Foreign Importer Hanging by Thread, but International Trade Commission Cuts It Off
The International Trade Commission recently issued a general exclusion order barring the importation of bed sheets with falsely advertised thread counts as a remedy for Section 337 violations. The decision in In re Certain Woven Textile Fabrics and Products Containing Same demonstrates the potential reach of Section 337, which prohibits unfair practices related to the importation of foreign goods into the United States. While violations ordinarily involve intellectual property infringement, the underlying unfair act can also include false advertising.
The ITC institutes investigations pursuant to Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), which forbids the following practices in connection with the importation or subsequent sale of goods in the United States: infringement on a U.S. patent, copyright, or registered trademark, as well as “unfair methods of competition and unfair acts” that cause harm to a U.S. industry. Once a Section 337 violation has been found, the statute authorizes the issuance of exclusion orders and cease-and-desist orders to prevent the offending goods from entering the United States. An exclusion order is typically limited to specifically identified persons or entities found in violation of Section 337, but a general exclusion order may be issued if the ITC finds it necessary to prevent circumvention of an exclusion order limited to products of named persons, or if there is a pattern of Section 337 violations and it is difficult to identify the source of infringing products. In making this determination, the ITC must consider whether a general exclusion order would negatively affect the public health and welfare.
The complainant in this matter alleged violations of Section 337 by fifteen respondents, and all but one settled. The remaining respondent was accused of overstating the thread count of bed sheets made in India and imported and sold in stores in the United States.
Concluding that the sheet labeling was false, misleading, deceptive and material to consumers in determining sheet quality, the Administrative Law Judge found that respondent falsely advertised its products in the United States in violation of the Lanham Act, and that it imported and sold the products in the United States. This caused substantial injury to complainant, who is a developer and licensor or woven textile technology and sole owner of a textile design studio.
The ALJ recommended issuance of a general exclusion order barring from importation not only respondent’s, but all falsely advertised bed sheets, due to a widespread pattern of Section 337 violations and difficulty identifying the source of the goods. With respect to the pattern of violation, the ALJ cited evidence that foreign-made bed sheets with a lower thread count than advertised are widespread in U.S. stores. Indeed, the ALJ cited evidence that some imported sheets sold in a major retail chain were advertised as having a thread count of 1000 but had a true thread count of 236. As for difficulty identifying the source, the ALJ explained that the seller’s identity is often absent from import records and product packaging, and U.S. retailers are also unable to identify the products’ source. Moreover, a general exclusion order would impose no undue burden on the public health and welfare or competition in the U.S. economy.
The ITC upheld the ALJ’s findings and issued the general exclusion order, demonstrating that false advertising can fall squarely into the type of unfair act or method underlying such an order. Unlike a Lanham Act litigation, however, the complainant’s remedy was even stronger than an injunction against the false advertising—the product at issue can no longer be sold in the United States.