Licensing entities and the US International Trade Commission: establishing a ‘domestic industry’ sufficient to enforce IP rights

April 2013 | SPOTLIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

A recent Federal Circuit decision confirmed that companies may rely on substantial licensing activities to establish the ‘domestic industry’ necessary to enforce their patents at the US International Trade Commission (ITC). The decision, InterDigital Communications, LLC, v. ITC, 2010-1093, found that entities engaged in licensing activities within the United States can seek relief in the ITC even if no products practicing their intellectual property (IP) were manufactured in the country. But limits still exist on the quantity and type of activities required to establish a domestic industry.

Section 337 of the Tariff Act of 1930 requires a party seeking to enforce IP rights at the ITC to demonstrate that a “domestic industry” relating to the asserted IP right exists. This requirement may be met, for example, by demonstrating significant US investment in manufacturing activities related to products protected by the IP right. But Section 337 also provides that “substantial investment” in an IP right’s “exploitation, including engineering, research and development, or licensing” may support the required domestic industry. The InterDigital decision considered whether a patent owner seeking to establish a licensing domestic industry had to show that the patent owner or its licensees had manufactured a product covered by the asserted patents.

In confirming that complainant InterDigital’s licensing investments satisfied the domestic-industry requirement, the Federal Circuit said “it is not necessary” for a party asserting a patent to “manufacture the product that is protected by the patent”. Further, “it is not necessary that any other domestic party manufacture the protected article”. So long as “the patent covers the article that is the subject of the exclusion proceeding” and “the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property”, that party is entitled to seek relief at the ITC. Thus, Section 337 protects a range of American industries, “including American industries that are built on the exploitation of intellectual property through engineering, research and development, or licensing”.

The Federal Circuit’s InterDigital decision confirms the ITC’s relatively consistent holdings permitting entities engaged in patent licensing, but not manufacturing, to seek exclusion of infringing goods from the US market. But several limits on the domestic-industry requirement remain. To satisfy the domestic-industry requirement, licensing activities must both reflect “substantial investments” and relate to the patents asserted at the ITC. Further, litigation expenses must be closely tied to licensing to contribute to a licensing domestic industry. Parties should keep these limits in mind when relying on licensing activities to establish a domestic industry.

First, Section 337 requires “substantial investment” in the patent’s exploitation. In other words, a party’s investment in licensing, engineering, or research and development must be of a scope that, alone, establishes a domestic industry. That issue was not seriously contested in the InterDigital case, where the complainant had invested millions of dollars in licensing efforts within the US over several years. But the amount spent on licensing activities may bar some less-established licensing-focused entities from asserting patents at the ITC.

Second, the InterDigital decision did not eliminate the requirement that the claimed investments relate to the asserted patent. There can be no domestic industry without a sufficient nexus between the economic activity and the asserted IP. Again, this was not involved in the InterDigital appeal, where respondent Nokia had not challenged the ITC’s finding that a sufficient nexus existed. That nexus requirement may, however, prevent future litigants from establishing a domestic industry by relying on the licensing of patents unrelated to the patents asserted at the ITC.

Third, the InterDigital decision does not guarantee that a party’s prior litigation expenses establish a domestic industry. As the Federal Circuit explained in John Mezzalingua Associates v. ITC, 660 F.3d 1322 (Fed. Cir. 2011), expenditures on patent litigation, even if substantial, may not support a domestic industry where they have a limited connection to patent licensing. This was true in the Mezzalingua case, even though some of the past litigation eventually led to licensing of the asserted patent. The ITC will consider factors such as the extent of pre-litigation licensing efforts, whether prior litigation sought injunctive relief, and the timing of licences. Where that analysis reveals only a tenuous connection between the claimed litigation expenses and the licensing effort, those expenses will not support a domestic industry.

In sum, the InterDigital decision confirms that, in some instances, licensing may establish the domestic industry necessary to assert a patent before the ITC, even without proof of manufacture. That said, while the doors to the ITC are open to licensing entities, success is not guaranteed. A party hoping to establish a licensing domestic industry must provide evidence regarding the size, scope, and purpose of its licensing expenditures. To establish a domestic industry, those licensing efforts must represent a “substantial investment”, within the US, that relates to the asserted patents.

Smith R. Brittingham IV and Jeffrey C. Totten are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. Mr Brittingham can be contacted on +1 (202) 408 4158 or by email: smith.brittingham@finnegan.com. Mr Totten can be contacted on +1 (202) 408 4232 or by email: jeffrey.totten@finnegan.com.

Smith R. Brittingham IV and Jeffrey C. Totten

Finnegan, Henderson, Farabow, Garrett & Dunner, LLP