Recent Developments In The ITC:
The Domestic Industry Requirement And the
Scope Of ITC Jurisdiction Over Non-US Activities
Mid Winter Institute Meeting
January 2012
Joseph A. Calvaruso
Orrick, Herrington & Sutcliffe LLP
© AIPLA 2012
Growth in ITC 337 Investigations
80
71
70
60
52
50
43
40
33
30
17
20
10
26
24
9
0
© AIPLA 2012
17
18
29
36
31
(est.)
Growth in Foreign Complainants
Percentage Foreign
35%
29.3%
30%
25%
19.8%
20%
15.8%
15%
10%
6.3%
5%
0%
'89-'94
© AIPLA 2012
'95-'99
'00-'04
'05-'09
Data obtained from www.usitc.gov, via S. Alex Lasher, The Evolution of the Domestic Industry Requirement in Section 337
Investigations Before the United States International Trade Commission, 18 U. Balt. Intell. Prop. L.J. 157, n130 (2010).
Background and Statutory Framework
THE DOMESTIC INDUSTRY REQUIREMENT
© AIPLA 2012
19 U.S.C. § 1337(a)(2)
A two-pronged test for statutory IP rights under 19 U.S.C. §
1337(a)(2) and (3):
§ 1337(a)(2) – Technical Prong
“only if an industry in the United States, relating to the
articles protected by the patent, copyright, trademark, mask
work, or design concerned, exists or is in the process of
being established.”
© AIPLA 2012
“Technical” Prong
§ 1337(a)(2) – Technical Prong

Generally, a complainant must show that it is
practicing a valid claim of each asserted patent in the
U.S.

The practiced claim need not be the same claim
infringed by respondent.

Determination as to whether a patent is “practiced” is
analyzed in the same manner as a determination of
infringement.
© AIPLA 2012
19 U.S.C. § 1337(a)(3)
§ 1337(a)(3) – Economic Prong
“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, copyright, trademark, mask work, or design
concerned—
(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.”
© AIPLA 2012
Certain Semiconductor Chips With Minimized Chip
Package Size and Products Containing Same
Inv. No. 337-TA-432 (June 2002)

First case to find the existence of a domestic industry
based solely on the licensing activities of a non-practicing
entity (NPE).

Found clear intent by Congress to allow entities actively
licensing in the U.S. to meet the domestic industry
requirement without showing the existence of an article
covered by the asserted patents.

Complainant had extensive licensing activity in this case.
© AIPLA 2012
Certain Integrated Circuits, Processes for Making Same
and Products Containing Same
Inv. No. 337-TA-450 (2002)

Taiwanese complainant sought to satisfy domestic
industry requirement based on the activities of its
U.S. sales subsidiary.

Existence of domestic industry confirmed by
complainant’s leasing office space, providing
engineering support to customers and third party
vendors, and employing engineers to perform that
assistance in the U.S.
© AIPLA 2012
Certain Electronic Devices Including Handheld Wireless
Communication Devices
Inv. No. 337-TA-667/337-TA-673 (combined) (2009)

Complaint filed by an NPE, Saxon Innovations.

Saxon licensed Motorola, which engineered and produced articles
covered by Saxon’s patents in the U.S.

All the time the complaint was filed, Saxon had not received any
revenue from its licensing activities.

Respondents argued that the ITC had never found a domestic
industry based on licensing activities that produced no revenue.

The ITC found that Saxon met the domestic industry requirement
based on the investment in engineering activities of its U.S.
licensee, Motorola, even though that activity was not directly
related to patented features of the articles in question.
© AIPLA 2012
“Coaxial Cable”
John Mezzalingua Assocs., Inc. v. ITC
660 F.3d 1322 (Fed. Cir. 2011)

Complainant PPC manufactured connectors for connecting
coaxial cables to electronic devices.

PPC sought to stop importation of all connectors infringing
its design and utility patents.

Because PPC did not practice its design patent, PPC
attempted to satisfy the domestic industry requirement by
showing a substantial investment in “exploitation” of the
patent under § 1337(a)(3)(C).
© AIPLA 2012
Coaxial Cable
Complainant’s DI Argument

PPC argued that its litigation expenses should be considered in
determining whether it had made a substantial investment in
exploitation:

PPC Sued Respondent Arris on the design patent in Florida,
and obtained an injunction.

PPC sued Arris’s distributor ICM in Colorado on the design
patent over connectors supplied by Arris.

PPC sued Arris in Wisconsin on a related utility patent.

Two years later, after a jury verdict in the Wisconsin case,
PPC and Arris entered settlement discussions and PPC signed
a license agreement with Arris including the design patent.
© AIPLA 2012
Coaxial Cable
Analysis and Results

The Federal Circuit agreed with the ITC that under
§ 1337(a)(3)(C), a complainant must show a connection between
its litigation expenses and “engineering, research and
development, or licensing.”

PPC’s litigation expenditures were not sufficiently tied to
licensing.

Received only one license, only partly related to the design
patent.

Waited two years after an injunction before licensing the
patent.

Little evidence of offers to license before commencing
litigation.
© AIPLA 2012
Coaxial Cable
Analysis and Results (cont’d)

PPC’s litigation expenditures were not sufficiently
tied to licensing. (cont’d)
•
Litigation was not all based on the design patent
in question.
•
No letter offering settlement was sent.
•
No settlement discussions during litigation.
•
No established licensing program.
•
No other efforts to license.
© AIPLA 2012
Coaxial Cable
Implications of CAFC Decision

In order to rely on litigation expenditures under
§ 1337(a)(3)(C), evidence must show that the
litigation was conducted as part of an overall
licensing effort and not focused solely on obtaining
an injunction and money damages.

Efforts to license or settle with a potential defendant
should be ongoing and talks or settlement discussions
should be conducted throughout the process.
© AIPLA 2012
“Pioneer”
In re Certain Multimedia Display and Navigation Devices
Inv. No. 337-TA-694 (July 22, 2011)

Pioneer asserted infringement of two patents related
to navigation systems.

Pioneer attempted to show a domestic industry under
§ 1337(a)(3)(C) based on investment in licensing.

The ITC found that Pioneer had not satisfied the
economic prong, and set forth detailed factors for
consideration of this issue in future cases.
© AIPLA 2012
Pioneer
Analysis

The Commission clarified that § 1337(a)(3)(C) first requires
three elements:
A.
the investment in licensing relates to exploitation of the
asserted patent;
B.
the investment relates to licensing; and
C.
the investment occurs in the United States.

Failure to meet any one of these three requirements will result
in a finding of no domestic industry.

After determining that the above three elements are met, the
Commission must weigh whether the investments are
“substantial,” in light of the particular facts of the case at
hand.
© AIPLA 2012
Pioneer
Nexus to Asserted Patents

Factors in Determining a Nexus to the Asserted Patents

Whether the licensee’s efforts relate to a protected article

Number of patents in the portfolio

Relative importance or value of the asserted patent to the
portfolio

Prominence of the asserted patents in licensing discussions
© AIPLA 2012
Pioneer
Nexus to Asserted Patents (cont’d)

Factors in determining the relative importance or value of an
asserted patent in a portfolio:

Successfully litigated by complainant

Relates to a technology industry standard

Considered a “base patent” or “pioneering patent”
© AIPLA 2012
Pioneer
Nexus to Licensing and the U.S.

Nexus to licensing


The Commission refers to the considerations laid out by the
CAFC in Coaxial Cable.
Nexus to the United States

Fact-focused and case-specific inquiry into the extent to
which complainant conducts its licensing operations in the
United States.
•
Employment of U.S. personnel
•
Utilization of U.S. resources
© AIPLA 2012
Pioneer
Substantiality Test

Factors in determining substantiality:

Existence of other types of “exploitation” of the asserted
patents

Research, development, engineering, ...

Existence of license-related ancillary activities

Ensuring compliance, providing training or technical support,
...

Whether licensing activities are continuing

Whether licensing activities are revenue-driven or productiondriven

Return on licensing investment
© AIPLA 2012
Pioneer
Commission Decision

Pioneer’s investment was not substantial because:

In-House activity’s nexus to asserted patents was
“attenuated”
•
Licensing efforts were directed to Pioneer’s entire
“navigation portfolio,” including many patents, and did not
specifically address, highlight, or discuss the asserted
patents
•
No evidence how licensing was related to exploiting the
asserted patents
•
Technological scope of portfolio is broad, and no evidence
regarding how the asserted patents “fit together
congruently”
© AIPLA 2012
Certain Video Game Systems & Controllers, Inv.
No. 337-TA-743

Complainant Motiva LLC is an NPE consisting of only the
inventors of the two asserted patents

Respondents: Nintendo Co., Ltd. and Nintendo of
America, Inc. (Orrick was counsel to Respondents)

Accused products: Wii and controllers

Initial Determination issued on Nov. 2 found Motiva had
not satisfied the domestic industry requirement.
© AIPLA 2012
Domestic Industry Requirement
Summary

Since the 1988 amendments allowing non-manufacturing
activities to satisfy the domestic industry requirement
under § 1337(a)(3)(C), use of the ITC, especially by foreign
entities, has greatly increased.

From 1988 to 2010, there is a line of ITC cases relaxing the
domestic industry requirement, further increasing the
attractiveness of the ITC as a forum for NPEs and foreign
complainants.

But with recent decisions, the ITC and Federal Circuit
have heightened the standard for showing domestic
industry under § 1337(a)(3)(C).
© AIPLA 2012
Extraterritorial Trade Secret
Misappropriation
TIANRUI GROUP v. ITC
SLIP OP. 2010-1395, 2011 U.S. APP. LEXIS 20607
(FED. CIR. OCT. 11, 2011).
© AIPLA 2012
TianRui Group
Facts

Complainant, Amsted, manufactured railway wheels in the U.S.

In China, TianRui hired nine employees from Amsted’s licensee, all of
whom knew that the licensed Amsted process was a trade secret.

TianRui began using Amsted’s trade secrets in manufacturing railway
wheels in China, which were then exported to the U.S.

The ITC issued an exclusion order based on “overwhelming evidence”
of trade secret misappropriation.

TianRui appealed to the CAFC on jurisdictional grounds.
© AIPLA 2012
TianRui Group
CAFC Opinion on Foreign Conduct
Federal Circuit Held:

Section 337 covers “[u]nfair methods of competition [or] unfair
acts in the importation of [those] articles” 19 U.S.C.
§ 1337(a)(1(A).

Trade secret determinations under § 337 are governed by
federal common law.

The presumption against extraterritoriality does not apply to
§ 337.
© AIPLA 2012

It focuses on “an inherently international transaction —
importation.”

The foreign activity is only one element of a claim of
domestic injury.
TianRui Group
CAFC Opinion on Foreign Conduct (cont’d)
Federal Circuit Held (cont’d):

The ITC’s ruling does not interfere with Chinese
law because the Commission’s authority is
limited to setting conditions for importation of
articles into the U.S.
© AIPLA 2012
TianRui Group
CAFC Opinion on Injury

For non-statutory IP (trade secrets, unfair practices),
section 337 requires that the unfair practices threaten to
“destroy or substantially injure” a domestic industry. §
1337(a)(1)(A).

But Section 337 does not require that non-statutory IP be
related to the injured domestic industry.

Although Amsted no longer practiced the specific
misappropriated trade secrets, TianRui Group’s wheels
could directly compete with Amsted’s wheels made from a
different process.

This competition was sufficient to satisfy the injury
requirement.
© AIPLA 2012
TianRui Group
Summary

The ITC has authority to exclude imported products
where the manufacturer engaged in unfair
competitive practices such as trade secret
misappropriation abroad.

In unfair competition cases, the IP right in question
does not have to relate to the injured domestic
industry.

The ITC will apply federal common law in cases of
unfair competition and trade secret
misappropriation.
© AIPLA 2012
Thank You
Joseph A. Calvaruso
Orrick, Herrington & Sutcliffe LLP
51 West 52nd Street
New York, NY 10019
jcalvaruso@orrick.com
1-212-506-5140
www.orrick.com/ip
© AIPLA 2012