Court Opinion

ID: 4348370
Source: CourtListenerOpinion
Date Created: 2018-12-07 16:00:50.043437+00
Date Added: 2024-06-11T11:27:08.440121
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

      LAERDAL MEDICAL CORP., LAERDAL
               MEDICAL AS,
                 Appellants

                          v.

     INTERNATIONAL TRADE COMMISSION,
                   Appellee
            ______________________

                      2017-2445
                ______________________

   Appeal from the United States International Trade
    Commission in Investigation No. 337-TA-1008.
                ______________________

              Decided: December 7, 2018
               ______________________

    JEFFREY I. KAPLAN, Kaplan, Breyer, Schwarz, LLP,
Matawan, NJ, argued for appellants. Also represented by
JOSEPH W. BAIN, Shutts & Bowen LLP, West Palm Beach,
FL.

    ROBERT JOHN NEEDHAM, Office of the General Coun-
sel, United States International Trade Commission,
Washington, DC, argued for appellee. Also represented
by DOMINIC L. BIANCHI, WAYNE W. HERRINGTON.
                ______________________
2                             LAERDAL MEDICAL CORP. v. ITC

    Before LOURIE, O’MALLEY, and STOLL, Circuit Judges.
O’MALLEY, Circuit Judge.
    Laerdal Medical Corp. and Laerdal Medical AS (col-
lectively, “Laerdal”) appeal from the U.S. International
Trade Commission’s final determination denying Laerdal
relief based on claims of trade dress infringement against
defaulting respondents. Certain Carbon Spine Board,
Cervical Collar, CPR Masks and Various Med. Training
Manikin Devices, USITC Inv. No. 337-TA-1008 (June 14,
2017). After instituting an investigation during which the
named parties failed to participate and were deemed to be
in default, the Commission concluded that Laerdal’s trade
dress allegations had not been adequately pleaded, and
therefore, denied Laerdal any remedy against the named
parties.
    We conclude that the Commission erred in reas-
sessing the sufficiency of Laerdal’s complaint against
defaulting respondents post-institution and in failing to
assess the appropriate remedy to impose under the cir-
cumstances. We, therefore, reverse the Commission’s
determination as to Laerdal’s trade dress claims and
vacate and remand for the Commission to determine the
proper remedy.
                     I. BACKGROUND
    Laerdal is a manufacturer and distributor of medical
devices, medical training products, and manikins. J.A.
2159, 2333. On March 21, 2016, Laerdal filed a complaint
at the U.S. International Trade Commission (the “Com-
mission”) asserting violations of 19 U.S.C. § 1337 by
eleven respondents. Laerdal amended its complaint on
May 18, 2016 and filed a supplement to the amended
complaint on June 7, 2016. J.A. 2358.
    Laerdal’s complaint, as amended and supplemented,
alleged that the respondents were infringing Laerdal’s
patent, trademark, trade dress, and copyright rights by
LAERDAL MEDICAL CORP. v. ITC                              3

importing, selling for importation, or selling within the
United States certain spine boards, cervical collars, CPR
masks, training manikins, and accompanying product
literature. J.A. 2140–261. Laerdal sought a general
exclusion order covering the various infringing products, a
limited exclusion order “as an addition, or in the alterna-
tive” to the general exclusion order, and a cease and
desist order directed to each respondent. J.A. 2259–60.
    On June 2, 2016, in response to the complaint, the
Commission’s Office of Unfair Import Investigations
(“Staff”) requested supplemental information on certain of
Laerdal’s allegations related to one asserted patent and
three asserted trademarks. J.A. 2349–50. Laerdal pro-
vided the requested information on June 7, 2016 and
requested that, if the additional evidence was insufficient,
the Commission institute an investigation as to the re-
maining patent, trademark, trade dress, and copyright
allegations. J.A. 2353–57. Thirteen days later, the Com-
mission did exactly that, instituting an investigation on
some, but not all, of Laerdal’s claims. Specifically, the
Commission instituted an investigation on Laerdal’s trade
dress claims, one patent claim, two copyright claims, and
one trademark claim, excluding all others. J.A. 2358–62.
    Despite being served with the amended complaint and
notice of investigation, no respondent submitted any
response, appeared, or otherwise participated in any way
in any of the proceedings. J.A. 2478–99. On October 20,
2016, therefore, Laerdal moved for an order requiring
Respondents to show cause why they should not be found
in default under § 1337(g)(1). J.A. 2550–59. The Admin-
istrative Law Judge (“ALJ”) granted Laerdal’s motion and
issued the Order to Show Cause on November 7, 2016.
J.A. 2584–86. Respondents again failed to respond to or
acknowledge that order. Two weeks later, the ALJ issued
an initial determination finding all respondents in de-
fault. J.A. 2589–95.
4                             LAERDAL MEDICAL CORP. v. ITC

    On December 1, 2016, in response to the ALJ’s initial
determination, Laerdal modified its requested relief from
a general exclusion order to “immediate entry of limited
exclusion orders (and cease and desist orders, where
appropriate) against the defaulting Respondents.” J.A.
2599.
    The Commission ultimately determined not to review
the ALJ’s initial determination finding all respondents in
default and requested that Laerdal and the Staff provide
briefing on remedy, the public interest, and bonding, and
submit proposed remedial orders. J.A. 2609–12. The
Commission did not request information on any other
issue.
    Laerdal and the Staff each responded that public in-
terest factors did not preclude relief and requested a 100
percent bond rate, a cease and desist order against the
sole domestic respondent, and limited exclusion orders
directed to all respondents. J.A. 2618–25, 2629–35, 2744–
52, 2778–86, 2789–95, 2796–804. Both Laerdal and the
Staff, moreover, expressed that, because Laerdal satisfied
the requirements of § 1337(g)(1), the Commission was
required to presume the facts alleged in the complaint to
be true and issue an exclusion order, cease and desist
order, or both, unless such relief was precluded by public
interest concerns. See J.A. 2621–22, 2780–81.
    On June 14, 2017, the Commission issued its final de-
termination, granting Laerdal limited exclusion orders
against three respondents and a cease and desist order
against one respondent, all based on Laerdal’s patent and
trademark claims. J.A. 1–13. The Commission issued no
relief, however, on Laerdal’s trade dress and copyright
claims, finding Laerdal’s allegations in those claims
inadequate. J.A. 5–11. Specifically, the Commission
concluded that, even when the pleaded facts were pre-
sumed true, Laerdal failed to show that any respondent
LAERDAL MEDICAL CORP. v. ITC                                 5

violated § 1337 with respect to the alleged trade dresses
and copyrights. J.A. 8, 11.
     As to Laerdal’s trade dress claims—the only claims at
issue in this appeal—the Commission found that Laerdal
failed to plead sufficiently (1) that it suffered the requisite
harm, (2) the specific elements that constitute its trade
dresses, and (3) that its trade dresses were not functional.
J.A. 8–11. Thus, despite approving the ALJ’s initial
determination finding all respondents in default and
despite requesting supplemental briefing solely related to
the appropriate remedy, the Commission issued Laerdal
no relief on those claims or against any of the respondents
named in those claims.
    Laerdal appeals the Commission’s termination of its
trade dress claims, contending the Commission acted in
violation of § 1337(g)(1) by terminating the investigation
and issuing no relief for its trade dress claims against
defaulting respondents. 1 We have jurisdiction pursuant
to 28 U.S.C. § 1295(a)(6).
                       II. DISCUSSION
    Statutory interpretation is a question of law reviewed
de novo. Belkin Int’l, Inc. v. Kappos, 696 F.3d 1379, 1381
(Fed. Cir. 2012); PS Chez Sidney, L.L.C. v. U.S. Int’l
Trade Comm’n, 684 F.3d 1374, 1379 (Fed. Cir. 2012)
(“[W]hether the ITC’s determination was based on a
proper      interpretation      of     the      [law]    is
a question of law which we review de novo.”).

    1    Laerdal also appeals the Commission’s failure to
provide it notice or an opportunity to amend before find-
ing that Laerdal’s trade dress allegations were pleaded
insufficiently. Because our conclusion regarding Laerdal’s
argument under § 1337(g)(1) is dispositive, we do not
reach these questions.
6                               LAERDAL MEDICAL CORP. v. ITC

    Section 1337(g), titled “Exclusion from entry or cease
and desist order; conditions and procedures applicable,”
provides, in relevant part:
    If—
          (A) a complaint is filed against a person
          under this section;
          (B) the complaint and a notice of investi-
          gation are served on the person;
          (C) the person fails to respond to the com-
          plaint and notice or otherwise fails to ap-
          pear to answer the complaint and notice;
          (D) the person fails to show good cause
          why the person should not be found in de-
          fault; and
          (E) the complainant seeks relief limited
          solely to that person;
    the Commission shall presume the facts alleged in
    the complaint to be true and shall, upon request,
    issue an exclusion from entry or a cease and desist
    order, or both, limited to that person unless, after
    considering the effect of such exclusion or order
    upon the public health and welfare, competitive
    conditions in the United States economy, the pro-
    duction of like or directly competitive articles in
    the United States, and United States consumers,
    the Commission finds that such exclusion or order
    should not be issued.
19 U.S.C. § 1337(g)(1) (emphases added).
    According to Laerdal, the Commission acted outside of
its statutory authority by sua sponte terminating
Laerdal’s trade dress investigation at the final determina-
tion stage based on an assessment of the adequacy of its
pleadings. Under § 1337(g)(1), Laerdal asserts, once the
LAERDAL MEDICAL CORP. v. ITC                               7

Commission found all respondents in default, it was
required to accept all facts pleaded in the complaint as
true and issue a remedy, subject only to the public inter-
est concerns outlined above. Brief for Laerdal at 10.
    The Commission responds that, even in the case of de-
faulting respondents, where facts alleged in the complaint
must be presumed true, it must still find unlawful activity
before issuing relief. Brief for Commission at 18, 22–23.
The decision to institute an investigation, it argues, is not
substantive approval that the complaint established a
§ 1337 violation. Brief for Commission at 24–25. If a
complaint does not adequately plead a § 1337 violation, it
argues, no relief is warranted—even if its allegations are
unopposed.
    We conclude that the statute, on its face, unambigu-
ously requires the Commission to grant relief against
defaulting respondents, subject only to public interest
concerns, if all prerequisites of § 1337(g)(1) are satisfied.
The statute’s plain text, surrounding context, purpose,
and legislative history, as well as the Commission’s own
prior decisions, support this conclusion.
    Through use of the word “shall,” the statute unam-
biguously requires the Commission to, upon finding that
elements (A) through (E) are satisfied, (1) presume the
facts alleged in the complaint to be true and (2) upon
request, issue an exclusion order, cease and desist order,
or both, subject to public interest concerns. See SAS Inst.,
Inc. v. Iancu, 138 S. Ct. 1348, 1354 (2018) (finding that
the word “shall” means “must” because it “generally
imposes a nondiscretionary duty”); Kingdomware Techs.,
Inc. v. United States, 136 S. Ct. 1969, 1977 (2016) (“Un-
like the word ‘may,’ which implies discretion, the word
‘shall’ usually connotes a requirement.”); see also Con-
verse, Inc. v. U.S. Int’l Trade Comm’n, — F.3d —, 2018
WL 6164571, at *14 (Fed. Cir. Oct. 30, 2018) (O’Malley, J.,
concurring in part and dissenting in part) (“This language
8                             LAERDAL MEDICAL CORP. v. ITC

requires the ITC to presume the facts alleged in the
complaint to be true and to provide some form of relief
against any parties found to be in default . . . .”).
    Granting the Commission discretion to issue relief
under § 1337(g)(1), moreover, runs contrary to the sur-
rounding statutory language. See King v. Burwell, 135
S. Ct. 2480, 2489 (2015) (“[W]e must read the words in
their context and with a view to their place in the overall
statutory scheme.” (internal quotation marks omitted)).
In § 1337(g)(2), Congress granted the Commission discre-
tion to issue a general exclusion order against defaulting
respondents through use of the term “may.” By using
“shall” in subsection (g)(1), though, Congress limited the
Commission’s discretion in the case of petitioners seeking
more limited relief—such as a limited exclusion order or
cease and desist order or both—against defaulting re-
spondents.
    And, while the Commission contends that it must find
a § 1337 violation properly pleaded before it can issue
relief under subsection (g)(1), only subsections (d)(1) and
(g)(2)—neither of which are implicated here—require that
additional layer of review post-institution. Subsection
(g)(2) provides that relief “may be issued if . . . such a
violation is established by substantial, reliable, and
probative evidence.” And subsection (d)(1), which is
implicated when respondents participate in the litigation,
requires the Commission to determine “that there is a
violation of this section” before it issues any relief. No
such requirement is found in subsection (g)(1); instead,
the Commission must “presume the facts alleged in the
complaint to be true” and, upon request, issue relief after
considering any relevant public interest concerns. See S.
Rep. No. 100-71, at 132 (1987) (Subsection (g)(1) “author-
izes the Commission to presume the facts alleged in the
complaint to be true insofar as they involve a defaulting
respondent, and to then issue relief limited to that re-
spondent. . . . Relief in the form of a general exclusion
LAERDAL MEDICAL CORP. v. ITC                             9

order [under (g)(2)] must be supported by a Commission
determination of violations of the Act based on substan-
tial, reliable, and probative evidence.”); H.R. Rep. No.
100-576, at 636 (1988) (Conf. Rep.).
    To be sure, the Commission must find a violation of
§ 1337 before it can issue a remedy, but that analysis in
the context of the defaulting respondent occurs, by statute
and through the Commission’s regulatory regime, upon
default. Through the pre-requisites of subsection (g)(1)—
elements (A) through (E)—relief against defaulting re-
spondents is only possible if the Commission has already
determined, pre-institution, that the complaint was
pleaded adequately and instituted an investigation there-
of. After institution, the question of the adequacy of the
pleadings is no longer a live one absent a challenge there-
to by a responding party.
    The Commission’s rules are consistent with this un-
derstanding. Commission Rule 210.9, for example, re-
quires that, prior to instituting an investigation, the
Commission “shall examine the complaint for sufficiency
and compliance with the applicable sections of this chap-
ter.” 19 C.F.R. § 210.9 (emphases added). When a notice
of investigation issues, therefore, the Commission must
have already ensured that the complaint sufficiently
pleaded a statutory violation.
    Under the pre-requisites to (g)(1), relief is both per-
mitted and mandated only after, inter alia, a notice of
investigation is served, implying that the Commission has
completed its preliminary review and found the complaint
sufficiently pleaded, and after the respondents are found
to be in default. See 19 U.S.C. § 1337(g)(1)(B), (D). If a
violation is not pleaded adequately in the complaint, the
Commission can decline institution and dismiss the
complaint, thereby never implicating relief under subsec-
tion (g)(1)—or any other subsection. See 19 C.F.R.
§ 210.10(c) (“If the Commission determines not to insti-
10                             LAERDAL MEDICAL CORP. v. ITC

tute an investigation on the basis of the complaint, the
complaint shall be dismissed, and the complainant and all
proposed respondents will receive written notice of the
Commission’s action and the reason(s) therefor.”). But
the Commission may not institute an investigation and
then decide post-hoc that it is dissatisfied with an unchal-
lenged complaint upon which the investigation was predi-
cated.
    The purpose and legislative history of subsection
(g)(1) confirm this conclusion. Prior to Congress’s 1988
Amendment to the Trade Act, the Commission was re-
quired to find a violation under § 1337 before issuing
relief against a defaulting respondent, even if the facts of
the complaint were uncontested. See Converse, 2018 WL
6164571, at *14; Certain Elec. Slow Cookers, USITC Inv.
No. 337-TA-42, at 7 (Mar. 15, 1979) (relying on 19 C.F.R.
§ 210.21(d) (1976)).     A complainant, therefore, faced
essentially the same burden of proof regardless of the
respondent’s participation.     See Converse, 2018 WL
6164571, at *14; see also Certain Elec. Skin Care Devices,
USITC Inv. No. 337-TA-959, 2017 WL 8683854, at *14
(Feb. 13, 2017).
    In 1988, however, Congress added § 1337(g) to the
statute to address default judgments, acknowledging that,
without the respondent’s participation, a complainant
faced difficulties proving facts sufficient to establish a
violation of § 1337. See Converse, 2018 WL 6164571, at
*14; Certain Elec. Skin Care Devices, 2017 WL 8683854,
at *14 (“The legislative history of Section 337(g) notes
that the addition of the provision for ‘Default Judgments’
was motivated by the fact that discovery is usually diffi-
cult, if not impossible, to obtain from named respondents
who have chosen not to participate in an investigation.”).
Through the addition of subsection (g), therefore, Con-
gress “require[d] the Commission, in cases involving
defaulting respondents, to presume the facts alleged in
the complaint to be true and, upon request, to issue relief
LAERDAL MEDICAL CORP. v. ITC                               11

against the defaulting respondents, unless the enumerat-
ed public interest factors . . . preclude[d] relief.” S. Rep.
No. 100-71, at 132; H.R. Rep. No. 100-576, at 636 (Conf.
Rep.) (“[W]hen a respondent fails to appear, the ITC shall
presume the facts alleged in the complaint to be true and
shall, upon request, issue appropriate relief solely against
that person.”).
    The Commission contends that its approach of review-
ing pleading sufficiency prior to a final determination is
consistent with district court practice, which requires a
court to review a plaintiff’s allegations to ensure the
defaulter’s liability as a matter of law. Brief for Commis-
sion at 21. But the Commission overlooks an important
distinction between district court and ITC practice—the
Commission must conduct a preliminary review that
district courts do not, and only then may institute an
investigation.     Rule 55, moreover, governing default
judgment in district court litigation, is unlike § 1337(g)(1);
it does not require the court to grant relief, it grants the
court discretion to “conduct hearings or make referrals” in
evaluating whether to “enter or effectuate judgment.”
Fed. R. Civ. P. 55(b)(2). We presume that Congress was
aware of the discretion granted to district courts under
Rule 55 when it later drafted subsection (g) to § 1337. See
Miles v. Apex Marine Corp., 498 U.S. 19, 32 (1990) (“We
assume that Congress is aware of existing law when it
passes legislation.”).
    Our interpretation is also supported by the Commis-
sion’s own prior application of the statute. In Certain
Electric Skin Care Devices, the Commission—referring to
the same legislative history addressed above—explained
that it “distinguishes between default situations, in which
the remedy is governed by Section 337(g), and contested
situations, in which the remedy is governed by Sections
337(d) and (f).” Certain Elec. Skin Care Devices, 2017 WL
8683854, at *14 n.9. The Commission clarified that “the
mandatory language of [subsection (g)(1),] (‘shall’), cou-
12                             LAERDAL MEDICAL CORP. v. ITC

pled with the use of the coordinating conjunction ‘or,’
requires the Commission to issue relief as to the defaulting
respondent in the form of three alternative choices—an
exclusion order, a cease and desist order, or both—when
the conditions and applicable procedures of this provision
are satisfied.” Id. at *14 (emphasis added). And the
Commission acknowledged that “the grant of this appro-
priate relief can be overcome only by evidence pertaining
to the statutory public interest factors.” Id. at *14 n.9.
Recognizing that its discretion lay only in determining the
appropriate remedy against defaulting respondents, not
in deciding whether a remedy was warranted, the Com-
mission concluded that, since the respondents were found
in default, it did not need to “address whether there [wa]s
a violation of Section 337” as the “claim [wa]s deemed
established based on the allegations in the complaint.”
Id. at *7.
     Here, it is undisputed that Laerdal met the pre-
requisites for § 1337(g)(1). The amended complaint and
notice of investigation were served on all respondents, the
respondents failed to respond or appear in any way and
failed to show good cause why they should not be found in
default, and Laerdal limited the relief it sought to exclu-
sion orders and cease and desist orders against only the
respondents. J.A. 2478–99, 2550–59, 2584–86, 2589–95,
2599, 2609–12. Subject only to public interest concerns,
therefore, the Commission was required under
§ 1337(g)(1) to presume all facts alleged in the complaint
as true and issue an exclusion order, cease and desist
order, or both.
    While the Commission contends that Laerdal did not
properly plead a § 1337 violation in the complaint, the
time for that assessment was pre-institution. Had the
Commission found Laerdal’s trade dress claims insuffi-
cient, it should have requested additional information or
denied institution under Rules 210.9 and 210.10. In fact,
that is precisely what the Commission did with respect to
LAERDAL MEDICAL CORP. v. ITC                             13

certain of Laerdal’s patent and trademark claims by not
including them in the investigation. J.A. 2358–62. For
those claims, the Staff highlighted pleading insufficiencies
to Laerdal, Laerdal was provided an opportunity to sup-
plement the complaint, and the Commission ultimately
declined institution as to three of the four identified
insufficiently pleaded allegations. J.A. 2349–50, 2353–57,
2358–60. As the Commission conceded during oral argu-
ment, “ideally that [same process] would have happened”
with Laerdal’s trade dress claims as well. Oral Arg. at
25:00,
http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20
17-2445.mp3. Beyond improperly reaching the merits of
Laerdal’s trade dress claims post-institution, the Com-
mission also raised concerns about the adequacy of those
trade dress claims that neither the Staff nor the ALJ—
both of whom had previously considered the claims—
shared. While we question the Commission’s actions in
this regard, we do not reach the issue here.
    Having approved Laerdal’s trade dress claims without
any additional questioning and instituted an investigation
thereof, see J.A. 2358–62, the Commission cannot now,
post-institution and without opposition or appearance
from respondents, assert insufficient pleading as a basis
for denying relief. After the respondents were found in
default, the Commission was required to issue relief upon
Laerdal’s request, unless precluded by public interest
concerns.
     While both Laerdal and the Staff asserted that no
public interest concerns precluded relief, J.A. 2618–25,
2778–86, we recognize that “the Commission has broad
discretion in selecting the form, scope and extent of the
remedy,” and therefore, remand for the Commission to
determine the appropriate remedy. Viscofan, S.A. v. U.S.
Int’l Trade Comm’n, 787 F.2d 544, 548 (Fed. Cir. 1986).
14                            LAERDAL MEDICAL CORP. v. ITC

                     III. CONCLUSION
    For the foregoing reasons, we reverse the Commis-
sion’s determination that Laerdal failed to plead its trade
dress claims with adequate detail, vacate the Commis-
sion’s decision that no relief was warranted for those
claims, and remand for the Commission to determine the
appropriate remedy after consideration of public interest
concerns, in light of Laerdal and the Staff’s submissions.
     REVERSED IN PART, VACATED IN PART, AND
                   REMANDED
                          COSTS
      No costs.