July 13, 2020

Volume X, Number 195

July 13, 2020

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Recent ITC decision clarifies and eases domestic industry burden for patent holders

A recent decision by the International Trade Commission (“ITC” or the “Commission”) improves intellectual property holders’ ability to prove that they have a “domestic industry” and obtain relief for infringement from the Commission.  Specifically, the ITC ruled that investments  in “non-manufacturing activities,” including engineering and research and development activities related to a domestic industry protected article under section 337(a)(3)(C), can support a finding of domestic industry under sections 337(a)(3)(A) or (B)—the sections traditionally associated with manufacturing.  The Commission also ruled that manufacturers could use certain investments in components and contract employees to support a finding of domestic industry.  The Commission’s opinion removes uncertainty for companies relying upon research and development activities and expenditures to establish a domestic industry. It also helps parties relying on manufacturing expenses to establish a domestic industry.

In Investigation No. 337-TA-1097, Certain Solid State Storage Drives, Stacked Electronics Components, and Products Containing Same (“Solid State Storage Drives”), Complainant BiTMICRO, LLC (“BiTMICRO”) attempted to rely on the domestic activities of its licensee BiTMICRO Networks, Inc. to satisfy the ITC’s domestic industry requirement, which is a jurisdictional predicate in the forum.  These activities included investments in research and engineering as well as component costs for specially order parts and labor expenses for contract employees related to the domestic industry product.  BiTMICRO allocated these activities under sections 337(a)(3)(A) (labor and capital) or (B) (facility and equipment).  In the initial determination, the Administrative Law Judge found that investments in “non-manufacturing activities” cannot support a finding of domestic industry under section 337(a)(3)(A) and (B).  Under the judge’s ruling, BiTMICRO could only have established a domestic industry under section 337(a)(3)(C) and satisfied that provision’s additional requirement of proving a nexus between the patents and the research investments.  To support its findings, the initial determination conducted an analysis of the statutory intent of the ITC’s domestic industry requirement, concluding that Congress understood subsections sections 337(a)(3)(A) and (B) to require exploitation of the patent only through manufacturing whereas the newly added subsection (C) requires exploitation through engineering, research and development, or licensing.

The initial determination was consistent with some earlier Commission decisions which had similarly held that companies wishing to establish a domestic industry at the ITC by relying on their research expenditures could only do so under 337(a)(3)(C). Those decisions also imposed an additional nexus requirement that those relying on manufacturing expenses under 337(a)(3)(A) or (B) did not have to satisfy.  This nexus requirement was not trivial, as it sometimes required companies to be able to quantify their investments in research in the patented subcomponents of a product, which many were unable to do.

The Commission opinion in Solid State Storage Drives expressly overrules these findings and this precedent, including the ALJ’s statutory history analysis. Instead, the Commission 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). In view of the legislative text and history of the ITC’s domestic industry requirement, the Commission 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, with this approach, a complainant need not prove a nexus between the expenses and the patented technology as is required under subsection (C).

This ruling alleviates confusion for practitioners regarding what may be credited to establish a domestic industry and allows complainants relying upon engineering, research and development, or licensing activities to prove domestic industry in a manner that aligns with the reality of their business in the context of the 21stCentury economy.  In particular, as research and development, as opposed to manufacturing, has been an increasingly important part of corporate activity in the U.S., this decision will help more companies take advantage of the ITC as a forum.

In addition, the Commission provided welcome clarity to the application of the Federal Circuit’s opinion in Lelo Inc. v. Int’l Trade Comm’n, in which the Federal Circuit determined that the purchase of “off-the-shelf” component parts from a third party could not support a finding of domestic industry under subsection 337(a)(3)(B) absent “evidence that connects the cost of the components to an increase of investment or employment in the United States.”  As component costs can be a substantial portion of manufacturing investments, the Lelo decision hurt the ability of manufacturers to establish a domestic industry. In Solid State Storage Drives, however, the Commission found that payments to “third-party contract manufacturers” who make specialized components purchased and used in the domestic industry products and/or providing specialized services, should be credited under subsection (B).  Additionally, the Commission also credited labor expenses paid to independent contract employees in connection with specialized portions of the production process for the domestic industry products.

This opinion resolves the question 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, complainants at the ITC no longer need provide a nexus between those expenditures and the patented technology. The Commission also finally resolved that purchases of custom components and services from third parties and payments to contractors can be credited under 337(a)(3)(B).  Contextually, this holding makes 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.  This opinion better aligns the ITC statutory purpose of the domestic industry requirement with contemporary business practices. It also helps more patentees seek relief from unfair trade practices through patent infringement at the ITC.

©1994-2020 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume VIII, Number 198

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About this Author

Aarti Shah Patent Litigation Attorney Mintz
Member

Aarti focuses her practice on patent litigation and has extensive experience as trial counsel. Leveraging her insider’s view gained during her time spent as a senior investigative attorney in the US International Trade Commission (ITC), Aarti helps her clients develop and implement effective ITC strategies. She is frequently invited to write and comment on ITC litigation matters.

Aarti focuses her practice on patent litigation and has extensive experience as trial counsel, having served in the ITC as a senior investigative attorney prior to joining Mintz. During her tenure at the...

202-434-7408
 Andrew H. DeVoogd Member Boston Mintz Patent Litigation Licensing & Technology Transactions International Trade Commission Strategic IP Monetization & Licensing Federal District Court IP Due Diligence
Member

Drew is an experienced patent litigator and trial attorney whose work encompasses a broad range of technologies. He regularly represents clients in high stakes International Trade Commission investigations involving some of the world's largest technology companies. He also litigates patent matters and other business disputes in federal district courts around the country, and advises clients in complex IP licensing and related transactions. Drew excels at helping clients make sense of nuanced legal issues while developing effective strategies to protect and leverage their intellectual property. 

Drew focuses his intellectual property practice in patent litigation, with an emphasis on Section 337 investigations in the International Trade Commission. Drew has participated in all phases of numerous ITC investigations involving some of the largest technology companies in the world. He has first-chair trial and strategy experience during multiple ITC evidentiary hearings, and regularly leads large litigation teams through fast-paced ITC investigations. Drew has also litigated patent infringement and trade secret cases and other complex business disputes in federal district courts across the country.  He has successfully argued on behalf of his clients during multiple Markman claim construction hearings, as well as on all manner of discovery, pretrial, and other motions, before the ITC and federal district courts.

In addition, Drew provides strategic counseling to help clients protect and leverage IP rights to maximize their value. Drew has participated in negotiating and closing numerous complex IP licensing and sale transactions, including elaborate multiparty agreements involving thousands of patents, as well as conducting pre-suit and transactional diligence relating to large portfolios of U.S. and foreign intellectual property assets. He also advises clients on trademark protection and related disputes.

Drew has worked in diverse technology areas such as embedded microprocessors, liquid crystal displays, graphics processors, consumer telecommunications systems, converged devices and related software and operating systems, mobile communications infrastructure, DDR4-compliant memory modules and their components, memory controllers, LED-based lighting systems, thermoplastics, electrical motors, and biochemical assays.

Drew is a member of the firm’s Pro Bono Committee. His own pro bono work includes representing asylum-seekers, as well as clients of the Mintz Domestic Violence Program in obtaining and extending 209A abuse prevention orders on behalf of victims of domestic violence and sexual assault, including on appeal.

617-348-1611
Tiffany Knapp, Mintz Levin Law Firm, Intellectual Property Attorney
Associate

Tiffany concentrates 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.

Prior to joining Mintz as an Associate, Tiffany was a law clerk to Clerk Joseph Stanton of the Massachusetts Appeals Court. During her last year in law school, prior to graduation, Tiffany worked as an Intern to Mintz’s IP practice. She assisted with the preparation of and research for...

617-348-4927
Matthew S. Galica, Mintz Levin, Technology Specialist, Software Development lawyer, Application architect, Attorney
Associate

Matt focuses his intellectual property practice on patent litigation, strategic IP counseling, and patent valuation.  He has experience representing clients before the International Trade Commission (ITC), Federal district courts, and the Patent Trial and Appeal Board.  Matt’s practice covers complex technologies such as microprocessors, graphics processors, RF circuitry, LCD display systems, microelectromechanical systems, audio and video processing, VLSI design, consumer telecommunications systems, and DDR-compliant memory modules and DRAM.

Matt has held lead roles in multiple ITC...

617.348.4859