The Domestic Industry Requirement at the ITC

Pioneer initiated a ' 337 investigation against Garmin International, Inc., alleging certain imported Garmin navigation devices for use in vehicles infringed U.S. Patent Nos. 5,424,951 and 6,122,592. The only evidence Pioneer provided to support a domestic industry was its licensing activities. According to the Commission, when a complainant “relies exclusively on its investments in licensing the asserted patents,” the ITC examines “the extent to which [the complainant's] investment in licensing a large portfolio of patents may be attributed to the patents-in-suit ' .”

The Commission concluded that Pioneer did not establish a domestic industry because its licensing activities had only an attenuated nexus with the asserted patents. In its discussions with potential licensees, Pioneer usually adopted a portfolio licensing approach, as opposed to a patent-by-patent approach. A portfolio licensing approach involves offering a blanket license covering many patents; this approach is regarded as more efficient because it minimizes the highly detailed technical discussions that usually characterize the patent-by-patent approach. However, the Commission stated that this purported efficiency advantage did not justify adoption of a special rule for the portfolio licensing approach, “whereby any investment in a patent portfolio should ipso facto be allocated in its entirety to every individual patent in the portfolio.” The Commission rejected such a rule because “[n]either the statute nor the legislative history indicates that Congress intended for the Commission to credit all investments in the licensing of a portfolio to each patent of the portfolio when evaluating the extent to which complainant's activities meet the requirement that there be 'substantial' investment in exploitation of the 'patent ' concerned.'”

In a proper domestic industry analysis, “a complainant may be able to establish the strength of the nexus between the asserted patent and its licensing activities by means of evidence showing that its licensing activities are particularly focused on the asserted patent among a group of patents in the portfolio or through other evidence that demonstrates the relative importance or value of the asserted patent within the portfolio,” although a “showing that the asserted patent is relatively important within the portfolio is not required to show a nexus between that patent and the licensing activities.” One “potentially important consideration” in judging the value of the asserted patent relative to a large patent portfolio is whether “a licensee's product is an 'article protected by' the patent, [in which case] the license is by definition connected to that patent.” Other relevant factors include “(1) the number of patents in the portfolio, (2) the relative value contributed by the asserted patent to the portfolio, (3) the prominence of the asserted patent in licensing discussions, negotiations and any resulting licensing agreements, and (4) the scope of technology covered by the portfolio compared to the scope of the asserted patent.” To show the importance of the relative value of the asserted patent to the portfolio, the Commission will take into account “evidence that (1) it was discussed during the licensing negotiation process, (2) it has been successfully litigated before by complainant, (3) it relates to a technology industry standard, (4) it is a base or a pioneering patent, (5) it is infringed or practiced in the United States, or (6) the market recognizes its value in some other way.”

Under such a framework, a large patent portfolio may work against a finding of a domestic industry based on any single patent. That is, “[a]ll things being equal, the nexus between licensing activities and an asserted patent may be stronger when the asserted patent is among a relatively small group of licensed patents.” As examples of small portfolios, the Commission cited prior ITC decisions involving portfolios of two and six patents, and it characterized the “hundreds of GPS and navigation patents in the United States and throughout the world” owned by Pioneer as a “large” portfolio.

The Commission ruled that the nexus between the asserted patents and the Pioneer licensing activities was attenuated and therefore could not support a finding that a domestic industry existed. The nexus was attenuated because “Pioneer's in-house activities directed to licensing ' were, in large part, directed toward the entire navigation portfolio,” while only “occasional references to the asserted patents” were made by Pioneer during its licensing activities. The “large number ' of Pioneer patents” and the “broad” “technological scope of Pioneer's navigation portfolio,” together with the asserted patents meriting only “occasional references” during negotiations, led the Commission to decide that “[o]n balance, the evidence in this investigation warrants the conclusion that the relationship between those activities and the asserted patents is attenuated.” Specifically, “the evidence indicates a minimal role for the asserted patents in the activities in view of (1) the many patents that were being offered by Pioneer in its proposed license agreements and (2) the scope of the portfolio as compared to the narrow focus of the asserted patents.”

A company seeking access to the ITC based solely on its licensing activities will likely not satisfy the domestic industry requirement if the asserted patents played only a minor role in its licensing activities. To establish a domestic industry based on a particular patent, a patent owner should ensure that its licensing activities prominently feature that patent. Patents that go unmentioned during licensing negotiations or are only incidentally relevant to the licensing program of the patent owner likely will not be considered. Instead, patents that have already been licensed and are being practiced in the United States, or that were showcased during licensing negotiations, or that encompass a broad scope of the relevant technology are some examples of the patents on which a patent owner can rely in support of a domestic industry.

The Ricoh Case

As the complainant, Ricoh attempted to establish a domestic industry with respect to U.S. Patent Nos. 5,863,690 and 6,212,343 by relying on “service and repair expenses” associated with its C200 line of printers manufactured abroad and sold in the United States. The Commission ruled against Ricoh, noting that the evidence lacked sufficient context for judging whether the absolute figures for the expenses “are significant with respect to the articles protected by its intellectual property rights.”

As set forth above, the activities defined by ' 337 as satisfying the economic prong include “(A) significant investment in plant and equipment; (B) significant employment of labor or capital.” The third category pertaining to engineering, R&D, or licensing (as discussed above in the Pioneer case with regard to licensing) played no role in this case. The quoted language from the statute establishes that “a complainant's investment in plant and equipment or employment of labor or capital must be shown to be 'significant' in relation to the articles protected by the intellectual property right concerned.” Therefore, “whether the complainant's investment and/or employment activities are 'significant' is not measured in the abstract or absolute sense, but rather is assessed with respect to the nature of the activities and how they are 'significant' to the articles protected by the intellectual property right.”

One consideration for assessing whether an investment is “significant” is “the value added to the article in the United States by the domestic activities.” Another factor is the “the relative domestic contribution to the protected article [determined] by comparing complainant's product-related domestic activities to its product-related foreign activities.” In previous cases where the Commission found a domestic industry based on “service and repair activities and investments,” the Commission was presented with evidence showing that the services were “significant to complainant's U.S. business” or evidence showing “the significant domestic value added resulting from these activities.”

The evidence that Ricoh offered did not permit the Commission to determine the significance of the service and repair expenses because, “[f]or example, complainant submitted no evidence to show how its activities were important to the articles protected by the asserted patents in the context of the company's operations, the marketplace, or the industry in question, or whether complainant's undertakings had a direct bearing on the practice of the patent.” Moreover, it was not the case that “the complainant demonstrate[d] whether and to what extent its domestic activities added value to the imported products.” Instead, the evidence offered by Ricoh allowed “the ALJ ' to consider only the magnitude of complainant's expenditures in an absolute sense.” This is insufficient because the magnitude might represent significant value in one context, but not in another. Accordingly, the Commission concluded that “Ricoh has failed to show that its documented labor costs constitute a 'significant employment of labor or capital' as required by section 337(a)(3)(B) in light of the factual circumstances presented in this case and complainant's failure to submit additional evidence to support its domestic industry claim.” Specifically, and as stated above, “Ricoh submitted no evidence to show how its domestic activities add any value to the completed saleable product, or to demonstrate the nature and relative importance of its activities to the articles protected by the patent (in view of the relevant industry or marketplace).” Further, since “Ricoh has provided no evidence regarding its foreign product-related investment and/or employment activities,” “Ricoh has failed to show that a comparison of its C200 series-related domestic activities with its C200 series-related foreign activities would support its claim that a domestic labor expenses are 'significant.'”

The Ricoh case emphasizes that evidence on domestic activities must be accompanied by contextual evidence demonstrating the significance of the activities relative to the articles protected by the asserted patent. Therefore, in deciding whether it can establish that its domestic employment of labor or capital is “significant,” a patent owner ought to determine whether, in addition to evidence establishing the absolute magnitude of its domestic expenses, it has sufficient contextual evidence to assess the relative importance of this magnitude in relation to the value added by the domestic activity or in relation to the foreign activity pertaining to the product covered by the asserted patent.

Dervis Magistre is a partner at the intellectual property law firm of Fay Kaplun & Marcin LLP in New York, where he specializes in patent infringement and invalidity analysis, inter partes and ex parte re-examinations, and all aspects of patent prosecution in electronics, software, and medical devices. He can be reached at [email protected].

A patent owner may block the importation of infringing products through an exclusion order obtained as a result of a ' 337 investigation conducted by the U.S. International Trade Commission (“ITC” or “Commission”). Such an investigation is available only if a domestic industry exists with regard to the asserted patent. The domestic industry requirement has two prongs, one economic and the other technical. A complainant can satisfy the economic prong by proving: 1) significant investment in plant and equipment; 2) significant employment of labor or capital; or 3) substantial investment in the exploitation of the patent, including engineering, research and development, or licensing.

Two recent decisions of the ITC examine the economic prong in different factual contexts. In In the Matter of Certain Multimedia Display And Navigation Devices And Components Thereof, And Products Containing Same (337-TA-694), the complainant Pioneer Corporation “relie[d] exclusively on its investments in licensing the asserted patents” to satisfy the economic prong of the domestic industry requirement. In In the Matter of Certain Printing And Imaging Devices And Components Thereof (337-TA-690), the complainant Ricoh Company, Ltd. tried to satisfy this requirement by relying on the “service and repair expenses” associated with a line of printers manufactured abroad and sold in the United States. In both cases, the ITC ruled that the complainants failed to meet the domestic industry requirement.

The Pioneer Case

Pioneer initiated a ' 337 investigation against Garmin International, Inc., alleging certain imported Garmin navigation devices for use in vehicles infringed U.S. Patent Nos. 5,424,951 and 6,122,592. The only evidence Pioneer provided to support a domestic industry was its licensing activities. According to the Commission, when a complainant “relies exclusively on its investments in licensing the asserted patents,” the ITC examines “the extent to which [the complainant's] investment in licensing a large portfolio of patents may be attributed to the patents-in-suit ' .”

The Commission concluded that Pioneer did not establish a domestic industry because its licensing activities had only an attenuated nexus with the asserted patents. In its discussions with potential licensees, Pioneer usually adopted a portfolio licensing approach, as opposed to a patent-by-patent approach. A portfolio licensing approach involves offering a blanket license covering many patents; this approach is regarded as more efficient because it minimizes the highly detailed technical discussions that usually characterize the patent-by-patent approach. However, the Commission stated that this purported efficiency advantage did not justify adoption of a special rule for the portfolio licensing approach, “whereby any investment in a patent portfolio should ipso facto be allocated in its entirety to every individual patent in the portfolio.” The Commission rejected such a rule because “[n]either the statute nor the legislative history indicates that Congress intended for the Commission to credit all investments in the licensing of a portfolio to each patent of the portfolio when evaluating the extent to which complainant's activities meet the requirement that there be 'substantial' investment in exploitation of the 'patent ' concerned.'”

In a proper domestic industry analysis, “a complainant may be able to establish the strength of the nexus between the asserted patent and its licensing activities by means of evidence showing that its licensing activities are particularly focused on the asserted patent among a group of patents in the portfolio or through other evidence that demonstrates the relative importance or value of the asserted patent within the portfolio,” although a “showing that the asserted patent is relatively important within the portfolio is not required to show a nexus between that patent and the licensing activities.” One “potentially important consideration” in judging the value of the asserted patent relative to a large patent portfolio is whether “a licensee's product is an 'article protected by' the patent, [in which case] the license is by definition connected to that patent.” Other relevant factors include “(1) the number of patents in the portfolio, (2) the relative value contributed by the asserted patent to the portfolio, (3) the prominence of the asserted patent in licensing discussions, negotiations and any resulting licensing agreements, and (4) the scope of technology covered by the portfolio compared to the scope of the asserted patent.” To show the importance of the relative value of the asserted patent to the portfolio, the Commission will take into account “evidence that (1) it was discussed during the licensing negotiation process, (2) it has been successfully litigated before by complainant, (3) it relates to a technology industry standard, (4) it is a base or a pioneering patent, (5) it is infringed or practiced in the United States, or (6) the market recognizes its value in some other way.”

Under such a framework, a large patent portfolio may work against a finding of a domestic industry based on any single patent. That is, “[a]ll things being equal, the nexus between licensing activities and an asserted patent may be stronger when the asserted patent is among a relatively small group of licensed patents.” As examples of small portfolios, the Commission cited prior ITC decisions involving portfolios of two and six patents, and it characterized the “hundreds of GPS and navigation patents in the United States and throughout the world” owned by Pioneer as a “large” portfolio.

The Commission ruled that the nexus between the asserted patents and the Pioneer licensing activities was attenuated and therefore could not support a finding that a domestic industry existed. The nexus was attenuated because “Pioneer's in-house activities directed to licensing ' were, in large part, directed toward the entire navigation portfolio,” while only “occasional references to the asserted patents” were made by Pioneer during its licensing activities. The “large number ' of Pioneer patents” and the “broad” “technological scope of Pioneer's navigation portfolio,” together with the asserted patents meriting only “occasional references” during negotiations, led the Commission to decide that “[o]n balance, the evidence in this investigation warrants the conclusion that the relationship between those activities and the asserted patents is attenuated.” Specifically, “the evidence indicates a minimal role for the asserted patents in the activities in view of (1) the many patents that were being offered by Pioneer in its proposed license agreements and (2) the scope of the portfolio as compared to the narrow focus of the asserted patents.”

A company seeking access to the ITC based solely on its licensing activities will likely not satisfy the domestic industry requirement if the asserted patents played only a minor role in its licensing activities. To establish a domestic industry based on a particular patent, a patent owner should ensure that its licensing activities prominently feature that patent. Patents that go unmentioned during licensing negotiations or are only incidentally relevant to the licensing program of the patent owner likely will not be considered. Instead, patents that have already been licensed and are being practiced in the United States, or that were showcased during licensing negotiations, or that encompass a broad scope of the relevant technology are some examples of the patents on which a patent owner can rely in support of a domestic industry.

The Ricoh Case

As the complainant, Ricoh attempted to establish a domestic industry with respect to U.S. Patent Nos. 5,863,690 and 6,212,343 by relying on “service and repair expenses” associated with its C200 line of printers manufactured abroad and sold in the United States. The Commission ruled against Ricoh, noting that the evidence lacked sufficient context for judging whether the absolute figures for the expenses “are significant with respect to the articles protected by its intellectual property rights.”

As set forth above, the activities defined by ' 337 as satisfying the economic prong include “(A) significant investment in plant and equipment; (B) significant employment of labor or capital.” The third category pertaining to engineering, R&D, or licensing (as discussed above in the Pioneer case with regard to licensing) played no role in this case. The quoted language from the statute establishes that “a complainant's investment in plant and equipment or employment of labor or capital must be shown to be 'significant' in relation to the articles protected by the intellectual property right concerned.” Therefore, “whether the complainant's investment and/or employment activities are 'significant' is not measured in the abstract or absolute sense, but rather is assessed with respect to the nature of the activities and how they are 'significant' to the articles protected by the intellectual property right.”

One consideration for assessing whether an investment is “significant” is “the value added to the article in the United States by the domestic activities.” Another factor is the “the relative domestic contribution to the protected article [determined] by comparing complainant's product-related domestic activities to its product-related foreign activities.” In previous cases where the Commission found a domestic industry based on “service and repair activities and investments,” the Commission was presented with evidence showing that the services were “significant to complainant's U.S. business” or evidence showing “the significant domestic value added resulting from these activities.”

The evidence that Ricoh offered did not permit the Commission to determine the significance of the service and repair expenses because, “[f]or example, complainant submitted no evidence to show how its activities were important to the articles protected by the asserted patents in the context of the company's operations, the marketplace, or the industry in question, or whether complainant's undertakings had a direct bearing on the practice of the patent.” Moreover, it was not the case that “the complainant demonstrate[d] whether and to what extent its domestic activities added value to the imported products.” Instead, the evidence offered by Ricoh allowed “the ALJ ' to consider only the magnitude of complainant's expenditures in an absolute sense.” This is insufficient because the magnitude might represent significant value in one context, but not in another. Accordingly, the Commission concluded that “Ricoh has failed to show that its documented labor costs constitute a 'significant employment of labor or capital' as required by section 337(a)(3)(B) in light of the factual circumstances presented in this case and complainant's failure to submit additional evidence to support its domestic industry claim.” Specifically, and as stated above, “Ricoh submitted no evidence to show how its domestic activities add any value to the completed saleable product, or to demonstrate the nature and relative importance of its activities to the articles protected by the patent (in view of the relevant industry or marketplace).” Further, since “Ricoh has provided no evidence regarding its foreign product-related investment and/or employment activities,” “Ricoh has failed to show that a comparison of its C200 series-related domestic activities with its C200 series-related foreign activities would support its claim that a domestic labor expenses are 'significant.'”

The Ricoh case emphasizes that evidence on domestic activities must be accompanied by contextual evidence demonstrating the significance of the activities relative to the articles protected by the asserted patent. Therefore, in deciding whether it can establish that its domestic employment of labor or capital is “significant,” a patent owner ought to determine whether, in addition to evidence establishing the absolute magnitude of its domestic expenses, it has sufficient contextual evidence to assess the relative importance of this magnitude in relation to the value added by the domestic activity or in relation to the foreign activity pertaining to the product covered by the asserted patent.

Dervis Magistre is a partner at the intellectual property law firm of Fay Kaplun & Marcin LLP in New York, where he specializes in patent infringement and invalidity analysis, inter partes and ex parte re-examinations, and all aspects of patent prosecution in electronics, software, and medical devices. He can be reached at [email protected].