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.