Surprise! Your Supplier Just Got Hit with an ITC Violation

Business is humming along nicely, and your products are selling well. Everything seems fine until you learn that you will soon no longer be able to obtain a key imported component.

When you investigate, you find out that this is more than a temporary supply chain disruption. Instead, to your surprise, the U.S. International Trade Commission (ITC) has ordered that certain components you need can no longer be imported into the United States. 

The disruption to your business could be significant, and you must scramble to address this problem. How did this happen, and what can you do to prevent it from happening again?

The ITC is a federal agency tasked with addressing unfair trade practices related to articles imported into the U.S. Allegations of patent infringement are most common, but the agency can also investigate trademark and copyright infringement, trade secret misappropriation, and various other forms of unfair competition. Such investigations are commonly referred to as “Section 337” proceedings, referring to the agency’s governing statute. 

The ITC typically opens between 50 and 60 new investigations each year. Computer and telecommunication products are by far the most common technologies accused of violating Section 337, but complaints targeting consumer electronics and products related to the automotive and manufacturing industries are also frequently filed. The investigations are typically completed within 16-18 months, when the ITC issues its final decision.

If the ITC finds that a violation of Section 337 has occurred, it can issue one of two types of exclusion orders: limited and general. Limited exclusion orders (LEO) are more common and apply only to the parties named in the ITC investigation, or anyone importing “by or on behalf of” that party. A general exclusion order (GEO), by contrast, applies to all infringing products, regardless of whether or not the importer was part of the ITC investigation.

Neither you nor your suppliers need to have been involved in the underlying ITC investigation for a GEO to impact your business. Indeed, you might only learn about a GEO when Customs stops products at the border.  In recent years, the Commission has issued GEOs for products and technologies including industrial automation systems, LED lighting, water filters, height-adjustable desks and electric shavers.     

If your supplier’s components can no longer be imported into the U.S., you will either need to switch to a domestic supplier or a new foreign supplier not part of the ITC investigation—provided that the new supplier is independent and distinct from the excluded supplier.

The impact of an ITC exclusion order on your business can be swift and potentially severe. The more time you have to plan and prepare for such an order, the better. Monitor ITC complaints in technical areas and products relevant to your company. If any of your suppliers are named in an investigation, pay particular attention to that case and assess any potential impact to your business. You may also want to monitor relevant GEO investigations, even where none of the named parties are known parts of your supply chain. Identifying relevant complaints as early as possible provides time to evaluate your situation and plan accordingly.

Here are some steps can you take to minimize unexpected risks to your business.

If one of your suppliers is named in an ITC complaint, evaluate the importance of this supplier’s products to your business. Are there alternate suppliers? How long would it take to switch to another source that would not be impacted by an ITC order? 

• Depending on the nature of the allegations in the complaint and your relationship with the supplier, consider whether to assist the supplier with its defense or even formally intervene in the investigation.   
• Give particular attention to investigations of interest where the named respondents have not appeared or are not likely to mount a robust defense.
• Evaluate your purchase orders and other written agreements with your suppliers. Consider adding in provisions such as a requirement to promptly notify you of any legal action that could impact the products you purchase.   
• Raise concerns with the ITC if an exclusion order will affect your business. The ITC must consider the impact on the public interest before issuing any remedial order.     

Taking some reasonable steps to monitor and coordinate with your critical suppliers can identify and address potential concerns as early as possible and help you avoid unwelcome surprises.

Matthew Bathon is a partner at Steptoe specializing in litigating Section 337 investigations before the International Trade Commission.