Federal Circuit Expands Types of Investments That Satisfy the ITC’s “Domestic Industry” Requirement

Two recent Federal Circuit decisions open the doors of the United States International Trade Commission (“ITC”) to smaller companies that are threatened by unfair imports.

The ITC can prohibit unfair competition by imported goods (most often imported goods that infringe a U.S. patent). If the ITC finds that the imported goods violate Section 337 of the Tariff Act, it has the power to prohibit importation of those goods into the United States. Companies (whether U.S.-based or foreign) that want to file a complaint at the ITC must also prove that they are making investments in the U.S. in the intellectual property that is being harmed. This is called the “domestic industry” requirement and, until recently, the restrictions on the types of investments the ITC would consider often meant that smaller companies could not prove they had a domestic industry.

The Federal Circuit recently issued two opinions that loosened the domestic industry requirement. These decisions (1) dramatically increase the types of activities that qualify to prove the ITC’s domestic industry requirement; and (2) confirm that there is no minimum amount of investments required to satisfy the domestic industry requirement as long as the investments are “substantial.”

Background

Section 337 investigations at the ITC have long been a powerful tool for companies to halt unfair importation into the United States. Most of these complaints are about importation of goods that infringe U.S. patents, but the statute permits many other causes of action.

In a patent-based Section 337 complaint, the complainant must prove it has made

(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.

This is referred to as the economic prong of the domestic industry requirement and only one subsection needs to be proven.

The economic prong of domestic industry requirement has often discouraged smaller companies from filing a Section 337 complaint. But two recent decisions confirm that even small companies can bring a complaint — and win — at the ITC.

Lashify v. ITC Opens Up New Categories of Investments to Satisfy the Economic Prong

For decades the ITC has interpreted (B) to exclude investments in sales, marketing, warehousing, quality control, and distribution. This interpretation meant that many companies that do not manufacture goods in the U.S. could not satisfy the economic prong. But the U.S. Court of Appeals for the Federal Circuit, which hears appeals from the ITC, recently held in Lashify v. ITC that the ITC’s interpretation was wrong and subsection (B) can be satisfied by showing significant investments in sales, marketing, warehousing, quality control, and distribution.

This change in longstanding law opens up new opportunities for companies that own U.S. intellectual property but do not manufacture goods in the United States. Before Lashify, it was necessary for a company seeking to satisfy the economic prong under (B) to show that some part of its U.S.-based labor and capital was involved in the manufacturing process in some way. The Lashify decision overturned that requirement and now non-manufacturing activities like sales, marketing, warehousing, quality control, and distribution alone can satisfy the economic prong.

Companies that make substantial investments in things like sales and marketing, costs for warehousing and distributing goods, or quality control on its imported goods should consider bringing a complaint at the ITC if a competitor is importing infringing goods into the United States.

Wuhan v. ITC Confirms That Relatively Small Investments Can Be Significant or Substantial

The terms “significant” and “substantial” are not defined in the statute but have long been interpreted by examining the larger industry in which the investments are made and the realities of the marketplace. In theory, even small companies with relatively small investments in the U.S. can prove the investments are significant or substantial.

Another recent Federal Circuit decision verified that small companies can satisfy the economic prong even with relatively small investments. In Wuhan Healthgen Biotechnology Corp. v. ITC, the Federal Circuit affirmed the ITC’s finding that a complainant with 50 employees satisfied the economic prong because “all of the investments are domestic, all market activities occur within the United States, and the high investment-to-revenue ratios indicate this is a valuable market,” even though the dollar amount of the investments is small.

Lessons

Section 337 investigations at the ITC offer the possibility of excluding competitor’s goods from importing into the United States. The recent Federal Circuit decisions open the door to companies with more modest investments in areas that were previously not considered by the ITC.

Companies of all sizes facing unfair competition through importation of goods into the United States should review their investments in the United States to determine whether they can bring a complaint to the ITC. There is no minimum investment amount, and those investments can be in previously excluded categories like sales and marketing, warehousing and distribution, and quality control.

Conclusion

If you are a company facing unfair competition from imported goods, the ITC might now be a viable forum for enforcement of your rights.

If you have any questions, please contact AGG Intellectual Property of counsel Andrew Beverina.