United States Int'l Trade Comm'n v. Jaffe, 1:10cv367.

• Citation: 433 B.R. 538
• Decision Date: 28 June 2010
• Docket Number: No. 1:10cv367.,1:10cv367.
• Parties: UNITED STATES INTERNATIONAL TRADE COMMISSION, Appellant,v.Michael JAFFE, et al., Appellees.
• Court: United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)

433 B.R. 538

UNITED STATES INTERNATIONAL TRADE COMMISSION, Appellant,v.Michael JAFFE, et al., Appellees.

No. 1:10cv367.

United States District Court,

E.D. Virginia,

Alexandria Division.

June 28, 2010.

Robert K. Coulter, United States Attorney's Office, Alexandria, VA, for Appellant.

Jeffrey Anderson Showalter, Morrison & Foerster LLP, Washington, DC, John Alexander Trocki, III, Morrison & Foerster LLP, McLean, VA, for Appellees.

MEMORANDUM OPINION

T.S. ELLIS, III, District Judge.

This bankruptcy appeal presents the novel question whether 11 U.S.C. § 362(b)(4), the police and regulatory power exception to the § 362 automatic stay, operates to except from the stay a U.S. International Trade Commission (“ITC”) investigation undertaken pursuant to § 337 of the Tariff Act of 1930, ch. 497, 46 Stat. 590, 703 (codified as amended at 19 U.S.C. § 1337 (2006)).

I.

LSI Corporation (“LSI”), not a party to this appeal, is the owner of U.S. Patent No. 5,227,335 (“the '335 patent”). On April 18, 2008, LSI and another corporation filed a complaint alleging that certain named respondents had imported into the United States various infringing semiconductor integrated circuits using tungsten metallization, in violation of § 337 of the Tariff Act of 1930.¹ After a preliminary ITC investigation of this complaint, the ITC on May 14, 2008, ordered a formal investigation be “instituted to determine whether there is a violation of subsection (a)(1)(B) of section 337” on the ground that the named respondents had allegedly imported products infringing the ' 335 patent.² Thereafter, Qimonda AG (“Qimonda”), a German corporation in insolvency proceedings in that country, was named as an additional respondent in the course of the investigation.

On June 15, 2009, Qimonda filed a petition for recognition of its pending German insolvency proceeding under Chapter 15 of the Bankruptcy Code, 11 U.S.C. §§ 1501-1532, which petition was granted by the Bankruptcy Court on July 22, 2009. In granting the petition, the Bankruptcy Court appointed appellant Michael Jaffe as the Foreign Administrator.³ Pursuant to 11 U.S.C. § 1520, which lists the provisions automatically applicable on the U.S. recognition of a foreign proceeding, the Chapter 15 filing automatically stayed other pending U.S. litigation against Qimonda under 11 U.S.C. § 362(a). Although the ITC argued that its § 337 investigation involving Qimonda was exempt from the automatic stay under the police and regulatory power exception codified at 11 U.S.C. § 362(b)(4), the Bankruptcy Court rejected this argument on the following grounds: (i) that the ITC § 337 investigation was brought by LSI, not the ITC; and (ii) that the ITC was not acting in a regulatory capacity. See In re Qimonda AG, 425 B.R. 256 (Bankr.E.D.Va.2010). Whether the Bankruptcy Court erred in concluding that § 362(b)(4) does not apply to the ITC § 337 investigation involving Qimonda is the merits issue presented here.

The parties fully briefed the matter ⁴ and appeared, by counsel, at a June 18, 2010 hearing. The matter was taken under advisement, and thereafter the parties submitted supplemental briefs. Accordingly, the appeal is ripe for disposition.

II.

Resolution of the question presented requires a brief summary and understanding of the pertinent statutory and regulatory framework governing ITC § 337 investigations.

The ITC is an independent federal agency created by Congress with broad investigative responsibilities in matters of international trade. It is comprised of both the Commission itself, which has six members appointed by the President and confirmed by the Senate, and administrative law judges (“ALJs”). Pertinent here is that § 337 of the Tariff Act of 1930 tasks the ITC with investigating inter alia, the importation into the United States of articles that “infringe a valid and enforceable United States patent” or articles that “are made, produced, processed, or mined under, or by means of, a process covered by the claims of a valid and enforceable United States patent.” 19 U.S.C. § 1337(a)(1)(B). Specifically, the ITC is required by statute to “investigate any alleged violation of [section 1337] on complaint under oath or on its initiative.” Id § 1337(b)(1). Significantly, an ITC “investigation” is defined as “a formal Commission inquiry instituted to determine whether there is a violation of section 337 of the Tariff Act of 1930.” 19 C.F.R. § 210.1.

The procedures attendant to ITC § 337 investigations are codified at 19 U.S.C. § 1337 and 19 C.F.R. Part 210 (2010) (Adjudication and Enforcement). Where, as here, the ITC § 337 investigation relies on information submitted in a complaint by a private party, it is noteworthy that the filing of the complaint does not initiate a formal ITC § 337 investigation; rather, the action simply results in a “preinstitution proceeding,” in which the ITC “examine[s] the complaint for sufficiency and compliance,” and performs a preliminary investigation.⁵ Importantly, the formal ITC § 337 investigation on a complaint does not begin until the ITC “determine[s] whether the complaint is properly filed and whether an investigation should be instituted on the basis of the complaint,” and thereafter provides official notice by publication in the Federal Register. ⁶ In addition to publication in the Federal Register, the ITC provides direct notice of the investigation to the U.S. Department of Health and Human Services, the U.S. Department of Justice, the Federal Trade Commission, the U.S. Customs Service, and “such other agencies and departments as the Commission considers appropriate” by serving copies of the complaint. See 19 C.F.R. § 210.11(a)(4).

Thereafter, the matter is referred to an ALJ for an initial determination on whether the named respondent has violated § 337 of the Tariff Act of 1930. The process of arriving at this determination is adversarial in nature. Federal regulations permit parties to take discovery, issue subpoenas, make motions for default and summary determinations, and present evidence at a trial-like hearing. See id. §§ 210.15 to 210.18, 210.26 to 210.38. At the conclusion of this process, the ALJ certifies the record to the six-member Commission and files an initial determination concerning whether a § 337 violation has occurred. See id. § 210.42. In reviewing the ALJ's initial determination sua sponte or on a party's motion,⁷ the Commission is required by statute to “consult with, and seek advice and information from, the Department of Health and Human Services, the Department of Justice, the Federal Trade Commission, and such other departments and agencies as it considers appropriate.” 19 U.S.C. § 1337(b)(2). To that end, the Commission accepts “written submissions from the parties, other Federal agencies, and interested members of the public on the issues of remedy, the public interest, and bonding by the respondents.” 19 C.F.R. § 210.46(a). In sum, therefore, the Commission must consider the effect its final determinations will “have upon the public health and welfare, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States, and U.S. consumers.” Id. § 210.50(a)(2).

Where the ITC-that is, the ALJ and the six-member Commission-determines that a respondent has violated § 337 of the Tariff Act of 1930, the ITC may “direct that the articles concerned, imported by any person violating the provision of [§ 1337], be excluded from entry into the United States.” 19 U.S.C. § 1337(d). Neither § 1337 nor its implementing federal regulations permit an award of monetary damages to complainants. Notably, notwithstanding the finding that a violation has occurred, the ITC may conclude that exclusion of the article is not warranted on the ground that ordering exclusion does not further “the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers.” Id.

Following the issuance of the ITC's determination and its publication in the Federal Register, the determination is transmitted to the President for review. Within 60 days of receiving the determination, “the President, for policy reasons, [may] disapprove [ ] such determination and notif[y] the Commission of his disapproval.” Id. § 1337(j)(2). Absent presidential action, the ITC's determination becomes final at the conclusion of the 60-day review period. See id. § 1337(j)(4).

This statutory and regulatory framework is the lens through which the Bankruptcy Court's decision in this matter must be viewed.

III.

Whether the ITC § 337 investigation of Qimonda falls within the police and regulatory power exception of § 362(b)(4) is a question of statutory interpretation reviewed de novo on appeal. See United States v. Myers, 280 F.3d 407, 416 (4th Cir.2002) (“We review questions of statutory interpretation de novo.”); Loudoun Leasing Dev. Co. v. Ford Motor Credit Co. (In re K & L Lakeland, Inc.), 128 F.3d 203, 206 (4th Cir.1997) (stating well-settled rule that a district court “review[s] the bankruptcy court's factual findings for clear error ... [and] questions of law de novo.”). As always with respect to questions of statutory interpretation, the analysis appropriately begins with the text of the statute. See United States v. Midgett, 198 F.3d 143, 145-46 (4th Cir.1999).

The police and regulatory power exception to the automatic stay applicable in bankruptcy proceedings states, as follows:

(b) The filing of a petition under section 301, 302, or 303 of this title ... does not operate as a stay-

...

(4) ... of the commencement or continuation of an action or proceeding by a governmental unit ... to enforce such governmental unit's police or regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or

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