/>iOn March 5, the US Court of Appeals for the Federal Circuit issued a decision in Lashify, Inc. v. International Trade Commission, No. 23-1245, vacating in part the International Trade Commission’s (ITC) determination that Lashify failed to satisfy the economic prong of the Section 337 domestic industry requirement and affirming in part the finding that Lashify failed to satisfy the technical prong of the domestic industry requirement.
This ruling expands the types of activities that a complainant can use to establish a domestic industry, including domestic sales, marketing, warehousing, quality control, and distribution activities.
Background
Lashify, Inc. filed a Section 337 complaint at the ITC, alleging that importers infringed three patents (one utility and two design patents) covering artificial eyelash extensions. The ITC found no Section 337 violation because Lashify failed to establish a domestic industry. For the economic prong, the ITC excluded Lashify’s evidence about expenses relating to sales, marketing, warehousing, quality control, and distribution. Without that evidence, the ITC held that Lashify failed to establish a “significant employment of labor or capital” domestically under 19 U.S.C. § 1337(a)(3)(B). The ITC excluded many expenses such as warehousing, quality-control, and distribution because there were “no additional steps required to make these products saleable” upon arrival into the United States, and because the quality-control measures were “no more than what a normal importer would perform upon receipt.” Further, the ITC excluded sales and marketing expenditures because “Lashify did not meet its burden to establish significant qualifying expenses in other areas.” Lashify appealed.
Federal Circuit Decision
Economic Prong of the Domestic Industry Requirement
The Federal Circuit vacated the ITC’s ruling that Lashify failed to establish a domestic industry under 19 U.S.C. § 1337(a)(3)(B) because the ITC improperly excluded Lashify’s expenditures on sales, marketing, warehousing, quality control, and distribution. The court explained that Section 337(a)(3)(B) requires a “significant employment of labor or capital” without any limitation of the type of activities that could constitute labor or capital. The statute does not exclude sales, marketing, warehousing, quality control, or distribution activities, nor does it require such activities to be tied to employment or manufacturing considerations.
The court further clarified that there is no requirement that a stock of accumulated goods be manufactured domestically. As long as the activities relate to providing the goods or services in demand in a domestic economy, they can be counted toward the domestic industry requirement. The court also cited with approval its previous decision in Wuhan Healthgen Biotechnology Corp. v. International Trade Commission, No. 2023-1389 (Fed. Cir. Feb. 7, 2025), which held that smaller market segments can still be significant and substantial enough to meet the domestic industry requirement.
The ruling marks a departure from the ITC’s longstanding approach of excluding certain types of expenditures as insufficient to establish a domestic industry absent domestic manufacturing. The Federal Circuit’s reasoning opens the door for more Section 337 actions by companies that design products in the United States but manufacture them abroad, as long as they make significant domestic investments in activities such as marketing and distribution.
Technical Prong and Claim Construction
The court affirmed the ITC’s construction of the claim term “heat fused,” holding that the artificial hairs in Lashify’s products must be “joined by applying heat to form a single entity.” Based on this construction, the court upheld the ITC’s finding that Lashify’s products, which use a heated adhesive instead of actually using heat to bond hairs, did not meet the technical prong.
Key Takeaways
Expanded Scope of Domestic Industry: The decision clarifies that Section 337 complainants may rely on investments or expenses in sales, marketing, warehousing, quality control, or distribution activities to establish a domestic industry. This expands the types of activities, investments, or expenses that a complainant may use in satisfying the economic prong of the domestic industry requirement.
No Absolute Dollar Requirement: The decision reinforces the notion that the economic prong analysis considers whether investments or expenses are significant and substantial enough relative to the company’s US footprint, and not the absolute dollar values of the investments themselves.
Potential Impact on Foreign Companies: The decision is not limited to US companies. It potentially allows a foreign company to satisfy the domestic industry requirement if it invests in US distribution and marketing efforts.
