Masimo v. Apple, Google v. Sonos, and More: The ITC is Coming for Consumer Tech with Section 337 Investigations

This was the year consumer tech saw a rise of high-profile use of an arcane patent enforcement method, and they won't be the last

Everyone’s holiday season is at risk. Apple will imminently be forced to restrict imports of its newest Apple Watches and stop selling them in their retail stores. For over a year, it has battled allegations of intellectual property theft and patent infringement on its pulse oximeter technology by Masimo, a California-based medical device company with over a billion dollars in revenue. Apple and Massimo have been duking it out throughout the court system. In May, a jury trial for patent infringement ended with a mistrial. Apple also knocked out some of Masimo’s patents at the PTAB, a decision which was recently upheld at the Federal Circuit. So if things look like they are going Apple’s way, why has it had to stop selling these watches? The reason is the U.S. International Trade Commission and an obscure infringement proceeding even many lawyers don’t know about. Now, all of a sudden, one of the most successful consumer products today, with over $17 billion in annual sales, has its future on the line.

A Section 337 U.S. International Trade Commission Investigation, or 337 investigation for short, is a type of legal proceeding that is initiated by a holder of intellectual property to prevent importation of an article that infringes on that IP. This type of proceeding is not unique to Apple, and although it is rare, it is becoming more common. In fact, this isn’t even the only ITC proceeding that Apple has lost this year over the Apple Watch. That honor lies with AliveCor, which won an ITC investigation over its ECG patents (though that is on hold pending a PTAB investigation). They are increasing in number and importance, especially in the consumer electronics industry, so all practitioners need to better understand how they work. So this week, let’s dive in.

Another patent procedure, this time with trade

Section 337 investigations are old—they date back to the 1930s—but did not exist in any real quantity until the types of unfair trade practices were clarified in the 1970s and 1980s. The governing statute is 19 U.S.C. §1337 and the governing regulation are 19 C.F.R. Parts 201 and 210. The ITC may also impose further “ground rules” or issue orders that pertain to a particular investigation. Although intellectual property infringement is not the only type of unfair trade practice (amusingly, boat hulls have their own section), nearly all 337 investigations pertain to intellectual property, particularly patents. The vast majority of 337 investigations—close to 100%—solely involve a patent dispute. The number of patents asserted per investigation has also drifted up over time, from roughly 2 patents to 4 patents on average.

Gibson & Dunn have put together a helpful overview of the process. 337 investigations involve in rem authority by the ITC over the unlawful products under ALJ judges; it is not a dispute between two parties under Article III judges. There is a “domestic industry” requirement, meaning that the product was developed or is practiced in the United States—note that this does not mean that this procedure is not available to foreign entities with domestic operations or NPEs so long as they have licensees. Discovery is extensive and rapid, with the first hearing typically in 8-10 months and faster response times than a typical district court discovery process. For the ITC to institute an investigation, the complainant must furnish a valid, highly detailed complaint to initiate any action from the ITC. From there, a resolution is typically reached in just a 4-7 months. Although the ITC cannot order monetary damages, it can issue exclusion orders preventing importation and even cease and desist orders against selling already-imported inventory and does not need to abide by the familiar eBay v. Mercexchange standard. For this reason, 337 investigations are often done alongside district court cases seeking monetary compensation. Just this year, in fact, Google’s latest salvo against Sonos in their legal holy war was its own ITC proceeding over some of Sonos’ speaker products. (Google lost.)

These 337 proceedings are rare overall, primarily because the complainant has to much more work up-front than a typical complaint. For context, in 2022 the ITC reported only 142 active investigations, 71 new proceedings initiated, and 90 completed investigations, and they are typically settled (though Apple has reportedly not reached out to Masimo). And although some have expressed concern that reforms in the 1970s and 1980s made too easy for NPEs to file for investigations, the data shows that this fear is overblown. According to the ITC, in 2022, there were only 11 investigations brought by NPEs. That said, 337 investigations are becoming more common. An analysis by the law firm Fish & Richardson showed that the 2010s saw twice the number of 337 proceedings as the 2000s, which had twice as many proceedings as the 1990s.

Consumer electronics already dominates ITC investigations; a 2014 report found that electronics were 49% of all 339 investigations. The reason is relatively simple. These investigations restrict imports. A US party suing another US party over an entirely domestic matter has no ability to access this procedure. However, if the supply chain requires an import of the allegedly infringing products or components, that supply chain makes the product or component a prime candidate for a 337 because the patent holder can attack the product as a whole and disrupt a whole supply chain. Consumer electronics uniquely vulnerable to this type of attack because they are almost all assembled in Asia, not domestically, but also high-value enough to justify the high up-front effort.

The primary challenge with these investigations is the pre-complaint burden placed on the complainant. But thanks to the very high value of the consumer electronics industry, the unique vulnerability with Asian supply chains, and the ample liquidity of the complainants and respondents, it is easy to see why there will be more 337 investigations for the consumer electronics industry.

Weekly Novelties

Note: this week’s weekly novelties section will be shorter due to the holidays and just cover three news items. There’s just less news at the end of the year!

• The Supreme Court of the United Kingdom held that an AI cannot be an inventor on a patent (Reuters)

• A German court invalidated several key patents held by CureVac in a long-running, globe-spanning dispute against BioNTech of mRNA vaccine fame (Juve Patent)

• A recent court case has implications for the use of patents for drugs that opens the path for “skinny labels” that avoid patent infringement (National Law Review)