Federal Circuit Upholds Strong Domestic Industry Requirement for USITC Patent Litigation

John Mezzalingua Associates (d/b/a PPC, Inc.) v. International Trade Commission (Fed. Cir. 2011)

by Dennis Crouch

Most U.S. patent litigation takes place in federal district courts. However, when an infringing product is imported into the U.S., the patentee typically has a right to complain to the U.S. International Trade Commission (USITC) and to request an order that blocks the infringing products from entering the U.S. under Section 337 of the Tariff Act of 1930 (as amended). The USITC was formerly known as the U.S. Tariff Commission and, despite its current "international" name, the agency is fully within the U.S. government.

The USITC offers benefits for patentees over federal court litigation. In particular, the USITC often reaches its conclusion in less time and is not bound by the equitable limitations on injunctive relief. However, damages are not available and USITC orders are subject to more political control via presidential review of exclusion orders.

A major caveat to the Section 337 actions is that the USITC only has power to act to protect a "domestic industry." In this case, the Federal Circuit appellate panel has affirmed the USITC's judgment that the patentee, PPC, failed to prove the existence of a domestic industry related to its patented coaxial cable connectors. (U.S. Design Patent No. D.440,539).

Domestic Industry. Section 337(a)(3) defines a domestic industry for articles protected by intellectual property. Under the statute, a domestic industry "shall be considered to exist if there is in the U.S."

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.

To qualify, these activities must be tied to the patent, copyright, trademark, mask work, or design being protected. To be clear, the nexus must be fairly tight.  Here, the ITC ruled that there was a domestic industry for some of PPC's asserted patents but no domestic industry for this particular patent –  even though the patents are in the same priority family.

PPC is a US company that designs and manufactures cable connectors. PPC does not itself manufacture any product covered by the '539 patent. However, it has previously filed (and won) a number of prior lawsuits against infringers and, in one instance, licensed the '539 patent as part of a settlement agreement.  Here, it was clear that PPC had made "substantial investment" in protecting its patent rights through litigation and the patentee argued that investment fits within the "licensing" prong of 337(a)(3)(C)'s domestic industry definition.

On appeal, the Federal Circuit acknowledged that the statute does not indicate whether litigation expenses can count toward licensing investment.  In resolving the issue, the panel held that infringement litigation expenses will not normally be counted as licensing investment even if the result of the litigation is a license — otherwise the domestic industry requirement would be effectively meaningless. The court noted that litigation expenses may count toward licensing investment if, for instance, PPC had offered to license the patent prior to litigation or otherwise conducted settlement or licensing negotiations during the litigation.  The fact that PPC asked for injunctive relief in the prior litigation was also used as evidence that the prior litigation was directed toward protecting exclusive rights rather than part of a licensing initiative.

Standing: PPC had actually won its case at the USITC, but on a different patent. In the appeal, the USITC argued that PPC had no standing to appeal the favorable decision. The Federal Circuit rejected that argument — holding that PPC had a separate interest in obtaining a general exclusion order in the '539 patent even though all currently identified products will be excluded based upon the separate patent.

Dissent: Judge Reyna dissented — arguing that a patentee's infringement litigation expenses should count toward the licensing prong of the domestic industry requirement. Judge Reyna here provides a full analysis of the case that both explains his legal and factual arguments for reversal.

Verizon and Google combined forces to file a brief of amici curiae arguing that litigation expenses should not be counted in the domestic industry inquiry.  These industry-giants were concerned that the court would open the door for non-practicing entities to assert their rights in the USITC.  They argue "Patent litigation is not a protectable domestic industry."  Download GoogleVerizonITCBrief.

For those interested in studying USITC litigation, some excellent recent analysis of the judicial body has been done by Colleen Chien and Sapna Kumar.  You may also want to download the Section 337 Practice Guide.

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21 thoughts on “Federal Circuit Upholds Strong Domestic Industry Requirement for USITC Patent Litigation

  1. Interesting decision, particularly since the ITC ruled not too long ago that patent litigation could satisfy the “domestic industry” requirement — which ruling, of course, pleased patent trolls no end. That being the case, Reyna’s dissent seems to make sense to me, at least from the above synopsis. But I guess I’ll need to read the opinions.

  2. Another article of interest analyzing the history and current (as of early 2011) status of the Domestic Industry requirement, and how it interacts (and conflicts) with the ITC’s IP-enforcement mandate, is the one I recently published in the Berkeley Technology Law Journal (BTLJ): link to btlj.org. There will be another article on domestic industry and patent intermediaries in the 2012 volume of BTLJ.

  3. You didn’t answer the second part of the question. (And you call *me* confused.)

    What is the bare minimum for a company to avoid being labeled a troll? Would you consider Robert Kearns a troll?

  4. I’d say that if importation and sale of connector A would injure your domestic industry in connector B, you probably have a decent argument for both ITC jurisdiction and an injunction.

    Yes, that too. Many facts are relevant to the analysis.

  5. Are universities that research, develop and patent and enforce (but don’t manufacture) trolls?

    No. The fact that you ask such a question illustrates how deeply confused you must be. But that’s okay, Ray. It’s getting cold in Aspen. Your mind is moving slower than usual.

  6. Ha ha ha! Well, at least that’s definitive. Completely irrelevant and arbitrary, but certainly definitive.

    But really, what is the bare minimum for a company to avoid being labeled a troll? Are universities that research, develop, patent, and enforce (but don’t manufacture) trolls?

  7. less likely under the Section 337 before the USITC if there isn’t a domestic industry.

    I’d say that if importation and sale of connector A would injure your domestic industry in connector B, you probably have a decent argument for both ITC jurisdiction and an injunction.

    Otherwise, what if you have a whole portfolio of patents covering a wide variety of connectors, all of which are necessary to protect your market in connector B (or whichever of the many connectors you’ve made a decision to sell)? What good is the ITC if it will only help with the particular patents that your own product “infringes”?

  8. JD, King of Sockpuppets: So, if I have a patent on connector A that I do not sell, and I sell connector B (whether patented or not), can I use the patent on connector A to prevent anyone from selling connector A?

    Maybe, but less likely under the Section 337 before the USITC if there isn’t a domestic industry.

    I’d say your chances of obtaining an injunction are lower if you make $20/yr selling connector B but $10 million/yr trolling your collection of acquired patents (including the patent on connector A).

  9. I have not seen any with funny hats on, but one clue is where their only apparent owners, employees or agents are contingent-fee litigation attorneys, and/or their mailing and/or corporate address is a local counsel’s office in E.D. TX.

  10. So, if I have a patent on connector A that I do not sell, and I sell connector B (whether patented or not), can I use the patent on connector A to prevent anyone from selling connector A?

  11. Beautiful and bulletproof.

    What do you mean, there’s no domestic industry? Look how much money we spent trying to prevent domestic industry!

  12. They argue “Patent litigation is not a protectable domestic industry.”

    Beautiful and bulletproof.

    Judge Reyna dissented — arguing that a patentee’s infringement litigation expenses should count toward the licensing prong of the domestic industry requirement. Judge Reyna here provides a full analysis of the case that both explains his legal and factual arguments for reversal.

    A full analysis? Where do these Obama appointees get off? ;)

  13. “Why the ITC itself could not understand that protecting the troll litigation business is obviously not what Congress intended by protecting domestic industry is beyond me.”

    Maybe because you never explained to the ITC how to identify a troll? Do they wear special hats or something?

  14. Re: “On appeal, the Federal Circuit acknowledged that the statute does [sic - does not] indicate whether litigation expenses can count toward licensing investment. In resolving the issue, the panel held that infringement litigation expenses will not normally be counted as licensing investment even if the result of the litigation is a license — otherwise the domestic industry requirement would be effectively meaningless.”
    Why the ITC itself could not understand that protecting the troll litigation business is obviously not what Congress intended by protecting domestic industry is beyond me.

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