/>iA recent decision by the U.S. Court of Appeals for the Federal Circuit expands which intellectual property (IP) owners can seek relief before the U.S. International Trade Commission (ITC) to block the import of infringing products into the U.S.
Complainants asserting infringement or misappropriation of IP rights (patents, trademarks, copyrights, trade secrets, and mask works) under Section 337 of the Tariff Act of 1930 at the ITC must show that “an industry in the United States . . . exists or is in the process of being established.” This is referred to as the “domestic industry requirement” and has been interpreted by the ITC as requiring satisfaction of both an “economic prong” and a “technical prong.” The “economic prong” requires that the complainant, or a complainant’s licensee, has made in the United States significant investments in plant and equipment, significant investments in labor or capital, or substantial investments in engineering, research and development, or licensing. The “technical prong” requires that such investments must further be directed to articles that practice a valid claim of the asserted patent.
Until now, the ITC has relied on a relatively narrow interpretation of the statute in determining whether certain activities are sufficient to satisfy the economic prong of the domestic industry requirement. Specifically, the ITC excluded certain types of expenditures and activities, such as marketing and distribution, when evaluating domestic industry in the absence of domestic manufacturing.
In Lashify, Inc. v. US International Trade Commission, the Federal Circuit clarifies that Section 337 complainants now may rely on investments or expenses in sales, marketing, warehousing, quality control, or distribution activities to establish a domestic industry, even when the complainant’s articles are manufactured outside the United States. Thus, the precedential opinion by Judge Richard Taranto greatly expands the types of investments, expenses, and activities that a complainant may use to satisfy the economic prong of the domestic industry requirement.
For context, Lashify sells salon-style artificial eyelashes for users to apply at home. Although the products are made overseas, Lashify is a U.S.-based company with extensive domestic operations. The company leases several U.S. facilities and employs more than 100 American workers. Lashify had asked the ITC to investigate alleged patent infringement by competitors that import similar artificial eyelash products into the U.S. However, the ITC determined that Lashify failed to meet the domestic industry requirement under Section 337 because investments and expenses related to sales, marketing, warehousing, quality control, or distribution activities were excluded by the ITC.
The Federal Circuit’s recent March 5 decision vacated the ITC’s ruling and determined that the ITC improperly excluded Lashify’s expenditures on sales, marketing, warehousing, quality control, and distribution. Judge Taranto explained that the plain language of the Omnibus Trade and Competitiveness Act of 1988, which amended the Tariff Act of 1930, shows that the “economic prong” of the domestic industry requirement is satisfied by:
(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.
Judge Taranto emphasized that Section 337’s use of the word “or” means that satisfaction of any of these three requirements by a complainant is enough to satisfy the requirement. The decision further clarified that “significant employment of labor or capital” referred to in Section 337(a)(3)(B) covers significant use of “labor” and “capital” without “any limitation” on the type of activities that may constitute such labor or capital. In particular, the statute does not exclude sales, marketing, warehousing, quality control, or distribution activities, nor does it require that such activities be related directly to U.S.-based manufacturing. The evidence showed that Lashify met these requirements.
Additionally, throughout the Lashify opinion, the Federal Circuit cited with approval its previous decision, handed down just last month, in Wuhan Healthgen Biotechnology Corp. v. International Trade Commission. In Wuhan, the Court held that a patent holder’s relatively small investment within the U.S. satisfied the domestic industry prong when all of its research investment occurred within the U.S. and that research investment represented a significant portion of the company’s overall costs, including foreign manufacturing costs. The Court clarified that “[s]mall market segments can still be significant and substantial enough to satisfy the domestic industry requirement” and that “[a] finding of domestic industry cannot hinge on a threshold dollar value or require a rigid formula; rather the analysis requires a holistic review of all relevant considerations that is very context dependent.”
Together, the Lashify and Wuhan decisions open the doors of the ITC to an expanded array of companies that may manufacture products outside the United States but have sales, marketing, distribution, research and development, and perhaps other key non-manufacturing operations in the U.S. These decisions may also potentially expand the patent and other IP enforcement options of foreign companies that satisfy the domestic industry requirement through significant investments in marketing, warehousing, quality control, and distribution in the United States.
The Lashify and Wuhan decisions provide in-house counsel at such companies an additional tool that may be used to protect their IP assets from infringement or misappropriation. Conversely, moving forward U.S. importers may have increased exposure to IP infringement and misappropriation claims before the ITC as well as elevated risk for ITC exclusion orders, as additional IP-holders may now more easily meet the requirements to file ITC complaints. Those existing IP owners having current domestic industries, as well as those looking to invest in US domestic industries to reduce the risk of tariffs or to have enhanced access to US markets, now have expanded ITC enforcement tools to protect their IP assets.
