The following article appears in the journal JOM, 42 (10) (1990), p. 55. JOM is a publication of The Minerals, Metals & Materials Society

When Does Patent Infringement Become Unfair Competition?

It sometimes happens that a disagreement will arise between a patent owner and another as to whether certain acts or products infringe a patent—the patent owner contending that there is an infringement and the other party denying infringement. If the dispute cannot be settled by discussions between the parties, litigation is likely to follow. Such litigation will be by way of a civil action filed in a U.S. district court.

The patent owner will normally charge that the other party has infringed the patent by using it without license. The patent owner will probably seek to collect monetary damages and ask for an injunction against further infringement. The party adverse to the patent may defend on the grounds that: the claims of the patent are not followed; prior art instead of the patent is used; the patent is invalid because the claimed invention is disclosed in the prior art or is made obvious by the prior art; or that he or she is entitled to a license.

In many cases, the party adverse to the patent contends that the patent is unenforceable because of improper activities of the patent owner such as patent misuse or inequitable conduct before the Patent Office. Normally, such charges will be set out in pleadings filed in the case. After the pleadings have been filed, there follows an extended period when discovery may be taken involving oral depositions and written interrogatories by both sides. In due time, the case will come to trial, a decision will be handed down, an appeal may be taken and ultimately, there will be a final judgment. The time which elapses from filing of the complaint until final judgment is usually several years or more. There have been a few hard-fought cases for patent infringement, however, in which more than a quarter of a century has elapsed while the case was pending.

Sometimes, a product or process patented in the U.S. is made or performed in a foreign country. Since those acts take place outside the U.S., they are not directly covered by a U.S. patent and do not infringe the patent. After manufacture abroad, however, the product may be shipped into and sold within the U.S. While sale or use in the U.S. of a product made outside the U.S. will technically infringe the patent, the ultimate user, or distributor, or even the importer may not be the real adversary of the patent owner. A suit against those people, or some of them, may cause a judgment to be entered against them several years later, but it will not prevent the foreign manufacturer from finding another channel of distribution.

One answer is found in section 337 of the Tariff Act of 1930, which declares that unfair methods of competition and unfair acts in the importation of articles into the U.S. are unlawful. More particularly, importation into the U.S., or sale for importation into the U.S., or sale within the U.S. after importation (a) of articles that infringe a valid and enforceable U.S. patent, or (b) of articles which are produced by means of a process covered by the claims of a valid and enforceable U.S. patent are unlawful acts.

Responsibility for administering the Tariff Act of 1930 rests with the U.S. International Trade Commission (ITC). Under section 337, it is possible to have a proceeding similar to a civil action for patent infringement before the ITC to determine unfair competition. One major difference between the proceedings is that before the ITC, the "defendant" is a product imported into the U.S., not an individual or corporate defendant.

Usually, a proceeding before the ITC under section 337 is initiated when a patent owner files a complaint alleging some act in a foreign country which would constitute patent infringement if performed in the U.S. The commission will first examine the complaint to see that it is in proper form, and that it includes allegations which will give the ITC jurisdiction. If those standards are met, the ITC will normally begin an investigation. Section 337 requires that the ITC make its determination within one year (18 months in more complicated cases). The complaint may identify one or more foreign manufacturers or suppliers of the product in issue.

When the ITC commences its investigation, copies of the complaint are served on the foreign manufacturers, and they are given the opportunity to participate in the proceedings. Within the one-year period, ail discovery must be completed, a trial must be held before an administrative law judge, including presentation of evidence by witnesses and exhibits, the administrative law judge must file his report with findings and conclusions for submission to the ITC, and the ITC commissioners must hand down their decision. All of this means that proceedings before the ITC are on a very fast track. For example, the plaintiff may direct interrogatories to the named foreign manufacturers, and answers are required within ten days. Often, the foreign manufacturer is not fluent in English, and the problem of communicating written interrogatories, developing the information needed to answer them, and returning the information to the U.S. within ten days is only one of the unusual burdens in a section 337 proceeding.

A proceeding before the ITC differs from an ordinary patent infringement action in a district court in another way. In both types of proceedings, the patent owner must show infringement and be prepared to meet any attack on validity. In a civil action in a district court, only the parties—plaintiff and defendant—appear before the court through their attorneys. In proceedings before the ITC, three or more legal teams (including ITC staff attorneys) may participate actively.

If the ITC ultimately finds for the complainant, no penalty is levied directly against any of the foreign manufacturers named, no relief is granted directly against them and no damages are assessed against them. Instead, the commission will enter an order excluding the offending articles from entry into the U.S.

The result is that proceedings before the ITC are very much like a civil action for patent infringement insofar as infringement and validity issues are concerned. The differences are primarily procedural—the case proceeds at every rapid rate, the foreign manufacturers are not subject to the jurisdiction of the ITC, they may optionally appear or fail to appear, and the judgment which may be entered is an exclusion order against the product. If a foreign manufacturer fails to appear, however, an exclusion order may be entered against his product by default.