The Doors of the U.S. International Trade Commission Are Open to non-U.S. Plaintiffs: Standing and the ITC’s Domestic Industry Requirement

Merritt Blakeslee | January 19, 2011

ITC practitioner Merritt Blakeslee has written the following article on the “domestic industry requirement” that a patent owner must satisfy to successfully pursue an infringement case at the U.S. International Trade Commission.  This is not our normal fare of reexamination, reissue and interference matters.  Still, the issue addressed – standing to sue at the ITC – is of such obvious importance to patent holders both foreign and US that we post it today. 

Companies whose U.S. intellectual property rights are being infringed by imported products are seeking relief at the U.S. International Trade Commission in ever-greater numbers.  Section 337 cases filed at the ITC, so-called because they are authorized by Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), have doubled since 2005 and more than tripled since 2000.  Indeed, the ITC, which is the only specialized trial level patent adjudication forum in the United States, now conducts more full patent adjudications on an annual basis than any federal district court in the nation. [1]  In 2008, one out every seven patent infringement cases that went to trial in the United States was tried at the ITC.

The reasons for the ITC’s popularity are self-evident, at least to those familiar with the forum.  The ITC offers numerous, significant advantages to a plaintiff (called a “complainant” at the ITC):  speedy adjudication, relaxed rules on personal jurisdiction and service of process, no opportunity for a defendant (called a “respondent”) to seek a change of venue, short discovery deadlines, no rule-based impediments to taking discovery abroad, no counterclaims, [2] administrative law judges who are specialists in intellectual property law, and broad, vigorous injunctive relief that is enforced by U.S. Customs and Border Protection and the ITC.  Although the ITC cannot award monetary damages, such relief may be, and routinely is, sought by the complainant in a parallel federal district court action.

Section 337 was originally conceived as a piece of highly protectionist legislation; its framers intended that its powerful remedies would be available only to U.S.-based manufacturing firms.  Over time, however, the so-called “domestic industry requirement” has been relaxed to such an extent that today non-U.S. firms holding U.S. intellectual property rights routinely bring suit at the ITC.  In both 2009 and 2010, in fully one third of the Section 337 investigations instituted by the ITC, a least one of the complainants, usually the parent, was a non-U.S. company.  The present article discusses the rules under which a non-U.S. rights holder may gain access to the ITC and its truly remarkable mechanisms for the enforcement of U.S. intellectual property rights.

* * *

Any holder of U.S. intellectual property rights, including common law rights, may bring its cause of action to the ITC, regardless of the complainant’s nationality or place of domicile.  But the doors of the ITC are not open to everyone.  19 U.S.C. § 1337, the jurisdictional statute governing Section 337 investigations under which the ITC enforces intellectual property rights against infringing imports, contains a standing requirement. [3]  Put simply, Section 337 requires that an ITC complainant show that, as of the time of filing, (a) it maintains a certain level of economic activity within the United States in connection with the asserted intellectual property right, and (b) this economic activity is devoted to practicing or otherwise exploiting the intellectual property right at issue (in the case of a patent, at least one claim of the asserted patent).  Alternatively, the complainant may show that a domestic industry “is in the process of being established.”  This standing requirement is called the “domestic industry requirement,” and the two sub-requirements listed above are called respectively the “economic prong” and the “technical prong” of the domestic industry requirement.  “Domestic industry” is a term of art that refers to the entity or entities practicing or otherwise exploiting the asserted intellectual property in the United States – the rights holder plus its licensees, if any, not some larger set of competing companies operating in the same product market.

Section 337 was originally enacted as part of the Tariff Act of 1930, and the domestic industry requirement is an historical artifact that dates to this period.  Section 337 is protectionist legislation, and the domestic industry requirement was included to ensure that the protections afforded by the statute could be enjoyed only by companies providing jobs to U.S. workers.  The complainant envisaged by the framers was an American manufacturer of hard goods.  Accordingly, the domestic industry requirement evaluated the complainant’s economic activity in terms of the level of its investment in plant and equipment and of its employment of labor and capital.  Mere sale and distribution of goods manufactured outside the United States did not – and does not today – satisfy the domestic industry requirement. 

However, the ITC complainant-as-domestic-manufacturer paradigm proved to be too restrictive for the realities of an evolving U.S. economy; and in 1988, after a U.S. movie maker trying to protect its copyrighted products through litigation at the ITC lost a Section 337 action on domestic industry grounds, Congress amended the statute to provide that economic activities involving the “exploitation” of the intellectual property right –  including engineering, research and development, and licensing – could, if those activities reached the requisite level, satisfy the domestic industry requirement. 

In 2010, the ITC handed down a controversial decision holding that litigation undertaken in connection with licensing the asserted intellectual property right was a type of “exploitation” encompassed by the statute and that the costs of such litigation could alone, if they reached the requisite level, satisfy the domestic industry requirement.  It also held that non-litigation activities related to licensing (e.g., preparing cease-and-desist letters, settlement negotiations leading to a license; and negotiating, drafting, and executing a license) could also, if the requirements of magnitude and nexus were met, satisfy the domestic industry requirement.  Some have seen this decision as throwing open the doors of the ITC to non-practicing entities or patent “trolls” whose sole activity consists in suing alleged infringers.  One commentator lamented that if litigation costs are permitted to count toward the domestic industry requirement, “access to the ITC [will] functionally require only ownership of a patent and a team of aggressive lawyers engaged in enforcement suits.”

More generally, a non-U.S. company holding U.S. intellectual property rights that conducts research and development or engineering in the United States in connection with the asserted intellectual property right will likely meet the domestic industry requirement.  Finally, and most important, a non-U.S. rights holder that licenses its intellectual property rights in the United States or that conducts its licensing activity in the United States (whether or not the licensed activity will occur within the United States) will also likely satisfy the domestic industry requirement.

So what does this mean for a would-be ITC complainant that manufactures the products embodying its intellectual property outside the United States – for foreign corporations that hold U.S. intellectual property rights or for U.S. companies that have off-shored their manufacturing operations?  In 2009, a year in which, because of the economic climate, the number of complaints filed at the ITC dropped sharply, ten foreign companies, more than a third of all complainants, filed complaints, including companies from Austria, Cayman Islands, Japan, Singapore, South Korea, and Sweden.  Among the more prominent foreign companies to have brought suit at the ITC are Nokia, Makita Tool, Samsung, LG Electronics, and Takeda Pharmaceutical.  U.S. corporations with offshore manufacturing of the product practicing the asserted patent, for example, Microsoft Corporation (Inv. No. 337-715) and the Hewlett-Packard Company (Inv. No. 337-723), routinely bring Section 337 actions at the ITC.

Today, the domestic industry requirement is far less stringent than previously.  But if the bar has been lowered, it has not disappeared.  Though a rarity, there are a handful of Section 337 cases where a complainant has lost its case because it was unable to sustain its burden of showing the existence of a domestic industry.  Certainly more numerous, although impossible to quantify, are the companies that have refrained from filing suit at the ITC for fear that they would not meet the domestic industry requirement.

What constitutes the “requisite level” of economic activity, i.e., what is “significant” or “substantial,” is difficult to define with precision because most of the parties’ business information, notably specific dollar amounts and product volumes, is disclosed in only the non-public versions of the ITC’s decisions.  Moreover, the ITC makes domestic industry determinations on a case-by-case basis in light of all relevant factors, applying a sliding scale so that even a very small level of activity in the United States may constitute a domestic industry if the complainant is small or if that activity is an important aspect of the worldwide use of the property right.  For instance, there may be a domestic industry based on a complainant’s warranty and repair activity which, though small in absolute terms, is critical to the sale of the products in question.  Thus, determinations whether a complainant’s economic activity is “significant” or “substantial” depend, among other things, on the industry in question and the complainant’s relative size; there is no minimum monetary expenditure that a complainant must demonstrate to establish a domestic industry. 

Accordingly, any company whose intellectual property-related activities in the United States go beyond importing, distributing, and selling an imported product is potentially eligible to bring suit at the ITC.  With the assistance of ITC counsel knowledgeable in this complex area of ITC jurisprudence, the would-be complainant should carefully catalog and evaluate the various types of expenditures it makes in the United States in connection with the intellectual property in question.  Was the product embodying the intellectual property designed in the United States?  Is research and development or engineering conducted in the United States?  Does the intellectual property holder have an established licensing program with employees in the United States devoted to licensing – or attempting to license – the intellectual property rights?  Does the rights holder carry out customer service, warranty, or repair operations, or otherwise service or add value to the imported products in the United States?  Finally, has the rights holder, prior to bringing suit at the ITC, engaged in litigation in connection with, or non-litigation activities leading to, licensing or attempting to license the product?  If the answer to any one of these questions is “yes,” and if the activity in question is non-negligible, then the rights holder may have standing to bring suit at the ITC. [4]

[1]  In recent years, about 90 percent of ITC investigation have included at least one patent infringement claim.  However, the ITC’s Section 337 jurisdiction is extremely broad, and covers not only statutory (i.e., federally registered) patents, copyrights, and trademarks, but, more generally, “[u]nfair methods of competition and unfair acts in the importation of articles.”  Thus, complainants have brought claims for a wide variety of unfair actions, including misappropriation of trade dress, common law trademark infringement, trademark dilution, trade secret misappropriation, passing off, false designation, unfair competition, false advertising, and antitrust claims,.

[2]  While a respondent may assert a counterclaim at the ITC, the counterclaim is immediately removed to district court and is not adjudicated by the ITC.

[3]  [A]n 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 or mask work 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.

19 U.S.C. § 1337(a)(3).

[4] The ITC’s Office of Unfair Import Investigations will meet on a confidential basis with a prospective complainant to review and comment on a draft complainant.  The would-be complainant that has doubts about the domestic industry issue can raise them confidentially with OUII at that time and get the benefit (non-binding, of course) of OUII’s evaluation of their case.

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