Quantify Versus Quality Determines Domestic Industry: Lelo Inc. v. International Trade Commission
The U.S. Court of Appeals for the Federal Circuit reversed a finding by the U.S. International Trade Commission (ITC) of a violation of § 337, concluding that the Commission’s use of a qualitative analysis could not meet the domestic industry requirement. Lelo Inc. v. International Trade Commission, Case No. 13-1582 (Fed. Cir., May 11, 2015) (Reyna, J.)
The appeal arose from a complaint filed at the ITC by Standard Innovations, the marketer of a line of kinesiotherapy devices. Standard’s complaint alleged that several importers of competing kinesiotherapy devices, including appellant Lelo, infringed a patent assigned to Standard. Certain Kinesiotherapy Devices and Components Thereof, Inv. No. 337-TA-823. Evidence at the hearing established that certain key components (the backbone material, rubber, microcontrollers and pigment) of Standard’s devices were manufactured in the United States, but their total cost was less than 5 percent of the total raw materials cost of the devices, and Standard manufactured the products overseas.
The administrative law judge’s (ALJ’s) initial determination found no violation, ruling that all of Lelo’s accused products met at least one claim of the asserted patent, but that Standard had failed to prove a domestic industry, ruling that purchase of the key components in the United States could not establish a significant investment in plant and equipment or a substantial investment in the patent’s exploitation, under § 337(a)(3), parts (A) and (C). On review, the ITC reversed the ALJ’s finding of no domestic industry, found a violation of § 337 and issued an exclusion order. The Commission found that Standard had “established that the components were critical for [its devices], which the ALJ found to be protected by the patent,” and that while the purchases represented “a relatively modest portion of domestic content,” the “contribution of the components at issue from a qualitative standpoint is indeed significant.” Lelo appealed, arguing that the ITC’s use of the qualitative factors was legal error.
The Federal Circuit agreed with Lelo, finding that the domestic industry requirement of § 337 requires a quantitative analysis and that a qualitative analysis may not be substituted. The Court explained that the terms “significant” and “substantial” in the text of § 337 referred to a “benchmark in numbers,” and therefore a “significant investment in plant and equipment” or a “substantial investment in exploitation” required a quantitative analysis of Standard’s activities in the United States. The Court noted that the ITC itself had determined that Standard’s amounts of investment and employment were “modest,” which it took to mean not significant. Accordingly, the Court concluded that the ITC’s ruling contradicted the requirements of § 337 and reversed.