May 2013: ITC Litigation Update -- Federal Circuit Addresses Licensing-Based Domestic Industry in Section 337 Investigations.

In August 2012, the Federal Circuit issued an opinion in InterDigital Commc’ns v. Int’l Trade Comm’n, No. 2010-1093, reversing and remanding the International Trade Commission’s finding of no violation in Certain 3G Mobile Handsets and Components Thereof, Inv. No. 337-TA-613. In so doing, the Court also rejected an alternative ground for finding no violation that Complainant InterDigital failed to establish the existence of a domestic industry because section 337 does not permit a complainant to satisfy the “domestic industry” requirement based on licensing activities alone. The Court held that the requirement of 19 U.S.C. Section 1337(a)(3)(C) is satisfied if there is a domestic industry based on substantial investment in the exploitation of the asserted patent(s) where the exploitation is achieved by various means, including licensing.

Respondents filed a combined petition for rehearing en banc and panel rehearing with respect to the issue of whether InterDigital’s patent licensing activities satisfied the domestic industry requirement under 19 U.S.C. Sections 1337(a)(2) and 1337(a)(3). The Court denied Respondents’ request for rehearing en banc and issued a 2-1 decision also denying Respondents’ request for panel rehearing on January 10, 2013. The accompanying opinion, authored by Judge Bryson, relied on a mix of textual analysis and legislative history in rejecting Respondents’ and the dissent’s arguments and concluding that InterDigital satisfied the domestic industry requirement through its licensing activities.

Respondents’ petition did not challenge whether InterDigital’s licensing investments were substantial. Rather, Respondents argued that the panel and the Commission misinterpreted the phrases “relating to articles protected by the patent” and “with respect to the articles protected by the patent” in paragraphs 337(a)(2) and 337(a)(3). In particular, Respondents argued that these phrases mandated that any alleged licensing activity “must be tethered to a tangible good.”

In rejecting Respondents’ petition, the Court analyzed the text of the statute and the meaning of the phrase “with respect to articles protected by the patent” in paragraph 337(a)(3). The Court first explained that the requirements under paragraphs 337(a)(3)(A) and (B) were typically met by a showing that investments in plant, equipment, labor or capital are being expended in the production of articles protected by the patent. The Court noted that applying the same analysis to subparagraph (C) produces a parallel result consistent with the proper statutory construction such that “the engineering, research and development, or licensing activities must pertain to products that are covered by the patent that is being asserted.” According to the Court, this interpretation “accords with the common description of the domestic industry requirement as having two ‘prongs’: the ‘economic prong,’ which requires that there be an industry in the United States, and the ‘technical prong,’ which requires that the industry relate to articles protected by the patent.” The Court concluded that InterDigital satisfied the domestic industry requirement under paragraph 337(a)(3)(C) “because the patents in suit protect the technology that is, according to InterDigital’s theory of the case, found in the products that it has licensed and that it is attempting to exclude.”

Judge Newman, in a sharp dissent, wrote that the majority “depart[s] from the statutory text and purpose” and “continues to err” in its understanding of the statute. Offering a stricter interpretation of the domestic industry test by requiring domestic manufacturing, Judge Newman argued that the legislative record is clear that the 1988 amendments to section 337—which added subparagraph (a)(3)(C) —“were enacted to encourage and support domestic production of patented products.” Judge Newman further argued that the majority’s interpretation conflicts with the weight of the Court’s precedents, which require domestic production, or preparation to produce, articles protected by the patent.

On May 10, 2013, Respondents filed a petition for writ of certiorari with the U.S. Supreme Court of the United States on the issue of “whether the ‘domestic industry’ requirement of section 337 is satisfied by ‘licensing alone’ despite the absence of proof of ‘articles protected by the patent.’”