time while an order was in force, a third party could also seek from the USITC modification or dissolution of the order to take into account changed conditions of fact or law or public interest. The purpose of Section 337 was to enforce United States patent laws. That was a legitimate objective under the GATT. In the United States view, Section 337 procedures, as drafted and applied, were not protectionist. The history of Section 337 decisions supported this view. Respondents successfully defended themselves in Section 337 actions. Moreover, comparison with the pattern of settlement and litigation in United States federal district courts over recent years indicated that practice in initiating and resolving Section 337 actions was more favourable to respondents than in district court patent litigation.

4.1 This Section summarises the main points in the submission of third contracting parties to the Panel. It also summarises any arguments by the United States in response additional to those already summarised in the preceding Section.

4.2 Canada contended that the use of a separate and distinct adjudicatory process provided by Section 337 represented a denial of national treatment under Article III:4 of the GATT and could not be justified under Article XX of the General Agreement. Respondents in Section 337 cases were subject to less favourable treatment than that accorded to defendants before United States federal courts. Foreign producers were subject to a form of "double jeopardy", since they could be called upon to defend themselves against the same allegations before the USITC and before federal district courts. Rules on hearsay evidence were applied less strictly in USITC proceedings than in federal district court proceedings. The USITC had a wider scope to draw inferences in cases where evidence deemed to be insufficient had been provided by the respondent. Respondents in Section 337 cases could not make counterclaims as they could in a federal district court, for example in respect of the revocation of a patent based on a declaratory judgment of invalidity; this made Section 337 action particularly attractive to a potential petitioner inasmuch as a finding by the USITC of patent invalidity would not result in revocation of the patent. Domestic manufacturers could not be brought before the USITC under Section 337. Differences from federal district court rules of procedure on securing personal jurisdiction over each defendant, and the possibility of general exclusion orders, meant that individuals could be deemed to all intents and purposes to be infringers without ever actually being able to litigate the intellectual property issues at stake. The strict time-limits for Section 337 cases could deprive a respondent of the ability to pursue all available legal defences. Costs of defending a Section 337 action were often equal to or greater than the cost of defending the same type of action in a federal district court; were incurred in a comparatively short period of time; and were never reimbursed even if the USITC found in the respondent's favour, thus causing some respondents to seek to settle with the petitioner regardless of the actual merits of the case.

4.3 Canada argued that, in considering consistency with Article XX(d), the Panel should treat the whole Section 337 adjudicatory process as the "measures" to secure compliance with United States laws and not just the resulting exclusion orders. The very existence of Section 337 and its procedurally debilitating effects on imports to the United States market constituted a disguised restriction on trade. Furthermore, in the Canadian view, Section 337 could not be justified as "necessary" within the meaning of Article XX(d), although its use might be expedient. Other means to ensure that intellectual property rights of United States firms and individuals were adequately protected in a non-discriminatory manner against both foreign and domestic infringers were clearly available to the United States. Arguments for the necessity of Section 337 based upon alleged difficulties with respect to service of process or the enforcement of judgments made by United States federal district courts against foreign producers were not compelling. Problems relating to the interdiction of offending products at the border could be resolved if federal district courts were empowered to issue exclusion orders against specific foreign individuals or firms found to be infringing valid United States patents, just as the Unite States Congress had empowered the USITC to do under Section 337. Section 337 process was not necessary because the United States was the only Contracting Party to maintain a separate adjudicative process for dealing with claims of this type.

4.4 Japan considered that the procedures applied under Section 337 and the orders issued by the USITC as a result went beyond what was "necessary" to secure compliance with laws or regulations in terms of Article XX(d) of the General Agreement and were inconsistent with Articles III and XI of the General Agreement. Section 337 was applied in a manner inconsistent with Article III:4 for the following reasons. Patent infringement cases contested by ordinary civil procedures in a federal district court usually took three to four years on average from their initial filing until the court's adjudication. The period for investigation by the USITC, however, was statutorily limited as a principle to one year (or eighteen months in a more complicated case) by Section 337. These short time-limits for Section 337 investigations made it difficult for the USITC to consider properly all defences and favoured the petitioner since its case could be prepared before filing the complaint. The time-limit of thirty days (including overseas delivery) for the submission of a written defence was generally strictly enforced, unlike in normal United States federal district court proceedings where the period could be extended under relatively easy requirements. Thus, while the complainant could take as much time as it needed before filing its complaint, it was difficult for the respondent to examine the issues thoroughly before replying. Moreover, the period for reply to discovery requests was, in principle, ten days, as compared to thirty days in federal district court procedures. A temporary exclusion order under Section 337 was enforced without requiring the complainant to post a security deposit, unlike federal district court procedures under which preliminary injunctions required the posting of a security deposit by the plaintiff to compensate for any losses the defendant might have incurred in the event that the allegations were proved unfounded. Under Section 337, even if the complaint was later proved unfounded, the respondent received no compensation for losses incurred as a result of a temporary exclusion order. Japan also argued that a Section 337 exclusion order was inconsistent with Article XI:1 of the General Agreement to the extent that it exceeded what would be justified as "necessary" in terms of Article XX(d). In relation to Article XX(d), Japan considered that both the procedures under Section 337 and the resulting exclusion orders should be considered as "measures" within the meaning of that Article. Japan considered that Section 337 procedures were not "necessary" and were "a disguised restriction" on international trade in terms of Article XX(d), because the procedures and orders issued at the border under Article XX(d) treated imported products less favourably than domestically produced goods and because they could hinder the distribution of genuine goods.

4.5 The Republic of Korea presented arguments on the compatibility of Section 337 with Article III:1 and III:4 of the General Agreement. In regard to Article III:1, Korea considered that Section 337 contained elements of protection for domestic production: it dealt with injury to domestic industry; domestic manufacturers or producers of products using United States patents, but not exporters to the United States of goods produced using United States patents, had right of recourse to Section 337; and Section 337 provided for a Presidential veto which was not applicable to judicial decisions. In regard to Article III:4, Korea considered that foreign producers were treated less favourably than domestic producers because they were subject to the possibility of dual procedures under Section 337 and in the courts, and the procedures and relief measures were available more quickly and were more effective than those in United States federal district courts.

4.6 Switzerland considered that Section 337 contained a number of elements of explicit and implicit procedural discrimination against competitors based abroad and seeking access to the United States market, as compared to United States domestic producers. Initiation of proceedings was open to domestic producers only. Respondents could not make any counterclaims before the USITC. Section 337 procedures exerted severe and burdensome time pressures on respondents: while the complainant was without any time constraint to prepare discovery and to file the complaint, the respondent was subject to strict and short time-limits. Respondents had in effect not more than twenty days to submit their response; since discovery usually had to be completed within three to four months and only ten days were granted to answer interrogations, respondents were under severe time pressure. Discovery was often difficult for the respondent since relevant data and information provided by the complainant was subject to protective orders and not available to the respondent and in-house counsel. In addition, disclosure of confidential information might cause additional conflicts with domestic legislation binding upon the exporting producer. Temporary exclusion orders could be granted without requiring proof of injury. In order to continue imports despite a temporary exclusion order, an ad valorem bond had to be paid, while the complainant did not have to provide any guarantees, since no damages could be recovered under these proceedings.

4.7 Switzerland considered that the elements of discrimination against imported goods and in favour of domestically produced goods in Section 337 were incompatible with Article III:4 of the General Agreement, which required equal treatment in terms of procedures. To be justifiable under GATT, such procedural discrimination would have to be authorised by a specific exception provision of the GATT. Since Section 337 encompassed all possible forms of unfair trade and competition, it was overbroad in relation to the General Agreement, which did not provide for any general exceptions for unfair trade but relied upon specific exceptions and remedies such as those contained in Article VI or Article XX. This, in itself, constituted a violation of Article III, since Section 337 could be applied contrary to GATT obligations. The special, discriminatory fast-track procedures under Section 337 could not be justified as "necessary" within the meaning of Article XX(d), since no reason had been advanced showing why existing and non-discriminatory measures within the United States court system would not sufficiently protect United States-based producers. Moreover, Section 337 did not meet the requirement of Article XX(d) that measures "not be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail". The fact that exclusion orders were in rem and not in personam and the fact that there was no obligation to initiate proceedings against all the potential infringers meant that an exclusion order might affect producers who had had no opportunity to participate, and had, therefore, been without an opportunity to use all legal and equitable defences in accordance with Section 337. In addition, the severe time constraints imposed on respondents were a source of discrimination between domestic and foreign producers.

4.8 Switzerland also considered that Section 337 was not justifiable under Article XX(d) because it exerted considerable, dissuasive, chilling effects on foreign competitors seeking access to the United States market. Due to a number of features that did not sufficiently exclude abuses and due to the fact that there was a low degree of predictability, Section 337 posed a considerable threat in the hands of United States-based producers to foreign competitors. Initiation of proceedings was not difficult; proceedings were under heavy time pressures, often subject to protective orders and were extremely expensive, in particular for small and medium-sized competitors; the threat of temporary exclusion orders was considerable since it merely required reason to believe that there was a violation of the Section; it was doubtful that the injury test provided for in Section 337(a) was an effective deterrent to unfounded requests; and foreign competitors compelled by financial necessities to settle the case by agreement were left without a ruling on the legal issues.

4.9 In response, the United States put forward the following arguments additional to those summarised in the preceding Section of this report:

4.10 In response to a question put by the Panel, Canada, Japan and Switzerland informed the Panel that in their countries the exclusive right of the owner of a process patent covered not only the use of the process but also extended to products obtained directly by means of the patented process. They also said that their countries provided for a reversal of the normal burden of proof so that, where a patent related to a process for obtaining a new product, there was a presumption that the same product produced by a party other than the patentee had been obtained by the patented process. The presumption could be rebutted by evidence from the party producing the goods in question. The Community also indicated that, in its member States, process patent protection was extended to products and that generally the burden rested with the defendant to establish or to demonstrate that the products were made without using the patented process.

(i) Scope of findings

5.1 The Panel's terms of reference refer both to the application of Section 337 in general and to its application in the case concerning Certain Aramid Fibre which prompted the European Economic Community to submit its complaint to the CONTRACTING PARTIES. During the course of the Panel's proceedings, the parties to the Certain Aramid Fibre case reached a settlement (see paragraph 2.9 above), and thereafter the Community withdrew its request to the Panel to make findings in respect of that case. The Panel therefore limited its examination to Section 337 as such, plus the related Section 337a which the Council clearly intended to be covered by the Panel's term of reference since it was the provision applicable in the Certain Aramid Fibre case. (Hereinafter references to Section 337 should therefore be understood as references to both Section 337 and Section 337a.)

5.2 During the course of the Panel's work, Section 337 was amended by the Omnibus Trade and Competitiveness Act of 1988. The Panel's findings are based on Section 337 as it was at the time that the Panel was established by the Council, in October 1987. A summary of the main changes made to Section 337 by the 1988 Act is contained in Annex II to this report.

5.3 Section 337 is not limited to patent disputes; indeed, except in Section 337a, it does not even mention patents but merely speaks of "unfair methods of competition and unfair acts in the importation of articles into the United States". It has also been used in disputes concerning alleged infringement by imported products of other United States intellectual property rights, including trademarks and copyrights, as well as in disputes outside the field of intellectual property. While many of the observations that follow may be relevant to such cases as well, the complaint in this case, as well as the submissions of the parties, concentrated on the application of Section 337 to patent-based cases, and the Panel's findings and conclusions are limited to such cases.

5.4 The central and undisputed facts before the Panel are that, in patent infringement cases, proceedings before the USITC under Section 337 are only applicable to imported products alleged to infringe a United States patent; and that these proceedings are different, in a number of respects, from those applying before a federal district court when a product of United States origin is challenged on the grounds of patent infringement. The Community maintained that the differences between the two proceedings are such that the treatment accorded to imported products is less favourable than that accorded to like products of United States origin, inconsistently with Article III:4 of the General Agreement, and that this less favourable treatment cannot be justified under Article XX(d) of the General Agreement. The United States maintained that Section 337 is justifiable under Article XX(d) and, in any event, is not inconsistent with Article III:4 since it does not accord imported products less favourable treatment than that accorded to like products of United States origin.

5.5 The United States suggested that the scope of the complaint was confined to matters of legal procedure, and that the issues raised by the Community concerning in rem general exclusion orders and the possibility of imported products being subject to simultaneous proceedings under Section 337 and in federal district courts are not matters of procedure. However, the Panel noted that its terms of reference refer without limitation to "the different rules applicable under Section 337" to which imported products are subject. Accordingly, it determined that these issues fall within its terms of reference. The term "procedure" is used hereinafter in a broad sense that encompasses these issues.

5.6 In its deliberations, the Panel took into account the Report of the Panel on United States Imports of Certain Automotive Springs Assemblies (BISD 30S/107), in the light of the understanding on which it had been adopted by the Council that its adoption "shall not foreclose future examination of the use of Section 337 to deal with patent infringement cases from the point of view of consistency with Articles III and XX of the General Agreement" (C/M/168, item 7).

(ii) Relevant provisions of the General Agreement

5.7 The main provisions invoked by the parties to the dispute are Article III:4 and Article XX(d). The relevant part of Article III:4 reads:

This provision is supplemented by an interpretative note, the relevant part of which reads:

The relevant part of Article XX(d) reads:

(iii) Relation of Article III to Article XX(d)

5.8 The parties to the dispute agreed that Article III:4 applies to substantive patent law, since such law affects the "internal sale, offering for sale, purchase, transportation or use" of imported and domestic products. They also agreed that the consistency of the substantive provisions of United States patent law with the General Agreement is not at issue. Further, the parties agreed that Section 337, when applied in cases of alleged patent infringement, is a means to secure compliance with United States patent law in respect of imported products. They disagreed, however, on the question of whether a measure to secure compliance with patent laws - in contrast to the substantive patent law itself - is covered by Article III:4. In the view of the United States, measures to secure compliance with patent legislation are covered only by Article XX(d). The Community took the position that Article III:4 requires national treatment also for procedures designed to enforce internal legislation, and that Article XX(d) provides for an exception to be considered only after conduct inconsistent with another provision of the General Agreement has been established.

5.9 The Panel noted that Article XX is entitled "General Exceptions" and that the central phrase in the introductory clause reads: "nothing in this Agreement shall be construed to prevent the adoption or enforcement ... of measures ...". Article XX(d) thus provides for a limited and conditional exception from obligations under other provisions. The Panel therefore concluded that Article XX(d) applies only to measures inconsistent with another provision of the General Agreement, and that, consequently, the application of Section 337 has to be examined first in the light of Article III:4. If any inconsistencies with Article III:4 were found, the Panel would then examine whether they could be justified under Article XX(d).

(iv) Article III:4

(a) Meaning of "laws, regulations and requirements" in Article III:4

5.10 The Panel then examined Section 337 in the light of Article III:4. The Panel first addressed the issue of whether only substantive laws, regulations and requirements or also procedural laws, regulations and requirements can be regarded as "affecting" the internal sale of imported products. The positions of the United States and the Community on this were different (paragraphs 3.6 to 3.10 above). The Panel noted that the text of Article III:4 makes no distinction between substantive and procedural laws, regulations or requirements and it was not aware of anything in the drafting history that suggests that such a distinction should be made. A previous Panel had found that "the selection of the word 'affecting' would imply ... that the drafters of the Article intended to cover in paragraph 4 not only the laws and regulations which directly governed the conditions of sale or purchase but also any laws or regulations which might adversely modify the conditions of competition between the domestic and imported products on the internal market." ¹ In the Panel's view, enforcement procedures cannot be separated from the substantive provisions they serve to enforce. If the procedural provisions of internal law were not covered by Article III:4, contracting parties could escape the national treatment standard by enforcing substantive law, itself meeting the national treatment standard, through procedures less favourable to imported products than to like products of national origin. The interpretation suggested by the United States would therefore defeat the purpose of Article III, which is to ensure that internal measures "not be applied to imported or domestic products so as to afford protection to domestic production" (Article III:1). The fact that Section 337 is used as a means for the enforcement of United States patent law at the border does not provide an escape from the applicability of Article III:4; the interpretative note to Article III states that any law, regulation or requirement affecting the internal sale of products that is enforced in the case of the imported product at the time or point of importation is nevertheless subject to the provisions of Article III. Nor could the applicability of Article III:4 be denied on the ground that most of the procedures in the case before the Panel are applied to persons rather than products, since the factor determining whether persons might be susceptible to Section 337 proceedings or federal district court procedures is the source of the challenged products, that is whether they are of United States origin or imported. For these reasons, the Panel found that the procedures under Section 337 come within the concept of "laws, regulations and requirements" affecting the internal sale of imported products, as set out in Article III of the General Agreement.

(b) The "no less favourable" treatment standard of Article III:4

5.11 The Panel noted that, as far as the issues before it are concerned, the "no less favourable" treatment requirement set out in Article III:4, is unqualified. These words are to be found throughout the General Agreement and later agreements negotiated in the GATT framework as an expression of the underlying principle of equality of treatment of imported products as compared to the treatment given either to other foreign products, under the most favoured nation standard, or to domestic products, under the national treatment standard of Article III. The words "treatment no less favourable" in paragraph 4 call for effective equality of opportunities for imported products in respect of the application of laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products. This clearly sets a minimum permissible standard as a basis. On the one hand, contracting parties may apply to imported products different formal legal requirements if doing so would accord imported products more favourable treatment. On the other hand, it also has to be recognised that there may be cases where application of formally identical legal provisions would in practice accord less favourable treatment to imported products and a contracting party might thus have to apply different legal provisions to imported products to ensure that the treatment accorded them is in fact no less favourable. For these reasons, the mere fact that imported products are subject under Section 337 to legal provisions that are different from those applying to products of national origin is in itself not conclusive in establishing inconsistency with Article III:4. In such cases, it has to be assessed whether or not such differences in the legal provisions applicable do or do not accord to imported products less favourable treatment. Given that the underlying objective is to guarantee equality of treatment, it is incumbent on the contracting party applying differential treatment to show that, in spite of such differences, the no less favourable treatment standard of Article III is met.

TO CONTINUE WITH SECTION 337 OF THE TARIFF ACT OF 1930

¹ Panel on Italian Discrimination Against Imported Agricultural Machinery (BISD 7S/60, paragraph 12), adopted on 23 October 1958.