Recent Decisions of the Court of Appeals of the Federal Circuit regarding the Economic Prong of the Requirement of Domestic Industry in ITC Proceedings Under 19 USC 1337 – Ladas & Parry LLP
Introduction
The International Trade Commission is a federal agency whose responsibilities include investigating and where appropriate barring the import of goods resulting from a variety of unfair trade practices. It is headed by a bipartisan six-membered commission which takes the final decision on actions to be taken following an investigative hearing before an administrative law judge.
One of the unfair practices that it can investigate is importation into the United States of articles that infringe U.S. patents.
Recent decisions of the Federal Circuit Court may have made it easier for the owner of a U.S. patent to obtain orders from the International Trade Commission (ITC) barring imports of articles that infringe a U.S. patent or were made by a process covered by a U.S. patent into the United States.
19 USC 1337 inter alia gives the International Trade Commission (ITC) authority to exclude imports to the United States of any articles that infringe a valid and enforceable United States patent or 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 if an industry exists in the United States, relating to the articles_protected by the patent or is in the process of being established.
- 1337(a)(3)(A)-(C) provides:
“An industry in the United States” shall be considered to exist if there is in the United States, with respect to the articles protected by the patent, … concerned-
- significant investment in plant and equipment;
- significant employment of labor or capital; or
- substantial investment in its exploitation, including engineering, research an development, or
Only one of these needs to be met.
The ITC views the “industry requirement” as having a “technical prong” and an “economic prong”.
The “technical prong” requires “the complainant to show that its domestic industry products are “protected by the patent” at issue.
The “economic prong” requires compliance with 19 U.S.C. SS 1337(a)(3)(A)-(C).
The recent decisions noted above have focused on the requirements of the “economic prong”_ of the domestic industry requirement.
Recent Case Law
In Roku Inc. v. ITC1, Roku appealed against a determination by the ITC that the complainant satisfied the economic prong of the domestic injury requirement. The patent was for a device that provided compatibility between devices using different communication protocols. Roku imported TVs that were found infringing. It argued that because the patent owner did not invest in TV products, it did not meet the economic prong required by the injury requirement. The Federal Circuit noted that 19 USC 1337(a)(3)(C)
does not require expenditures in whole products themselves, but rather, “sufficiently substantial investment in the exploitation of the intellectual property.” lnterDigita/ Commc’ns, LLC v. ITC, 707 F.3d 1295, 1303-04 (Fed. Cir. 2013). The Federal Circuit examined the issue of whether the “substantial investments” requirement of 19 USC1337(a)(3) (C) could be satisfied by showing cumulative expenditures on a group products, some of which are not covered by the asserted Patents, or whether such expenditures would need to be allocated to the asserted Patents. The court found that
to meet the domestic industry requirement based upon research and development activities, under section 337(a), the complainant has to show that these activities “pertain” to products covered by the asserted patents. Cir. Cir. Cir. Cir. Cir. Cir.
2013 (The investments or employment can only be with respect to the articles covered by the patent “‘)…. The language of section 337, and our caselaw, indicate that the complainant can satisfy the economic prong in cases where all products of the domestic industry practice all asserted Patents. In cases where the complainant’s product or group of products practice different patents, it would be necessary to establish separate domestic industry for each of these different groups of product. See Certain Audio Digital to Analog Converters and Products. Contains same, Inv. No. The court concludedIn Leto, we recognized the comparison of domestic investments to total (i.e., domestic plus foreign) investments as a valid quantitative analysis for assessing the significance of investments…. The court concludedIn Leto we recognized that comparing domestic investments with total investments (i.e. domestic plus foreign) was a valid quantitative method for assessing the importance of investments …. We also recognized that the value added from domestic operations was a factor in the assessment …. Small market segments may still be substantial and significant enough to satisfy the requirement of domestic industry. The determination of domestic industry is not based on a dollar threshold or a rigid formula. Instead, it requires a holistic analysis of all relevant factors that is highly context-dependent …. Though the dollar amounts of Ventria’s Optibumin (one of the products covered by the patents that was infringed by the imports) investments are small, the Commission found all of the investments are domestic, all market activities occur within the United States, and the high investment-to-revenue ratios indicate this2Case 2023-1389 (Fed. Cir. In these circumstances, there is substantial evidence for the Commission’s finding that the domestic industry requirement is satisfied. Under these circumstances, there is substantial evidence for the Commission’s finding that the domestic industry requirement is satisfied.
In
Lashify Inc. v. International Trade Commission
1
the Federal Circuit reversed a decision of the ITC that had held that the complainant had failed to satisfy the economic prong of the domestic injury requirement. Lashify held patents for eyelash extensions, or “lash fusions”, consisting of clusters artificial hairs arranged along a base and applied under lashes. These lash extensions were manufactured in other countries. In a majority ruling, the ITC found that this did NOT satisfy the economic prong. The Federal Circuit ruled that this was incorrect. It noted that after the Supreme Court’s
Loper-Bright Enterprises v. Raimondo
abrogating Chevron Doctrine, it was no longer obliged to defer to an agency’s interpretation and could therefore exercise its independent judgement as to the meaning statutory provisions. It continued:
The statutory text is the starting point of analysis and usually controls the outcome …. The provision states clearly that a domestic business “shall be deemed to exist” if, in the United States for the articles covered by the patent, there is a significant employment of capital or labor. 19 U.S.C. SS 1337(a)(3)(B). This language declares that “significant employment of capital or labor” (if it’s with respect to patented items, as is not in dispute here) is sufficient to satisfy the economic prong. The provision covers “significant use of labor” and “capital”, without any limitations on the use in an enterprise that these items are put to, i.e. the enterprise function. There is no exception for the employment of labor or capital in sales, marketing or warehousing or quality control or distribution. The Commission’s holdings attribute limitations to clause (B) not found there. The Commission’s holdings attribute limitations to clause (B) not found there.section 337(a)(3)(B) allows a complainant to satisfy the economic prong of the domestic industry requirement by showing employment of a large enough stock of accumulated1 Case 2023-1245 (Fed. Cir. March 5, 2025).goods, or a significant amount human activity to produce goods or provide the services demanded in an economy. It is not necessary to manufacture a “stock” of accumulated goods domestically. The labor costs associated with sales, marketing and warehousing are all part of the process of providing goods and services. The court noted that the majority commissioners of ITC justified their interpretation by referring to the legislative history. But this could not change the clear wording of the statute itself, and even if it could have done, the majority of the ITC had misread that history.
Conclusion
These decisions have removed a number of doubts as to when the ITC can issue an exclusion order to prevent importations of patent-infringing products and in the case of the
Lashify
case have reversed conventional wisdom as to what is required to meet the economic prong of the domestic industry requirement.
