Finding More Than Studs: Domestic Industry Nexus Tightens

by Dennis Crouch

I always struggle to use these stud finders; I think its hard for them to focus when I’m around.

Zircon Corp. v. International Trade Commission, No. 2022-1649 (Fed. Cir. May 8, 2024)

The ITC is designed as a protector of United States domestic industry against unfair competition in the form of foreign imports. In the patent sphere, the ITC is authorized to bar importation of infringing products that threaten a domestic industry.  Of course, this assumes that such a domestic industry exists.  As a prerequisite to action, the law requires a negative impact on “an industry in the United States.” 19 U.S.C. § 1337(a)(2).  The statute then further defines the requirement:

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.

19 U.S.C. § 1337(a)(3) (economic domestic industry requirement).

Zircon is the latest in a series of appellate decisions focusing on the nuance of domestic industry, especially in our era where so many products are manufactured abroad.  For the purposes of this decision, the key focus is the Section 337(a)(3) nexus requirement “with respect to the articles protected by the patent” which requires a link between the harms to industry and “articles protected by the patent.”

As I discuss below, the precedential opinion by Judge Bryson finding no domestic industry has a few interesting elements:

1. Patent by Patent Basis: The domestic industry requirement must be shown by the complainant (patentee) and is applied on a patent-by-patent basis. The complainant cannot simply lump together its investments in products that practice different patents or combinations of patents.
2. Distinguishing DRAM: The court distinguished a prior ITC decision, Certain Dynamic Random Access Memories, No. 337-TA-242, USITC Pub. No. 2034, Comm’n Op., 1987 WL 450856 (Sept. 21, 1987) (“Certain DRAMs”), that allowed establishing a single domestic industry based on substantial overlap of products practicing multiple asserted patents.  The court noted that the domestic industry statute, 19 U.S.C. § 1337(a)(2)-(3), was substantially amended after Certain DRAMs, adding language tying the domestic industry to articles protected by each patent.
3. What About Patent Families: A major missing element was any discussion of the fact that two of the patents were part of a continuation family that included a terminal disclaimer tightly binding the two patents together.  The court did not discuss this issue directly, but appears to simply hold that they are separate patents.

In applying these holdings, the appellate panel was able to uphold the ITC determination that Zircon failed to satisfy the domestic industry requirement under 19 U.S.C. § 1337(a)(2) and (3) because it relied on aggregated investments across products that practiced different patents or combinations of patents.  The court did not indicate whether it gave any deference to the ITC’s interpretation of its own statute in this instance.

Background

Zircon is a leading manufacturer of electronic stud finders, which are devices used to locate wall studs hidden behind wall surfaces, such as drywall. Although the three asserted patents all covered aspects of electronic stud finder technology, each was unique:

• U.S. Patent No. 6,989,662: automatic recalibration of the stud sensing device, which involves sensing a first density at a first location, setting a calibration value based on the sensed density, moving the device to a second location, sensing a second density, and automatically recalibrating the device if it determines it was initially calibrated over or near a stud.
• U.S. Patent No. 8,604,771: a hand tool for sensing a measurement behind a target surface, comprising a housing, a sensor, and a grip with a pair of three-dimensional concave finger holds positioned at opposite sides of the grip to provide an axis of rotation.
• U.S. Patent No. 9,475,185: is a continuation of the ‘771 patent and subject to a terminal disclaimer binding the two together.  The claims are slightly different, with the ‘185 including a limitation that the grip has “only two depressed finger holds positioned at opposite sides of a grip allowing pivoting to provide an axis of rotation.”

To establish a violation of section 337, Zircon was required to show the existence of “an industry in the United States, relating to the articles protected by the patent.” 19 U.S.C. § 1337(a)(2). Zircon attempted to satisfy this “domestic industry” requirement by relying on its investments in plant and equipment, labor and capital, and exploitation of the asserted patents under 19 U.S.C. § 1337(a)(3).

Zircon’s domestic industry evidence aggregated its investments across 53 domestic industry products, and not all of those products practiced each asserted patent. Of the 53 products, “14 practice all three of the asserted patents; 21 practice both the ‘771 and ‘185 patent; 16 practice only the ‘662 patent; and two practice only the ‘771 patent.” However, Zircon did not allocate its investments on a patent-by-patent basis or even by product groups that practiced the same patents. The ITC found Zircon’s aggregation made it impossible to quantify the investment for each statutory category in a way that would permit any determination of “the significance of Zircon’s investments with respect to each of its asserted patents.” The ITC therefore concluded Zircon failed to satisfy the domestic industry requirement as to any asserted patent.

On appeal, the Federal Circuit affirmed, first holding that the statutory language requires particularized evidence that “relate[s] to articles that are all protected by a particular patent, not to a group of articles variously protected by different patents.” Still, the Federal Circuit acknowledged its prior precedent that permitted non-aggregated data where all of the “all the domestic industry products practice all the asserted patents.”

Applying these principles, the Federal Circuit determined that “[i]t was Zircon’s burden to prove the existence of a domestic industry relating to articles protected by each of its patents.” It failed to do so because of the aggregate data.

The Federal Circuit rejected Zircon’s argument that it could group all of its domestic industry products together under the reasoning of Certain DRAMs.  That 1987 ITC decision was based upon a prior version of the statute and “offers little guidance as to how to assess domestic industry under the current version of section 337.”

One notable omission in the court’s analysis is the lack of discussion regarding the relationship between the ‘771 and ‘185 patents. As noted in the background section, the ‘185 patent is a continuation of the ‘771 patent and is subject to a terminal disclaimer. This means that the two patents share the same original disclosure and are legally bound together, effectively operating as a single patent.  Given the close connection between the ‘771 and ‘185 patents, it could be argued that investments in products practicing either patent should be considered together for purposes of establishing a domestic industry. The terminal disclaimer, in particular, suggests that the patents should be treated as a single asset.  You might imagine that the ITC would even prefer a claim-by-claim domestic industry showing, requiring investments tied to specific claims. That interpretation, however appears precluded by the statute.