An Overview of Section 337 Actions in the ITC


Introduction

Section 337(a)(1)(B) of the Tariff Act of 1930 declares unlawful "importation into the Untied States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that - (i) infringe a valid and enforceable United States patent . . . or (ii) 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." See 19 U.S.C. ' 1337(a)(1)(B)(1994). Furthermore, Section 332 of the Tariff Act authorizes the International Trade Commission (the "ITC") to perform such investigations. ITC actions thus provide an alternative venue to the federal courts for complainants to seek redress for patent infringement. Id. at ' 1332. ITC investigations related to patent infringement are, however, limited to importation-related infringement.

The key distinctions between an infringement action in the ITC and in federal district court are that the ITC may not award damages, and the time frame for ITC proceedings is more expeditious than in many district courts. Furthermore, ITC complainants may in some situations secure temporary and permanent exclusion orders that can be different, and better, in scope than comparable district court preliminary or permanent injunctions.

Another difference between an ITC proceeding and a federal court proceeding is that the filing of a complaint with the ITC does not guarantee that an investigation will occur. The ITC has discretion to determine whether an investigation should take place, and, if it does so, the ITC itself conducts the investigation, with its staff attorneys acting as an independent party in the proceeding.

This paper includes a brief overview of the procedures involved in instituting and prosecuting an ITC investigation, followed by a discussion of the relative merits of bringing a Section 337 action in the ITC instead of the federal district courts. A review of recent case law developments related to ITC practice is then presented. Finally, key changes wrought by the 1994 Amendments to Section 337 are revisited.

Overview of a Section 337 Investigation in the ITC

An ITC action is initiated by filing a complaint. Unlike federal court, the filing does not necessarily mean the matter will proceed. Within 30 days after a prospective complainant files its complaint with the ITC, the Commission determines whether or not it will institute an investigation. If the Commission decides that it will do so, it then refers the investigation to an Administrative Law Judge ("ALJ") who sets the ground rules and discovery schedule for the investigation, as well as a target date for the final determination. The hearing, during which the parties present evidence, cross-examine witnesses and present arguments, takes place approximately three months before the initial determination due date. The ALJ then issues its initial determination, which the Commission may review at its discretion. Finally the Commission issues its final determination by the date set by the ALJ. The Commission's final determination then stands unless the President disapproves it.

Starting the Investigation (ITC Rules 210.8 - 210.11)

Generally, the individual complainant initiates a Section 337 action by filing a complaint, although Section 337 does allow the ITC to commence an investigation on its own initiative. 19 U.S.C. ' 1337(b)(1)(1994). The ITC's Office of Unfair Import Investigations (the "OUII") can, and should, be consulted regarding the form and content of a proposed complaint before filing. The OUII staff attorney can also prove a helpful resource in explaining the procedures required by the ITC Rules to both the complainant and to the respondents.

Within 30 days of receiving a complaint, the Commission is required to determine whether it sufficiently complies with the applicable ITC Rules, and to decide "whether an investigation should be instituted." 19 C.F.R. ' 210.9, 210.10 (1997). Note that if a patent is at issue, ITC Rule 210.12(c) sets out further procedural hoops that the complainant must jump through. The Commission then takes care of service of the complaint, filing copies of the complaint and notice on each respondent, on the foreign respondents' embassies, and with various federal agencies. Id. at ' 210.11(a)(1).

Response (ITC Rule 210.13)

Once the Commission has initiated the investigation and served the complaint, a respondent has 20 days to respond, "unless otherwise ordered in the notice of investigation or by the administrative law judge." 19 C.F.R. ' 210.13(a) (1997). Since 1994, respondents have been allowed to file counterclaims in ITC proceedings, although it will not consider them. See 19 C.F.R. 210.14(e) (1997). Under Section 337(c), removal of such counterclaims to a federal district court is mandatory. The removal may not affect the time table for the investigation.

Intervention (ITC Rule 210.19)

After an investigation is commenced, any person may intervene, at the Commission's or the ALJ's discretion. 19 C.F.R. ' 210.19 (1997). For example, in EPROM, EEPROM, Flash Memory, and Flash Microcontroller Semiconductor Devices, ITC Inv. No. 337-TA-395 (1997), the company that designed the accused circuits hired the respondents in the case to manufacture the accused circuits, and was involved in a parallel district court case with the complainant. The design company was allowed to intervene as an "intervenor" rather than as a "respondent," to prevent the stay of the district court litigation. Id.

Temporary Relief (ITC Rules 210.52 - 210.69)

One distinct advantage of ITC practice is the availability of prompt emergency temporary relief. The Commission has the power, upon a complainant's motion, which must generally be filed with the complaint, to grant temporary exclusion or cease and desist orders that will take effect during the investigation. See 19 U.S.C. ' 1337 (e) and (f) (1994); 19 C.F.R. ' 210.52 (1997).

The Commission is required to determine within 35 days whether it will accept the motion for temporary relief. 19 C.F.R. ' 210.58 (1997). See also ' 210.53(a), 210.57. If it does, the motion is then referred to the ALJ. A response must be filed within 10 days after service, or, if the case has been designated as a "more complicated" investigation, within 20 days. Id. at ' 210.59(a). The statute and the ITC Rules require the Commission to make its final determination with respect to the temporary relief motion within 90 days (or 150 days for more complex cases). For this deadline to be met, the ALJ must issue initial determinations within 70 (or 120) days. 19 U.S.C. ' 1337(e)(2)(1994); 19 C.F.R. ' 210.66(a) (1997). In determining whether temporary relief is appropriate, the ITC looks to the standards and factors that the Federal Circuit considers when determining whether a preliminary injunction should have been granted by a district court. 19 C.F.R. ' 210.52(a) (1997).

Investigation

After the Commission determines that an investigation should be instituted, the case is assigned to an ALJ for a hearing and an initial determination. The ALJ is required, as the Commission's representative, to make that initial determination "at the earliest practicable time." See 19 U.S.C. ' 1337(b)(1) (1994). In furtherance of this goal, the ALJ is required to set a target date for the completion of the investigation within 45 days of institution of the investigation. 19 C.F.R. ' 210.51(a) (1997).

The basic elements of a Section 337 violation that must be demonstrated in a patent action are proof of infringement of a valid U.S. patent that relates to an imported product, where the patent is being used in an existing domestic industry. 19 U.S.C. ' 1337(a)(1)(B), (a)(2-3) (1994). Unlike in non-intellectual property Section 337 cases, there is no requirement of a showing that the importation of the challenged articles substantially injures, threatens to substantially injure, or prevents the establishment of, a domestic industry. Id. See also19 U.S.C. ' 1337(a)(1)(A) (1994).

To demonstrate the existence of a domestic industry, as required under Section 337(a)(2-3), the complainant must satisfy a two-prong test. See, e.g. Removal Electronic Cards and Electronic Card Reader Devices, ITC Inv. No. 337-TA-396 (1997). Under the "technical" prong, the complainant must show that "an industry in the United States, relating to the articles protected by the patent . . . concerned, exists or is in the process of being established." 19 U.S.C. ' 1337(a)(2) (1994). Under the "economic" prong of the test, an industry is considered to exist if within the United States there is "with respect to the articles protected by the patent . . . concerned - (A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing." Id. at ' 1337(a)(3). This test can be easy to satisfy. For example, in Variable Speed Wind Turbines, ITC Inv. No. 337-TA-376 (1997), the Commission determined that the domestic industry requirement was satisfied by an intervening co-complainant whose activities in the United States were basically limited to licensing significant domestic activities under the patent in suit.

Discovery (ITC Rules 210.27 - 210.32)

Discovery is governed by ITC Rules 210.27 - 210.32. 19 C.F.R. ' 210.27 - 210.32 (1997). These rules parallel the Federal Rules of Civil Procedure 26-37. ITC Rule 210.28 governs depositions, Rule 210.29 governs interrogatories, document production is governed by Rule 210.30, Rule 210.31 governs requests for admission, and Rule 210.32 governs subpoenas.

Prehearing Conference (ITC Rule 210.35)

Generally, two prehearing conferences with the parties and the ALJ are held - one within the first 15 to 30 days after the investigation is assigned to the ALJ, and the second immediately before the hearing takes place. The ALJ will usually issue an order setting a date for the first prehearing conference, also known as the preliminary conference, shortly after being assigned the investigation. See, e.g., Certain Video Graphics Display Controllers, ITC Inv. No. 337-TA-412 (pending) (order issued on 8/28/98 set date of preliminary conference for 9/2/98). These conferences serve generally to establish the ground rules for discovery and the hearing.

Hearing (ITC Rules 210.35 - 210.40)

ITC and Administrative Procedure Act Rules regarding administrative hearings generally track the Federal Rules of Civil Procedure and the Federal Rule of Evidence, with the exception that the hearsay rule is relaxed. Hearings proceed in a manner similar to federal bench trials. However, as noted, the evidentiary standards may differ significantly. The purpose of the hearing is to enable the ALJ to take evidence, hear arguments, and determine whether a violation of Section 337 has occurred. 19 C.F.R. ' 210.36 (1997). Relevant, reliable evidence is admissible during the hearing, the burden of proof is on the proponent of any factual proposition and objections to evidence are allowed. Id. at '210.37. The parties are also required to file post-hearing briefs and proposed findings of fact and conclusions of law. Id. at ' 210.40.

Determination

Once the ALJ issues an initial determination, it is automatically adopted by the ITC as its final determination unless at least one Commissioner votes, within forty-five days, to review the determination. Id. at ' 210.42(h). See also Condensers, Parts Thereof, and Products Containing Same, Including Air Conditioners for Automobiles, ITC Inv. No. 337-TA-334 (1997) (noting that ALJ's determination of Section 337 violation became the Commission's determination by operation of ITC Rule 210.42(h)). The parties may also petition the ITC for a review of the initial determination. 19 C.F.R. ' 210.43 (1997).

Post- Determination Proceedings

Presidential Review

A frustrating aspect of ITC practice, and one very large difference from federal court practice, is that a favorable final determination does not guarantee relief. After the ITC determines a violation of Section 337 has occurred, it is required to send its final determination to the President for review. See 19 U.S.C. ' 1337(j)(1994). The President then has 60 days to review and disapprove the ITC's determination. 19 U.S.C. ' 1337(j)(2)(1994). If the President does not specifically disapprove the ITC's determination within the 60 day period, the determination automatically becomes final the day after the 60 days have elapsed, giving the President, in effect, a veto power. See 19 U.S.C. ' 1337(j)(1994). Although the President rarely exercises this power, an ITC determination is occasionally disapproved. For example, in, Dynamic Random Access Memories, ITC Inv. No. 327-TA-242 (1996), President Reagan disapproved the limited exclusion order issued by the ITC, stating that such an order would effect more people than the respondents, and potentially disrupt trade in the computer industry. The ITC narrowed its limited exclusion order so that it covered a smaller range of products, and President Reagan let the modified order stand.

Bonding

When a violation of Section 337 is found, the ITC will also seek input regarding the public interest with respect to the appropriate remedy and the amount of bond that should be posted by the Respondent during the 60 day Presidential Review period. In setting the bond, the ITC considers the amount that would offset the respondent's competitive advantage from the continued unfair acts, which theoretically allows importation to continue during the review period. 19 C.F.R. ' 210.50(a)(3) (1997). For example, in Microsphere Adhesives, ITC Inv. No. 337-TA-366 (1996), the Commission set bond during the Presidential review period at 100% of the value of the patented products because it determined that a price comparison between the patented products and infringing products was not possible.

Appeal

Any party is allowed to file a petition for reconsideration of a determination within 14 days of service of the determination by the Commission. 19 C.F.R. ' 210.47 (1997). Such a petition, however, can only discuss new questions raised by the determination which the party has not yet had an opportunity to argue. Id. See also Agricultural Tractors under 50 Power Take-off Horsepower, ITC Inv. No. 337-TA-380 (1997) (petition for reconsideration denied for failure to meet requirements set out in ITC Rule 210.47). Furthermore, a party that is adversely affected by an ITC final determination "may appeal such determination within 60 days after the determination becomes final, to the United States Court of Appeals for the Federal Circuit." 19 U.S.C. ' 1337(c)(1994).

Remedies

The remedies the Commission is authorized to grant include:

  • limited exclusion orders (against parties);
  • temporary limited exclusion orders (during the investigation and the Presidential review period);
  • general exclusion orders (against any person, even non-parties);
  • cease and desist orders; and
  • temporary cease and desist orders.

Limited exclusion orders under Section 337(d)(1) are often granted in conjunction with a cease and desist order, and only apply to articles imported by parties found to be in violation of Section 337. Cease and desist orders are available under Section 337(f), and direct a particular importer to refrain from engaging in the unfairly competitive acts it has been found to be committing. 19 U.S.C. ' 1337(f) (1994). While cease and desist orders are less common than limited exclusion orders, they are still granted relatively frequently by the ITC. Exclusion orders and cease and desist orders stay in effect, generally, until the expiration date of the patent. See, e.g., Microsphere Adhesives, ITC Inv. No. 337-TA-366 (1996)(date of limited exclusion order extended by Uruguay Round Agreement).

Other Considerations

Jurisdiction

ITC jurisdiction is in rem and is nationwide, as opposed to the limited in personam jurisdiction of a federal district sourt. The ITC has the power to prohibit the importation of the infringing articles by any person (even a non-party) through the issuance of a general exclusion order. 19 U.S.C. ' 1337(d)(2) (1997). This prevents game playing in the form of switching importation of the infringing articles to another company that was not named in the investigation.

ITC precedent indicates that it is willing to expand its jurisdiction to non-traditional methods of importation. For example, in Hardware Logic Emulation Systems, ITC Inv. No. 337-TA-383 (1997) the ALJ found that an importation of software into the United States electronically via the Internet qualified as importation into the United States under Section 337, even though the software did not pass through U.S. Customs. The ALJ that issued the determination also found that the ITC can consider contributory infringement and inducement of infringement under Section 337 as well as direct infringement, further demonstrating the ITC's willingness to consider a wide range of actions unfair importation.

Terminating the Investigation (ITC Rule 210.21)
Any party may move, at any time, to terminate the investigation as to any or all of the respondents, in whole or in part. 19 C.F.R. 210.21(a) (1997). See, e.g. Asian Style Kamaboko Fish Cakes, ITC Inv. No. 337-TA-378 (1996) (initial determination granted complainant's motion to terminate the investigation with respect to certain respondents). Termination is allowed for various reasons, including on the basis of an arbitration agreement, a consent order, or due to a settlement agreement between the parties.

Reasons to use the ITC rather than the District Courts

In view of the preceding overview of ITC practice, it can be seen that there are several advantages to using the ITC rather than a Federal District Court. Those advantages include:

  • the expedited time schedule enunciated under Section 337 and the ITC Rules, which can often result in a faster determination than would result from a district court proceeding;
  • the ITC's ability to grant different relief such as general exclusion orders; and
  • the availability of temporary exclusionary relief in a defined period of time (the ITC must make a final determination with respect to temporary relief within 90 days (or 150 days in a more complex case)).

Discussion of Recent Section 37 Cases in the Federal Circuit and the ITC.

Recent Federal Circuit Cases regarding Section 337

  1. Enercon v. United States I.T.C., -- F.3d --, 47 U.S.P.Q.2d 1725 (Fed. Cir. 1998) [finding that a contract for sale is sufficient for "sale for importation" under Section 337].
    In Enercon, respondent Enercon GmbH had entered into a contract for sale of its wind turbines with respondent New World Power Corp. The complainant, Kenetech Windpower, Inc., alleged that the wind turbines infringed upon its patent and the ITC determined that the wind turbines did, in fact, infringe upon Kenetech's patent, and issued a limited exclusion order barring the importation of Enercon's wind turbines during the life of Kenetech's patent. Enercon appealed the determination to the Federal Circuit, claiming that the ITC did not have jurisdiction to hear the case, since section 337 requires importation, or a sale for importation. The Federal Circuit, therefore, had to determine whether the ITC's conclusion that the parties had formed a contract for sale and importation of the turbines into the United States was accurate and whether such a contract is an appropriate jurisdictional basis for the ITC. Ultimately, the Federal Circuit affirmed the ITC's finding that a contract for sale is sufficient to meet the "sale for importation" requirements under Section 337, and that actual delivery is not required for the ITC to assume jurisdiction under Section 337.
  2. YBM Magnex Inc. v. United States I.T.C., 145 F.3d 1317 (Fed. Cir. 1998) [finding that subject matter disclosed but not claimed in a patent application is not always deemed dedicated to the public].
    In YBM, the Federal Circuit reversed the ITC's determination that the importation of the accused products were not barred by the consent order or general exclusion order, and affirmed the ALJ's determination that the orders did apply to accused products. The Federal Circuit specifically found that the ITC incorrectly interpreted the Federal Circuit's decision in Maxwell v. J. Baker, Inc., 86 F.3d 1098 (Fed. Cir. 1996), as creating a new rule of law that when subject matter is disclosed but not claimed in a patent application it is always deemed dedicated to the public. The court pointed out the Supreme Court's rejection of just that proposition - that disclosed but unclaimed subject matter is always deemed dedicated to the public - in Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997). The Federal Circuit held that such subject matter is not always deemed dedicated to the public, and therefore can be used in a doctrine of equivalents analysis. The court then restored the orders to their prior scope and effect.
  3. Genentech, Inc. v. United States I.T.C., 122 F.3d 1409 (Fed. Cir. 1997) [finding ITC's dismissal of investigation as sanction for failure to comply with discovery order to be an abuse of discretion].
    In Genentech, the ITC dismissed the entire subject investigation as a sanction against the complainant for failing to comply with an order compelling discovery. The court noted that ITC determinations are reviewed under an abuse of discretion standard, meaning that a determination is overturned only if it "(1) is clearly unreasonable, arbitrary, or fanciful; (2) is based on erroneous conclusions of law; (3) rests on clearly erroneous fact findings; or (4) follows from a record that contains no evidence on which the decision-making body could rationally base its decision." Id. at 1415. Applying this strict standard, the Federal Circuit found that the ITC had abused its discretion because the ALJ's determination failed to "demonstrate that any discovery order was clearly violated" and because the ALJ failed to establish that ground rules were "orders compelling discovery" within the meaning of ITC Rule 210.36(b).
  4. Texas Instruments, Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558, 1569 (Fed. Cir. 1996) [finding that ITC determination of infringement/invalidity does not have preclusive effect in later court proceedings].
    As was recognized by the Federal Circuit in Texas Instruments, Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558 (Fed. Cir. 1996), Congress did not intend a determination by the ITC that a patent is infringed or invalid to have preclusive effect in later court proceedings. The Court also noted that allowing an ITC finding to have such an effect could "potentially deprive the parties of the Seventh Amendment right to a jury trial on the issue on infringement." Cypress Semiconductor, 90 F.3d at 1569, n.10. The ITC, after all, is in charge of administering the trade laws, not the patent laws. The ITC, on the other hand, is bound by a finding of infringement by a district court. EPROM, EEPROM, Flash Memory, and Flash Microcontroller Semiconductor Devices, ITC Inv. No. 337-TA-395 (1997) (Commission found patents at issue invalid due to the preclusive effect of a federal district court's finding of invalidity).
  5. Bio-Technology Gen. Corp. v. Genentech, Inc., 80 F.3d 1553 (Fed. Cir. 1996) [finding importation of product made under patented process can constitute infringement].
    BTG unsuccessfully argued that since it only made the accused product by means of the patented process once, prior to the enactment of 25 U.S.C.A. ' 271(g) regarding process patents, it should not be found to have infringed the patent in suit. Pointing out that an act of infringement consists of importing, offering to sell, selling or using the product created by the patented process, the court held that BTG could be found liable for infringement and that such a finding would "not amount to a retroactive imposition of liability." Id. at 1560.
  6. Other Recent Federal Circuit Decisions.
    Other recent Federal Circuit decisions regarding the ITC and Section 337 are as follows:
    • Hanzani v. United States I.T.C., 126 F.3d 1473 (1997)(affirmed ITC determination of non-infringement and invalidity).
    • Kaken Pharm. Co., Ltd. v. United States I.T.C., 111 F.3d 143, 1997 WL 152065 (Fed. Cir. 1997)(affirmed ITC determination that Section 337 was not violated because patent claims were invalid due to failure to disclose best mode and unenforceable because of inequitable conduct).
    • Tanabe Seiyaku Co. Ltd. v. United States I.T.C., 109 F.3d 726 (Fed. Cir. 1997)(affirmed Commission determination that accused products were not created by a process that infringed the patent at suit under the doctrine of equivalents).
    • Minnesota Mining & Mfg. Co. v. United States I.T.C., 91 F.3d 171, 1996 WL 341105 (Fed. Cir. 1996)(affirmed ITC's determination of noninfringement, and, therefore, no violation of Section 337).
    • Pro-Cut Int'l, Inc. v. United States I.T.C., 82 F.3d 434, 1996 WL 123148 (Fed. Cir. 1996)(affirmed ITC's determination of noninfringement and, therefore, no violation of Section 337).
    • Modine Mfg. Co. v. United States I.T.C., 75 F.3d 1545 (Fed. Cir. 1996)(Vacated ITC's finding of noninfringement and remanded the case. The ITC ultimately found a violation of Section 337 under the doctrine of equivalents).
  7. Statistical Survey of Recent ITC Cases
    Approximately 42 investigations were pending before the ITC between 1996 and the present. Of those, approximately 21% (9 of 42) ended in a finding of a violation of Section 337 by the Commission. No violation of Section 337 was found in 12% (5 of 42) of the investigations, and 29% (12 of 42) were terminated due to settlement agreements, including various licensing schemes. Finally, three (7%) investigations were terminated because the complainant withdrew its complaint, and consent orders were entered into in two cases. The remaining 10 cases are still pending.
  8. In seven of the nine cases in which a violation was found, limited exclusion orders were granted. Cease and desist orders were granted along with the limited exclusion orders in 3 of the cases. Only one general exclusion order was granted, and in one case the parties entered into a settlement agreement after a violation of Section 337 was found but before any sort of remedy was ordered. Bonds posted during the Presidential Review period for these cases ranged from 5% - 180%.

Significant Changes by 1994 Amendments

As a review, the following key changes in ITC practice were made by the 1994 amendments to Section 337, as part of the Uruguay Round Agreements.

  • investigations should now be completed in "the earliest practicable time," and a target completion date must be set within 45 days after commencement of an investigation. See 19 U.S.C. ' 1337 (b)(1)(1994). Previously, investigations were required to be completed within 12 - 18 months. The 90 - 150 day time limit for temporary relief proceedings was not affected by the 1994 amendments.
  • counterclaims can now be raised in an ITC proceeding. However, immediately after any such counterclaim is exerted, the respondent must immediately file a notice of removal with a United States District Court with proper venue. Removal of the counterclaims to a U.S. District Court, however, "shall not delay or affect the proceeding under this section, including the legal and equitable defenses that may be raised under this subsection." See 19 U.S.C. ' 1337(c)(1994).
  • under Section 337(b)(3) a federal district court is now required, upon a motion by a respondent, to grant a stay if the defendant is also a respondent in a Section 337 action before the ITC that involves the same issues. Furthermore, the record created in the ITC action may be used in a federal district court action, subject to evidentiary objections. This amendment effectively removed the possibility of subjecting foreign infringers to multiple proceedings.
  • in response to the GATT Panel Report, which characterized general exclusion orders as discriminatory, but necessary, Section 337(d) was amended so that it now provides that a general exclusion order will be appropriate if it "is necessary to prevent circumvention" of a limited exclusion order or "there is a pattern of violation . . . and it is difficult to identify the source of infringing products." See 19 U.S.C. ' 1337(d)(2)(1994); 19 C.F.R. ' 210.50(c) (1997).
  • the bonds posted in connection with temporary exclusion orders and during the Presidential review period are now forfeited to either the complainant, if a violation of Section 337 is found and the bond was posted to allow continued importation of the articles, or to the respondent, if no violation of Section 337 is found and the bond was posted in connection with a temporary cease and desist order that was entered to prevent the continued importation of the accused articles. In the past, the bonds were forfeited to the U.S. Treasury. See 19 U.S.C. ' 1337(e)(1-2)(1994); 19 C.F.R. ' 210.67, 210.68 (1997).
  • the ITC may now terminate an investigation upon the agreement of the parties to submit the dispute to arbitration. See 19 U.S.C. ' 1337(c)(1994); 19 C.F.R. ' 210.21(a)(2) (1997).