August 2014: ITC Litigation Update: ITC Tightens Domestic Industry Requirement for Licensors After Recent Federal Circuit Decisions: Certain Computers and Computer Peripheral Devices, and Components Thereof, and Products Containing Same, Inv. No. 337-TA-841 (Jan. 2014).

by Quinn Emanuel Urquhart & Sullivan, LLP

The Commission recently modified its longstanding practice by holding that licensing investments must be tied to articles that practice the patent in order to satisfy the domestic industry requirement. Comm’n Op. at 32 (“Certain Computers”). The Commission imposed this “articles” requirement based on recent Federal Circuit decisions. Id. at 44.

First, in InterDigital Communications, LLC v. International Trade Commission, the Federal Circuit confirmed that the domestic industry requirement may be satisfied by licenses. 707 F.3d 1295 (Fed. Cir. 2013) (denial of rehearing en banc). In doing so, the Federal Circuit stated that a domestic industry under subparagraph (C) of 19 U.S.C. § 1337(a)(3)—which requires a “substantial investment in [the patent’s] exploitation, including engineering, research and development, or licensing”—must “pertain to products that are covered by the patent that is being asserted.” Id. at 1297-98. The Federal Circuit noted that the requirements under subparagraph (C) parallel the requirements under subparagraphs (A) and (B), which have long been understood to require a showing that the investments relate to products that practice the asserted patent. Thus, in order to satisfy subparagraph (C), the domestic industry investments must likewise “exist with respect to articles protected by the patent.” Id. at 1298. In Certain Computers, the Commission found that “the only plausible interpretation of [this] opinion is to impose an ‘articles’ requirement for subparagraph (C) domestic industries, including licensing-based domestic industries.” Comm’n Op. at 32.

Second, in Microsoft Corporation v. International Trade Commission (decided after InterDigital), the Federal Circuit held that a complainant at the ITC must “provide evidence that its substantial domestic investment—e.g., in research and development—relates to an actual article that practices the patent, regardless of whether or not that article is manufactured domestically or abroad.” 731 F.3d 1354, 1362 (Fed. Cir. 2013) (citing InterDigital, 707 F.3d at 1299, 1304). Notably, the Federal Circuit decided this case in the context of a domestic industry based on the research and development portion of 19 U.S.C. § 1337(a)(3)(C), but the Commission held that the articles requirement also extends to other types of investments under subparagraph (C), including licensing. Certain Computers, Comm’n Op. at 35.

The Commission’s decision in Certain Computers potentially limits access to the ITC for complainants that would rely on licensing to prove the existence of a domestic industry. These potential complainants include patent assertion entities and other non-practicing entities such as universities, startups, and inventors. The Commission’s decision will deny access to the ITC to parties whose licensed patents are not practiced. Thus, potential complainants must: (a) determine if any of their licensees’ products actually practice a claim of the asserted patent, and (b) if so, ensure that they can marshal sufficient evidence to make this showing during the investigation. And for those parties whose licensed patents are practiced, the Commission has likely increased the burden and cost of bringing an ITC complaint.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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