16 January 1989
UNITED STATES - SECTION 337 OF THE TARIFF ACT OF 1930
Report by the Panel adopted on 7 November 1989
(L/6439 - 36S/345)
II. Factual Aspects
(i) Section 337
(ii) The USITC and the decision-making process in Section 337 cases
(iii) Outline of Section 337 proceedings
(iv) Differences between Section 337 and federal district court proceedings
(v) The Certain Aramid Fibre case
III. Main Arguments
(i) Scope of the complaint
(ii) Article III:4
(a) The applicability of Article III:4 to procedures under Section 337
(b) General arguments concerning the treatment of imported goods under Section 337
(c) Contentions by the EEC that less favourable treatment is accorded to imported goods
- Protective orders on confidential information
- Decision-making by the USITC
- Simultaneous proceedings
- In rem orders
- Limitation of availability of Section 337 to United States producers
(d) Contentions by the United States that more favourable treatment is accorded to imported goods
- Substantive "economic" requirements
- Public interest and Presidential review
- More favourable procedural requirements
(iii) Article XX(d)
(a) Scope of the complaint
(b) "Necessary to secure compliance"
(c) "Not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail"
(d) "Not applied in a manner which would constitute .... a disguised restriction on international trade
IV. Submissions by Interested Third Contracting Parties
- Korea, Republic of
- Responses by the United States
- Extension of process patent protection to products
(i) Scope of findings
(ii) Relevant provisions of the General Agreement
(iii) Relation of Article III to Article XX(d)
(iv) Article III:4
(a) Meaning of "laws, regulations and requirements" in Article III:4
(b) The "no less favourable" treatment standard of Article III:4
(c) Appraisal of Section 337 in terms of Article III:4
- Contentions by the United States that more favourable treatment is accorded to imported products
- Contentions by the Community that less favourable treatment is accorded to imported products
(d) Summary of findings under Article III:4
(v) Article XX(d)
(a) the conditions attached to the use of Article XX(d)
(b) the "necessary to secure compliance" condition
(c) the necessity of the specific inconsistencies with Article III:4
Annex I Section 337 of the United States Tariff Act of 1930
Annex II The Omnibus Trade and Competitiveness Act of 1988 and Section 337
1.1 In document L/6160 of 29 April 1987, the European Economic Community (the Community) informed contracting parties that it had requested Article XXIII:1 consultations with the United States concerning the application of Section 337 of the United States Tariff Act of 1930. On 17 June 1987, the Community raised its complaint in the Council and reserved its right to request the establishment of a panel at the next Council meeting if no satisfactory solution could be found in the meantime (C/M/211, item 8). At the Council meeting of 15 July 1987, the Community informed the Council that the requested Article XXIII:1 consultations had been held on 10 July 1987 but had not led to a satisfactory solution, and requested the establishment of a panel (C/M/212, item 10). The Council agreed, at its meeting of 7 October 1987, to establish a panel and authorised the Council Chairman, in consultation with the parties concerned, to draw up the terms of reference and to designate the Chairman and members of the Panel (C/M/213, item 9).
1.2 The following terms of reference and composition of the Panel were communicated by the Chairman of the Council on 4 January 1988 (C/153).
Terms of reference
"To examine, in the light of the relevant GATT provisions, the matter referred to the CONTRACTING PARTIES by the European Economic Community in document L/6198, and to make such findings as will assist the CONTRACTING PARTIES in making the recommendations or rulings provided for in paragraph 2 of Article XXIII."
|Chairman:||H.E. Mr. Graham Fortune|
|Members:||Professor Andreas Lowenfeld, New York University, School of Law|
|Mr. Pierre Pescatore, former Judge, European Court of Justice|
1.3 The matter referred to the CONTRACTING PARTIES by the European Economic Community was described in document L/6198 as follows:
"On 22 April 1987 the European Community requested consultations with the United States under Article XXIII:1 of the General Agreement concerning the application of Section 337 of the US Tariff Act 1930 (document L/6160).
"The request for consultations resulted from an examination of a specific case where for the purpose of enforcing private intellectual property rights imported goods were subjected to a separate and distinct procedure solely by virtue of their non-US origin. The EC considered that a denial of national treatment within the meaning of Article III of the General Agreement resulted from the different rules applicable under Section 337 and that this denial does not fall within the provisions of Article XX(d) of the General Agreement. The EC therefore considers the benefits accruing to it under the General Agreement are being nullified and impaired through the application of the provisions of Section 337."
1.4 At the Council meetings of 15 July and 7 October 1987, Canada, Hong Kong, Japan, the Republic of Korea and Switzerland each reserved its right to make a submission to the Panel. The Panel offered these contracting parties the opportunity to make both a written submission and an oral presentation. Canada, Japan, the Republic of Korea and Switzerland availed themselves of this opportunity.
1.5 The Panel met on 4-5 March, 9-10 May, 8-9 June and 19-20 October 1988. It met with the parties to the dispute on 4-5 March and 9-10 May 1988 and with interested third contracting parties on 4 March and 9 May 1988.
1.6 The Panel was informed on 10 May 1988 that the parties to the "specific case" referred to by the Community in its complaint had executed on that day a private settlement agreement between them (see paragraph 2.9 below).
1.7 Since the Panel began its work, Section 337 of the United States Tariff Act has been amended, as summarised in Annex II. The present report, that is to say the presentation of the factual aspects, the arguments of parties and the findings and conclusions, is based on Section 337 as it was when the decision to establish the Panel was taken in October 1987.
II. FACTUAL ASPECTS
(i) Section 337
2.1 This Section describes relevant United States legislation and practice as at the time of the Council decision to establish the Panel in October 1987. Section 337 has been amended by the Omnibus Trade and Competitiveness Act of 1988. The same Act also amended the protection accorded under United States patent law in respect of products produced by a process patented in the United States. The main changes are summarised at Annex II of this report.
2.2 Under Section 337 of the United States Tariff Act of 1930 unfair methods of competition and unfair acts in the importation of articles into the United States, or in their sale, are unlawful if these unfair acts or methods of competition have the effect or tendency to (i) destroy or to substantially injure an industry efficiently and economically operated in the United States, (ii) prevent the establishment of such an industry, or (iii) restrain or monopolise trade and commerce in the United States. The unfair acts and methods of competition in question include the importation or sale of goods that infringe valid United States patents. Section 337a specifically applies Section 337 to the importation or sale of products produced abroad by a process covered by a United States patent. Since it was revised in the Trade Act of 1974, the majority of investigations under the Section 337 have concerned alleged infringements of patents. The text of Section 337 as of October 1987 is reproduced at Annex I to this report.
2.3 Remedies available under Section 337, in the event of a violation of the Section, consist of orders excluding the articles concerned from importation into the United States (exclusion orders) and/or cease and desist orders directing parties violating Section 337 to stop the act or method of competition found to be unfair. The exclusion order may be a general order covering all imports that, in a patent-based case, infringe the United States patent in question, or may be limited to goods produced by a respondent in the case.
(ii) The USITC and the decision-making process in Section 337 cases
2.4 Investigations under Section 337 are carried out by the United States International Trade Commission (USITC). The USITC is an independent administrative agency of the United States Government. The USITC is not created as a court under Article III of the United States Constitution, but is authorised and directed by Congress to conduct proceedings under Section 337 which are similar to court proceedings. Section 337 proceedings are subject to the Administrative Procedure Act, which governs similar "quasi-judicial proceedings" conducted by numerous agencies of the United States Federal Government.
2.5 In Section 337 proceedings, three component parts of the USITC - the Commission itself, the administrative law judge designated by the Office of Administrative Law Judges, and the Office of Unfair Import Investigations - are required to perform separate rôles. Section 554(d) of the Administrative Procedure Act requires strict separation of functions performed by various divisions of the USITC.
- Final determinations on violation of Section 337 and on any remedies are made by the Commission. The Commission is composed of six Commissioners, who are appointed by the President of the United States with the advice and consent of the United States Senate. Statutory qualifications demanded of Commissioners are that they be United States citizens and, in the judgment of the President, possess qualifications requisite for developing expert knowledge of international trade problems and efficiency in administering the duties and functions of the Commission. Not more than three of the Commissioners may be members of the same political party and, in making appointments, it is required that members of different political parties be appointed alternately as nearly as may be practicable. The Chairman and the Vice-Chairman of the Commission are designated by the President from among the members. Commissioners are appointed for a term of nine years, and are not normally eligible for reappointment.
- The final determination of the Commission of the USITC in Section 337 investigations is made on the basis of an initial determination by an administrative law judge. The administrative law judge conducts the discovery phase of the investigation and the subsequent hearing. In taking evidence and considering written and oral legal arguments, the administrative law judge is required to exercise independent judgment and is not under the direction of the Commission in the conduct of Section 337 proceedings or in the issuance of initial determinations in any particular case. In order to protect their independence, the Administrative Procedure Act provides that administrative law judges may not be removed except for cause or under a reduction in force based on seniority. The USITC's say in the recruitment of administrative law judges is limited to choosing one out of three names put forward by an independent agency (the Office of Personnel Management). No ex parte contacts are permitted in connection with a particular case between the administrative law judge and his or her staff, on the one hand, and the Commissioners and their staff advising them on the case, on the other.
- An investigative attorney of the Office of Unfair Import Investigations of the USITC acts as, and is treated as, a full party in all Section 337 investigations. The investigative attorney's rôle is to represent the public interest. The Commission investigative attorney is required to operate in any given Section 337 proceeding independently of the direction of the Commission. The investigative attorney may support the complainant or the respondent, or may support complainant on some issues and respondent on others. The investigative attorney may also raise issues not raised by either complainant or respondent. No ex parte contacts with the Commissioners or the administrative law judge are allowed once the Commission votes to initiate an investigation. Prior to initiation of the investigation, the Office of Unfair Import Investigations advises the Commissioners on whether the papers submitted by the complainant comply with the requirements for initiation of investigations and is available to the complainant to assist in the formulation of the complaint.
(iii) Outline of Section 337 proceedings
2.6 The main steps in a Section 337 proceeding under the USITC may be summarised as follows:
(a) A Section 337 complaint is initiated by filing a complaint with the USITC. Before filing its complaint, the complainant may confer with the Office of Unfair Import Investigations of the USITC to ensure that the complaint is in proper form.
(b) If the complaint is properly filed, the USITC must decide within thirty days of filing whether to institute an investigation. During this period both the complainant and potential respondents may consult with, or may be consulted by, the Office of Unfair Import Investigations. The USITC decides by vote and, if the decision is affirmative, notice of the investigation is published in the United States Federal Register. The statutory time-limits for the investigation commence from the date of publication of such notice.
(c) A response to the complaint is required from all named respondents within twenty days of publication of the notice of investigation (thirty days in the case of respondents outside the United States).
(d) Once instituted, the investigation is assigned to one of the administrative law judges of the USITC for the collection of evidence, a hearing, and an initial determination.
(e) The discovery phase begins on institution of the investigation, and generally lasts five to six months, unless the case is designated by the USITC as "more complicated".
(f) Following the close of discovery, a hearing is held before the administrative law judge which generally lasts about two weeks. All legal and equitable defences that would be relevant to patent infringement actions in federal district courts may be raised by a respondent. In addition, certain defences unique to Section 337 may be raised, such as a lack of a United States industry efficiently and economically operated, or lack of injury to that industry.
(g) Within nine months of publication of the notice in the Federal Register (fourteen months in more complicated cases), the administrative law judge is required to issue an initial decision, comprising, in patent-based cases, findings of fact and conclusions of law about the validity and enforceability of the patent in question, the infringement of the patent if it is found valid, and on whether any such violation has the effect or tendency (i) to destroy or substantially injure an industry efficiently and economically operated in the United States, or (ii) to prevent the establishment of such an industry.
(h) Within ten days of the initial determination, any party (except a defaulting party) can request review by the Commission of any issue relevant to the initial determination. The Commission may also order review on its own initiative. Review will be granted if at least one member of the Commission votes to order review. If the Commission does not elect to review the case, the administrative law judge's initial determination stands as the final determination of the USITC on the question of violation. If the Commission reviews the initial determination, it may make its own findings and conclusions of law, based on the evidentiary record prepared by the administrative law judge. The parties are given the opportunity to submit briefs and, in appropriate cases, present oral arguments on the issues under review.
(i) If the Commission determines that there has been a violation of Section 337 (or lets the determination of the administrative law judge to that effect stand), it then considers the relief, if any, that should be provided. It must consider the effect of any such relief on (i) public health and welfare, (ii) competitive conditions in the United States economy, (iii) the production of like or directly competitive articles in the United States, and (iv) United States consumers. It may deny or limit relief on the basis of these public interest considerations. Its final determination must be made within twelve months (eighteen months in more complicated cases) of the publication of notice of investigation in the Federal Register.
(j) If the Commission grants relief to the complainant, the President has sixty days to review the USITC determination and order for policy reasons. If an exclusion order has been made, the goods concerned may still be imported during the period of Presidential review, subject to the posting of a re-exportation bond in an amount fixed by the USITC. Disapproval by the President renders the order without force or effect. Otherwise the order comes into full force on the date when the USITC receives notice of formal approval or, if no Presidential action is taken, on the day after the expiry of the sixty day period.
(k) Any person adversely affected by a final determination of the Commission can appeal the determination and order to the United States Court of Appeals for the Federal Circuit, the same court that hears appeals from decisions of United States federal district courts in patent cases.
2.7 If the complainant seeks a temporary exclusion order under Section 337, an evidentiary hearing with respect to temporary relief must be held and the initial determination of the administrative law judge as to whether temporary relief should be granted must be completed within four months of the notice of investigation. For temporary relief to be granted, it must be determined that there is reason to believe there is a violation of Section 337 and certain discretionary factors must be considered. If the administrative law judge's initial determination on temporary relief is not reviewed by the Commission, it becomes the determination on temporary relief within thirty days, subject to consideration of the public interest factors referred to in Section 337(e). If the Commission decides to review it, the review must be completed within sixty days. As with final determinations of the Commission, the President has sixty days in which to disapprove a Commission determination on temporary relief. Temporary exclusion orders are effective for the remaining duration of an investigation. While a temporary exclusion order is in effect, importation of the articles concerned may only take place on the posting of a bond in an amount determined by the USITC.
(iv) Differences between Section 337 and federal district court proceedings
2.8 Much of the argumentation developed before the Panel concerned the relationship and differences between patent-based Section 337 actions and litigation in federal district courts under United States patent law. The following are the main features of this relationship and of these differences as understood by the Panel:
(a) The forum: Section 337 cases are conducted by the USITC. Litigation under United States patent law is brought before federal district courts.
(b) Decision-makers: The decision in a Section 337 case is taken, by majority vote, by the Commissioners of the USITC on the basis of an initial determination of an administrative law judge of the USITC. In federal district court patent proceedings, decisions are taken by a federal judge or by a jury.
(c) Applicable procedures: Section 337 investigations must conform to the requirements of the adjudicatory provisions of the Administrative Procedure Act and the USITC's Section 337 rules of procedure. Federal district court procedures are those of the Federal Rules of Civil Procedure.
(i) The USITC has jurisdiction only over unfair practices in import trade, such as patent infringement, that have stated effects on an industry (or trade and commerce) in the United States. Thus in order to have standing to bring a complaint the complainant, whether a United States or foreign national, must be using the patented invention in question for an industrial activity in the United States. Complaints of infringement of United States patents may be filed before federal district courts by any owner or exclusive licensee of a United States patent, whether or not the plaintiff is using the patent in manufacturing in the United States (or anywhere else), and whether or not injury, as defined in Section 337, is claimed.
(ii) A Section 337 action may be brought only in respect of imports of articles alleged to infringe a United States product or process patent - that is the actual importation or the subsequent sale of those articles. A federal district court patent action may be brought in respect of imported goods and/or domestically produced goods, with one exception: as the law stood in October 1987, the owner of a United States process patent could not bring a cause of action in a federal district court against imports of products that are produced outside the United States by a process patented in the United States, based solely on alleged infringement of the process patent.
(iii) In cases over which the two fora have jurisdiction, the complainant has the right to file a complaint in either forum or in both. This may be done either simultaneously or consecutively, with one exception - a final negative finding on the patent (invalidity/non-infringement) by a federal district court precludes a subsequent Section 337 investigation on the same cause of action. A negative Section 337 determination, even when based on the patent issues, does not, at least formally, preclude relitigation of the same issues under United States patent law, because USITC determinations are not formally considered to have res judicata or collateral estoppel effect. For the same reasons, a disappointed respondent in a Section 337 case is not, at least formally, prevented from relitigating defences on patent issues before a federal district court, by seeking a declaratory judgment of invalidity of the complainant's patent.
(iv) Under Section 337, it is not necessary to establish in personam jurisdiction over all parties, as is required for federal district court litigation, except with respect to cease and desist orders directed against a party. The jurisdiction of federal district courts under existing law extends only to parties that can be served with valid process in accordance with Rule 4 of the Federal Rules of Civil Procedure. Under Section 337, the proceeding is initiated by publication of the notice of the institution of the investigation in the Federal Register. In addition, copies of the complaint and of the notice in the Federal Register are mailed to all respondents named in the notice and to the government of each country of foreign respondents.
(e) Default: Under a Section 337 proceeding, if a respondent fails to respond to a complaint the complainant is required to establish a prima facie case of violation of Section 337 for relief to be ordered. Federal district courts have the authority to enter a judgment by default to establish patent infringement.
(f) Time-limits: The USITC is required by statute to complete Section 337 investigations and make its final determination within twelve months or, in cases designated by the USITC as "more complicated", within eighteen months, of the date of publication of the notice of investigation. The maximum time allowed from filing to disposition of a Section 337 case, including the period between filing and initiation and the period for Presidential review, is thus fifteen months (twenty one months in more complicated cases). Patent litigation in federal district courts does not proceed according to a statutorily determined time-schedule, and the period taken varies considerably from case to case. In the year 1 July 1986 - 30 June 1987, the average time for disposition of the patent cases in federal district courts that completed trial was thirty-one months. This included time for separate hearings in some cases on damages, counterclaims and other claims that might be joined to the patent infringement action.
(g) Protective orders on confidential information: It is standard practice in Section 337 cases for the administrative law judge to issue a "protective order", which sets forth the terms under which confidential information is produced by each side for the benefit of the administrative law judge and counsel for the parties without being disclosed to management of the other party or to the outside world. Typically a protective order provides that confidential information provided by one party is made available to outside counsel of the other party but not to management. While in-house counsel may sometimes be permitted access to such information upon agreeing not to share it with management, the more usual practice is to deny access to all persons, including in-house counsel, connected with the management of a party. The USITC explains this practice as a way to secure voluntary compliance with discovery requests without challenge. Protective orders are also obtainable in district court litigation under Rule 26(c) of the Federal Rules of Civil Procedure, including orders "that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way" - for instance only to outside counsel. However, while such orders are frequently issued in patent litigation, they are not automatic and their scope is subject to the discretion of the judge after hearing both sides. The orders may be tailored to individual discovery requests in particular cases.
(h) Counterclaims: The USITC does not have jurisdiction in Section 337 proceedings to entertain counterclaims. In federal district court proceedings, counterclaims, whether or not related to the principal claim, may be raised in the same legal action. Assertions which constitute defences to patent infringement, for example inequitable conduct or antitrust violations, may, however, be raised as defences in Section 337 proceedings.
(i) Economic requirements: The complainant in a Section 337 action has to show that the effect or tendency of the patent infringement is to destroy or to substantially injure an industry efficiently and economically operated in the United States, or to prevent the establishment of such an industry. No comparable requirement exists in patent litigation in federal district courts.
(j) Public interest considerations: Before issuing an order under Section 337, the USITC is required to consider the effect of its order on: public health and welfare; competitive conditions in the United States; the production of like or directly competitive articles in the United States; and United States consumers. No comparable requirement exists in litigation in federal district courts.
(k) Presidential review: The President of the United States is authorised to disapprove orders of the USITC under Section 337 on policy grounds, within sixty days of their issuance. No Presidential review exists for federal district court decisions.
(l) Remedies: The principal remedy available under Section 337 is an in rem exclusion order, either limited to the goods of named respondents or applicable to all imports of infringing goods, even those produced by non-parties. The Commission may also issue cease and desist orders, typically to parties in the United States such as importers or vendors. In patent actions in federal district courts remedies operate in personam, i.e. against persons who have been served in the action or have participated therein. The main remedies are injunctions, accounting for profits, and damages, either compensatory or, in case of wilful infringement, multiple. In exceptional cases, attorney's fees may be awarded in federal district court litigation e.g. in cases of wilful infringement by the defendant or inequitable conduct by the patentee.
(m) Enforcement of remedies: Section 337 exclusion orders are enforced, without any further action by the complainant, by the United States Customs Service at ports of entry into the United States. A cease and desist order by the USITC may be addressed directly to a party over which it has in personam jurisdiction, such as an importer or distributor. Sanctions for violation of such an order, including civil penalties and mandatory injunctions (enforceable by contempt proceedings), may be enforced in a civil action brought by the USITC in a federal district court. In federal district court patent actions, injunctions may be enforced through a contempt proceeding in that court usually initiated by the plaintiff.
(n) Preliminary relief: Preliminary relief under Section 337 consists of a temporary exclusion order (or a temporary cease and desist order). Such relief lasts only as long as the investigation. Importation of goods covered by a temporary exclusion order is permitted only against the posting of a bond of an amount fixed by the USITC. In federal district court litigation, preliminary injunctions may be issued against an alleged infringer and normally cannot be suspended by the posting of a bond by the defendant; however, the plaintiff is required to post a bond which can be used to compensate the defendant in the event that the defendant ultimately prevails. Under Section 337, the complainant is not required to post a bond and no damages for any losses to legitimate interests resulting from a temporary exclusion order can be recovered where the respondent prevails in the final determination.
(o) Judicial review: Both USITC Section 337 determinations and federal district court decisions are subject to judicial review, on appeal, by the Court of Appeals for the Federal Circuit. The Court of Appeals applies the same standard of review for issues of law to decisions of either forum. On questions of fact, USITC determinations are reviewed on the basis of the "substantial evidence" standard, i.e. whether the factual findings are supported by substantial evidence. The same standard is used to review the factual findings of juries in federal district court litigation; factual findings by federal district judges are subject to a "clearly erroneous" standard.
(v) The Certain Aramid Fibre case
2.9 The "specific case" referred to by the European Economic Community in its complaint to the GATT Council (paragraphs 1.3 and 1.6 above) was a Section 337 investigation entitled "In the Matter of Certain Aramid Fiber". On 18 April 1984, E.I. du Pont de Nemours and Company (Du Pont) filed a complaint with the USITC under Section 337 alleging the importation, sale and marketing in the United States of certain aramid fibre produced by Akzo N.V. (Akzo) in the Netherlands by a process for which Du Pont had received a patent in the United States. On 25 November 1985, following completion of proceedings under Section 337 within the eighteen month period provided for more complicated cases, the USITC held that Du Pont's process patent was valid and infringed and that imports of the infringing product had a tendency to injure an industry efficiently and economically operated in the United States. The USITC issued a limited exclusion order prohibiting the entry of aramid fibre in the form of fibre, yarn, pulp, staple, chopped fibre, paper, felt or fabric made abroad by Akzo, or any related business entities, using the patented process in question, for the remaining life of the patent (i.e. until 23 October 1990). The President did not disapprove the USITC's determination. The public version of the record of the investigation (No. 337-TA-194) was published in USITC publication 1824 of March 1986, entitled "In the Matter of Certain Aramid Fiber". Akzo appealed the USITC determination to the Court of Appeals for the Federal Circuit which, in a ruling of 22 December 1986, affirmed the exclusion order (Akzo N.V. v. USITC, 808 F.2d 1471 (Fed.Cir.1986)). Akzo thereafter applied for review to the Supreme Court. By order of 1 June 1987, the Supreme Court declined to review the judgment of the Court of Appeals (Akzo N.V. v. USITC, 107 Supreme Court Reporter 2490.) On 10 May 1988, following litigation in several other countries, Du Pont and Akzo executed a settlement agreement on aramid fibre, including a licence granted by Du Pont to Akzo to import limited quantities of aramid fibre into the United States during the remaining term of the patent.
III. MAIN ARGUMENTS
(i) Scope of the complaint
3.1 The Community initially requested the Panel to making findings concerning the compatibility with the United States' GATT obligations of the application of Section 337 both in general and in the Certain Aramid Fibre case. In the light of the settlement agreement between Du Pont and Akzo (see paragraph 2.9 above), the Community subsequently withdrew its request to the Panel to make specific findings in the Certain Aramid Fibre case. The Community however maintained its request that the Panel find that:
(i) the United States had failed to carry out its obligations under Article III.4 of the General Agreement by applying procedures under Section 337 of the United States Tariff Act of 1930 which subjected imported goods to a treatment which was less favourable than the treatment accorded by United States federal district courts to goods of national origin in patent infringement suits;
(ii) accordingly, to the extent to which products originating in the Community were subjected to discriminatory procedures under Section 337 of the United States Tariff Act which might result in exclusion orders, such procedures and orders must be considered prima facie to nullify or impair benefits accruing to the European Communities under the General Agreement.
3.2 The Community invited the Panel to recommend that the CONTRACTING PARTIES request the United States to take appropriate measures to grant national treatment to imported goods in future proceedings involving the alleged infringement of a United States patent.
3.3 To clarify the nature of its complaint, the Community indicated a number of issues that it was not contesting before the Panel:
- the status of Section 337 procedures as they were applied in non-patent based investigations;
- the consistency with the General Agreement of substantive United States patent law; and
- the right of contracting parties to enforce at the border national patent law against infringing imports.
3.4 The United States argued that:
(i) Application of Section 337 was consistent with the requirements of Article XX(d), and that Section 337 fell under the general exception to GATT obligations provided by that Article.
(ii) The procedural differences between Section 337 and federal district court litigation did not result in less favourable treatment for importers and manufacturers of imported products.
(iii) Section 337 on balance accorded manufacturers and sellers of imported products more favourable treatment than that accorded to domestic producers of products challenged under United States patent law.
(iv) Particularly in the light of the settlement of the specific case giving rise to the Panel, there was no proof that the differences in procedure under Section 337 had resulted in exclusion orders that would not have been issued if the USITC had used federal district court procedures or if USITC Commissioners had been Article III judges.
3.5 The United States requested the Panel to find that Section 337 of the United States Tariff Act of 1930 was consistent with United States obligations under the General Agreement.
(ii) Article III:4
(a) The applicability of Article III:4 to procedures under Section 337
3.6 Both parties to the dispute were of the view that Article III.4 applied to substantive patent law since such law affected the "internal sale, offering for sale, purchase, transportation, distribution or use" of imported products and like products of national origin. Both parties also thought that, for the purposes of the present case, Section 337 should be considered as a means of enforcement of United States patent laws. There was a difference of opinion, however, on whether Article III:4 applied to Section 337 and to its constituent procedures.
3.7 The Community argued that laws and regulations on the enforcement of patent laws directly affected the sale of goods. Rules of procedures of relevant tribunals therefore also affected the sale of goods since they influenced marketing prospects as well as the resulting enforcement decisions. The Community recalled that the Panel on Italian Discrimination against Imported Agricultural Machinery, whose report had been adopted on 23 October 1958, had found that the use of the word "affecting" in Article III:4 implied 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" (BISD, 7S/60, paragraph 12). If laws which adversely modified conditions of competition were subject to Article III:4, any procedural rule which might have the effect of causing imported goods to be excluded from the market altogether must a fortiori also be subject to Article III:4.
3.8 The United States contended that Article XX(d) of the General Agreement made an express distinction between, on the one hand, "measures" and, on the other, the "laws and regulations" with which the "measures" were designed to secure compliance. Article XX(d) required that the "laws or regulations" be not inconsistent with the provisions of the General Agreement. However, in the view of the United States, the specific purpose of Article XX was to exempt enforcement "measures" from other GATT provisions, where those measures were necessary and applied in a manner consistent with the conditions in the preamble to that Article. In these circumstances, to claim that such "measures" should be consistent with Article III of the General Agreement was tantamount to defining away the exception that Article XX was designed to make. In order to determine whether a particular provision was a measure within the meaning of Article XX, the Panel should consider its purpose, i.e., enforcement of rights provided under laws and regulations or the creation of substantive rights. In GATT terms, Section 337 was a measure to secure compliance with United States laws relating to the protection of patents (as well as certain other substantive United States laws) and did not create substantive law pertaining to protection of patents in its own right. This meant that, to the extent that it met the conditions in Article XX(d), which the United States believed it did, Section 337 fell under Article XX(d), but not under Article III.
3.9 Other arguments put forward by the United States were:
- It was the substantive law which affected the sale, offering for sale, purchase, transportation or use of products, rather than the procedures applied to parties in adjudication of whether there was a violation of those laws. Many factors influenced marketing prospects for imported products. This alone did not mean that such factors should be subject to the provisions of Article III.
- To extend the requirements of Article III:4 to any point in a contracting party's procedural scheme for ensuring enforcement of its intellectual property, public health and similar types of laws would (i) change the focus of Article III:4; (ii) eliminate much of the discretion now exercised by contracting parties; and (iii) lead to numerous disputes regarding any procedures that distinguished between imported and domestically produced goods.
- GATT panels had not previously addressed issues such as the procedural aspects of Section 337 raised by the Community in this complaint.
- Where the CONTRACTING PARTIES had intended to adopt obligations regarding specific procedures for the application of laws, regulations and requirements, they had provided specific standards in the General Agreement - for example, in Articles VI, VIII, XIII and XVII. Article III:4 referred to laws, regulations and requirements and did not mention procedures. Laws and regulations had been at issue in the Italian Agricultural Machinery case, not procedural requirements as in this dispute.
- The principle set forth in Article III was the avoidance of the application of laws, regulations, requirements, taxes etc. in a protectionist manner. Section 337 procedures had not been applied in a protectionist manner and there was no evidence to that effect.
TO CONTINUE WITH SECTION 337 OF THE TARIFF ACT OF 1930