The “Police Power” Clash Continues: The United States District Court for the Eastern District of Virginia Reverses the Bankruptcy Court and Holds that § 362(b)(4) Applies in ITC v. Jaffé

The “police and regulatory power” exception to the automatic stay in 11 U.S.C. § 362(b)(4)1 and its application to 19 U.S.C. § 3372 investigations by the U.S. International Trade Commission (“ITC”) has recently yielded conflicting results, both within federal courts and the ITC. This article illustrates the current legal landscape and offers a way to reconcile this conflict in a manner that is consistent with the plain meaning of § 362, public policy, and applicable precedent.

On June 3, 2009, the ITC permitted an ITC investigation to continue against chapter 11 debtor Spansion, Inc. (hereinafter “Spansion”) on the basis that “[p]reventing violation of domestic industries’ intellectual property rights falls squarely within the ‘regulatory power’ of a ‘governmental unit’” and therefore, “[s]ection 337 falls within the exception of section 362(b)(4).”3 Conversely, approximately one month later, the bankruptcy court in the Qimonda AG (“QAG”) chapter 15 bankruptcy case held that litigation initiated by a private party under § 337 before the ITC did not meet the requirements of the police power exception, rendering such actions subject to the automatic stay.4 In an apparent break from the ITC’s earlier opinion, an ITC Administrative Law Judge Order gave effect to the bankruptcy court’s memorandum opinion, staying the ITCaction against QAG.5

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