The Increasingly Lenient ITC Domestic Industry Requirement

Historically, a company had to prove it actually made something in the U.S. utilizing its IP rights to prove a domestic industry. In 1988, Congress amended Section 337 to allow IP holders that do not manufacture products to obtain remedies based on substantial investment in “exploitation, including engineering, research and development or licensing” of their IP. One motivation to the amendment was to overturn an ITC decision denying relief to Warner Brothers in connection with copyrighted products because the ITC did not recognize licensing as a domestic industry.

Several cases in the past years showed that a broad interpretation of “domestic industry” has been embraced both by the ITC  and by the Federal Circuit. Most recently, in InterDigital Communications, LLC v. ITC, 690 F.3d 1318 (Fed. Cir. 2012), the Federal Circuit held “the required United States industry [for ITC actions] can be based on patent licensing alone; it does not require that the articles that are the objects of the licensing activities (i.e., the ‘articles protected by the patent’) be made in this country. That is, the domestic industry requirement is satisfied if there is a domestic industry based on ‘substantial investment in [the patent’s] exploitation’ where the exploitation is achieved by various means, including ‘licensing.’” Slip op. at 21-22.

The ruling changes the question from whether licensing alone can satisfy the domestic injury requirement to how little licensing may be sufficient. This substantially lowers the bar for NPEs.

The Federal Circuit was asked to re-hear the case, but declined. In January 2013, however, the Federal Circuit clarified that a complainant can prove domestic industry through evidence of patent licensing where (1) the investment relates to the exploitation of the asserted patent; (2) the investment relates to licensing; (3) the investment is domestic; and (4) the investment is substantial. Interdigital Communication, LLC v. ITC, 2013 U.S. App. LEXIS 689, No. 2010-1093 (Fed. Cir. 2013). The licensed articles, however, need not be manufactured in the United States. In that case, the Federal Circuit held the complainant (which had licensed its patents to major manufacturers of wireless devices) satisfied the domestic industry requirement even though the patented article was not made in the United States.

There is a growing concern that the standards for establishing domestic industry through licensing may be too lenient. In response, various solutions are being considered:

• The ITC has proposed new rules requiring complainants to state whether they claim a domestic industry already exists or is in the process of being established.
• One administrative law judge (ALJ) has begun requiring complainants to set fo>rth their domestic industry position in detail early on in the investigation.
• Other proposals would limit the domestic industry evidence to what the complainant sets forth in the complaint

The debate over domestic industry through licensing is far from over.  What is “substantial” licensing activity and whether and when litigation expenses can be used to establish a “substantial” investment are unresolved. If NPEs are perceived as gaining unfair access to the ITC, there may be a backlash from U.S. industry leaders and Congress may act again.