The Software IP Report

Section 337 “Domestic Industry” Requirement Satisfied by Licensing

By Charles Bieneman
01/12/2013

Categories: International Trade Commission, The Software IP Report

Patent licensing activities in the U.S. satisfy the “domestic industry” requirement of 13 U.S.C. 1337(a), the Federal Circuit has reaffirmed. Interdigital Communications, LLC v. ITC, No. 2010-1093 (Fed. Cir. Jan. 10, 2013). Nokia, the accused importer of infringing devices in an International Trade Commission proceeding, had petitioned for a rehearing, either by the panel or en banc, of the Court’s earlier decision. The Court denied both petitions. Judge Bryson authored an opinion by the panel.  Judge Newman sharply dissented.

Under Section 337(a), the ITC’s jurisdiction, and ability to issue exclusion orders, exists “only if an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.” 13 U.S.C. § 1337(a)(2). Further,

an 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, mask work, or design 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.

The court disagreed with Nokia’s argument “that the International Trade Commission and this court have not properly construed the phrases ‘relating to the articles protected by the patent’ and ‘with respect to the articles protected by the patent’ that appear in those two subsections.” The court reasoned that “just as the ‘plant or equipment’ referred to in subparagraph (A) must exist with respect to articles protected by the patent, such as by producing protected goods, the research and development or licensing activities referred to in subparagraph (C) must also exist with respect to articles protected by the patent, such as by licensing protected products.”

Ample evidence showed that the complainant at the ITC, Interdigital, had made a substantial investment in its licensing activities. The administrative law judge at the ITC had found that Interdigital had had substantial investment in developing Code Division Multiple Access (CDMA) technology since 1993. It had paid significant salaries and benefits to employees (on the order of $7 million), and had received even more significant revenues (on the order of $1 billion). Thus, “[t]he only question is whether the Interdigital’s concededly substantial investment in exploitation of its intellectual property is ‘with respect to the articles protected by the patent.'” The court answered that question in the affirmative “because the patents in suit protect the technology that is, according to InterDigital’s theory of the case, found in the products that it has licensed and that it is attempting to exclude.”

The court provided a detailed review of the legislative history of 1988 amendments to Section 337. This review showed that “the bill provided that the industry requirement could be met even in the absence of domestic production if there was substantial domestic investment in engineering, research and development, or licensing.” Actual production of a patented product in the United States was not required. Accordingly, the court concluded:

Under the clear intent of Congress and the most natural reading of the 1988 amendment, section 337 makes relief available to a party that has a substantial investment in exploitation of a patent through either engineering, research and development, or licensing. It is not necessary that the party manufacture the product that is protected by the patent, and it is not necessary that any other domestic party manufacture the protected article. As long as the patent covers the article that is the subject of the exclusion proceeding, and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337.

Judge Newman’s dissent was much lengthier than Judge Bryson’s opinion for the majority. Judge Newman saw error in the majority’s “holding that the domestic industry requirement is met by licensing the importation of foreign-made products.”

Providing her own detailed review of the legislative history to the 1988 amendment to Section 337, Judge Newman contended that, during hearings, “no witness disputed that Section 337 is intended to support domestic manufacture, not imports of foreign manufacture.” Further, according to Judge Newman, legislators’statements show that their focus was on proving economic injury, not importation. Judge Newman also argued that governing precedent was inconsistent with respect to how the ITC had defined “domestic industry” in the past.

Judge Newman concluded that:

The statute says, twice, that there must be “articles protected by the patent,” §1337(a)(2), (a)(3), whether produced by the patentee, or under license from the patentee. The domestic industry requirement is not met by foreign manufactures. That is the issue requiring judicial attention. From the panel’s denial of the petition for rehearing, I respectfully dissent.