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International Trade Commission Clarifies Domestic Industry Requirements in Favor of Patent

A recent decision by the International Trade Commission (“ITC” or the “Commission”) improves a patent owner’s ability to demonstrate that it possesses a statutorily required “domestic industry” and can therefore obtain relief from the Commission when others infringe its intellectual property. Specifically, in Investigation No. 337-TA-1057, Certain Robotic Vacuum Cleaning Devices and Components Thereof Such as Spare Parts (“Vacuum Cleaning Devices”), the Commission ruled that research and development activities related to a domestic industry protected article can support a finding of domestic industry under sections 337(a)(3)(A) or (B), which are historically associated with manufacturing. Further, the Commission found that Complainants are not required to demonstrate a technical nexus between the asserted domestic industry product(s) and the asserted patents when alleging a domestic industry exists under 337(a)(3)(A) and (B). This decision, therefore, embraces a patent holder’s more expansive reliance on research and development expenses related to its investment in its domestic industry product(s). 

Review of the ITC’s Domestic Industry Requirement

In patent proceedings under section 337, a complainant must establish that an industry "relating to the articles protected by the patent . . . exists or is in the process of being established" in the United States. 19 U.S.C. § 1337(a)(2). Under Commission precedent, the domestic industry requirement of section 337 consists of an "economic prong" which is satisfied when it is determined that the economic activities and investments set forth in subsections (A), (B), and/or (C) of section 337(a)(3) (below) have taken place or are taking place:

(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. 

The plain language of the statute is straightforward. Yet, the ITC and its Administrative Law Judges (“ALJ(s)”) have demonstrated a lack of agreement on how to properly allocate Complainants’ alleged domestic industry expenditures under 337(a)(3)(A)-(C), especially for those expenditures related to research and development. The lack of consensus has created unnecessary and potentially harmful difficulties for complainants at the Commission. Certain Commission decisions held that companies wishing to establish a domestic industry by relying on their research and development expenditures could only do so under 337(a)(3)(C). Other Commission decisions imposed a non-trivial “nexus” requirement, under 337(a)(3)(C), which obligated Complainants to precisely quantify the amount of research and development investments that related to component(s) of the domestic industry product that explicitly embody the technology of the asserted patents, which many were unable to do. These rulings had the result of greatly narrowing the research investments that companies could rely on to prove domestic industry. The recent Commission Opinion in Vacuum Cleaning Devicesprovides clarity and consensus concerning a patent holder’s ability to allocate research and development expenses under 337(a)(3)(A) & (B), and aligns the Commission’s guidance with the plain language of the statute. 

Alleged Domestic Activities in Vacuum Cleaning Devices

In Vacuum Cleaning Devices, Complainant iRobot moved for summary determination alleging that it satisfied the economic prong of the domestic industry requirement under 19 U.S.C. §§ 1337(a)(3)(A) and (B) through “research and development” activities associated with its Domestic Industry Products. iRobot also explicitly asserted that it wasnot alleging these expenditures satisfied the ITC’s domestic industry requirement under section 337(a)(3)(C) — the section traditionally associated with research and development.[1]

Initial Determination and Commission Opinion in Vacuum Cleaning Devices

After reviewing iRobot’s domestic industry argument, the Initial Determination in Vacuum Cleaning Devices found that a complainant’s research and development expenses canbe considered under sections 337(a)(3)(A) and (B). Specifically, ALJ Pender concluded “the legal theory that research and development can only be considered under subsection (C) is not the law.” The Commission ratified and enlarged the scope of the Initial Determination’s findings.  In expanding upon the Initial Determination’s findings, the Commission found that Complainants are not required “to show exploitation of the patented technology (as the concept is understood under subsection (C)) to satisfy subsections (A) and (B)." Put differently, the Commission found that Complainants are not required to demonstrate that a technical nexus exists between the expenses allocated to the Domestic Industry Products and the Asserted Patents. In many ways, the Commission Opinion came as no surprise to ITC practitioners since it aligns with the as-drafted intent of the domestic industry statute. Moreover, it aligns with the recent Commission Opinion in Solid State Storage Drives, Inv. No. 337-TA-1097.

Solid State Storage Drives

In Solid State Storage Drives, Complainant alleged the domestic activities of its licensee satisfied the economic prong of the ITC’s domestic industry requirement under sections 337(a)(3)(A) (labor and capital) or (B) (facility and equipment) based on its engineering (technical) activities.  The Commission opinion in Solid State Storage Drives expressly concluded that domestic investments in plant and equipment or employment of labor or capitol associated with engineering, research and development, or licensing can support a finding of domestic industry under sections 337(a)(3)(A) and (B). Additionally, the Commission opinion found that satisfying subsections (A) and (B) only requires showing that the relied-upon plant and equipment expenses and labor and capital expenses are attributable to the domestic industry product, not the patented feature of the protected article. In other words, a complainant need not prove a “nexus” between the expenses and the explicit technology in the Asserted Patents. 

Summary

For ITC practitioners, the opinions in Vacuum Cleaning Devices and Solid State Storage Drives are both welcomed and expected. The opinions provide much needed clarity, and eliminate the overly burdensome and hotly disputed domestic industry requirements that were seemingly misaligned with the intended statutory requirements of 337(a)(3)(A)-(C).  Specifically,  the opinions resolve the question of whether engineering, research and development, or licensing activities can be used to demonstrate a domestic industry under sections 337(a)(3)(A) and (B). They can. Moreover, the opinions confirm that complainants at the ITC no longer need provide a “nexus” between those expenditures and the patented technology. 

These holdings make sense in today’s global economy. Products are often researched, developed, and designed in the United States — but manufactured overseas or with the assistance of third parties within the U.S. These opinions serve to better align the statutory purpose of the ITC’s domestic industry requirement with contemporary business practices. Research and development, as opposed to manufacturing, has been an increasingly important part of corporate activity in the U.S., and these decisions will help more companies take advantage of the ITC as a forum. 

 

Endnotes
1  At the subsequent trial, iRobot alleged the same research and development expenditures satisfied the ITC’s domestic industry requirement under 337(a)(3)(C). In the Initial Determination, ALJ Pender found the research and development expenditures satisfied the statutory requirement because they were “significant” and possessed the requisite “nexus.” ALJ Pender found a “nexus” existed because the “asserted claims explicitly recite structures which have been shown to be directly related to, or enjoy improvement from, the identified research and development projects.” Put another way, the research and development expenditures only need to relate to elements that are necessary for the claims to be practiced; they do not need to be explicitly directed to an embodiment of the asserted claims. The Commission has not reviewed this determination yet.

 

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Authors

Michael T. Renaud

Member / Chair, Intellectual Property Division

Michael T. Renaud is an intellectual property litigator and patent strategist who helps Mintz clients protect and generate revenue from their patent holdings. Clients rely on Michael's counsel on sensitive licensing agreement negotiations, acquisitions, and other technology transactions.
James Wodarski is a Mintz trial attorney who concentrates his practice on intellectual property litigation. Jim represents clients in federal district and appellate courts. He handles disputes involving smartphones, core processor circuits, digital imaging software, and other technologies.

Aarti Shah

Member

Aarti Shah is a Mintz Member who focuses her practice on patent litigation, leveraging her experience as trial counsel. Aarti helps clients develop and implement effective ITC strategies. She frequently writes and comments on matters involving the International Trade Commission.
Andrew H. DeVoogd is a patent litigator and trial attorney whose practice encompasses a wide range of technologies. He represents major technology companies in International Trade Commission investigations, and shares his insights on Mintz's Global IP Matters blog.
Matthew S. Galica is an attorney who focuses on enterprise-level data management and software development. Before joining Mintz, Matthew was a technology consultant and application architect for a technology corporation in the Boston area.

Tiffany Knapp

Associate

Tiffany Knapp is a Mintz Associate who focuses her practice on intellectual property litigation, with an emphasis on patent cases. She uses her background in computer science and mathematics to help clients in matters at the International Trade Commission and in federal district courts.