Failure of ITC to Follow Its Own Rules May Constitute Harmless Error

SWAGWAY, LLC v. ITC [REVISED OPINION – PRECEDENTIAL]

Before Dyk, Mayer, and Clevenger.  Appeal from the International Trade Commission.

Summary:  Although the ITC must strictly comply with its rules, failure to do so may constitute harmless error.  Additionally, the Federal Circuit withdrew its prior holding that ITC decisions on trademark issues do not have preclusive effect.

Segway filed a complaint with the International Trade Commission (“ITC”) alleging that Swagway’s products marketed under the names SWAGWAY and SWAGTRON infringed Segway’s trademarks.  During the investigation, Swagway moved for partial termination on the basis of a consent order stipulation agreeing not to sell or import SWAGWAY-branded products.  Segway opposed the proposed consent order.  After a hearing, the ALJ issued an Initial Determination (“ID”) finding that Swagway’s use of the SWAGWAY mark infringed Segway’s marks, and denied the proposed consent order in a footnote.  The ITC affirmed the ALJ’s finding of trademark infringement, but declined to review the ALJ’s denial of the consent order motion.

On May 9, 2019, the Federal Circuit affirmed the ITC’s infringement finding.  With respect to the consent order motion, the Federal Circuit accepted Swagway’s conditional withdrawal of its argument in view of the Federal Circuit’s holding that the ITC’s trademark determinations do not have preclusive effect.  Segway filed a petition for panel rehearing and rehearing en banc regarding the Federal Circuit’s decision on the preclusive effect of the ITC’s trademark decisions.  The Federal Circuit granted Segway’s petition for rehearing and vacated their original decision on this issue.

In its modified opinion, the Federal Circuit withdrew its holding that the ITC’s trademark determinations have no preclusive effect.  The Federal Circuit then considered Swagway’s arguments that the ITC should have granted its motion for a consent order and that denial of its motion in the ID violated ITC procedural rules.  The Federal Circuit noted that the ITC’s rules grant an ALJ the discretion to terminate a § 337 investigation by consent order, taking into consideration the impact on the public interest.  Furthermore, the ITC’s rules specify that a grant of a consent order motion must be in the form of an issuance of an ID, but a denial must be in the form of an order.

The Federal Circuit determined that the ALJ did not abuse its discretion in denying the consent motion because by the time the briefing was complete on the proposed consent order, the parties had expended considerable resources completing fact and expert discovery, finalizing exhibits and witness statements, and preparing for the hearing.  However, the Federal Circuit found that the ALJ failed to follow the ITC’s rules by denying the consent order motion in the ID rather than in a separate order, and the ITC propagated that error by refusing to correct the ALJ’s mistake on review.  The Federal Circuit found no harm stemming from the error in the form of the denial, and thus affirmed the denial of Swagway’s consent order motion.

Editor: Paul Stewart