ITC Now Requires Satisfaction of the “Technical Prong” for Licensing-Based Domestic Industries - Certain Computers and Computer Peripheral Devices, and Components Thereof, and Products Containing the Same

by McDermott Will & Emery

Reversing course from longstanding practice, the U.S. International Trade Commission (ITC or Commission) has held that proof of “articles protected by the patent” (i.e., a technical prong) is now required for satisfaction of the domestic industry requirement (DI requirement), even where the DI allegation is based on licensing investments under 19 U.S.C. § 1337(a)(3)(C).  Certain Computers and Computer Peripheral Devices, and Components Thereof, and Products Containing the Same, Inv. No. 337-TA-841 (Comm’n Op., public version Jan. 9, 2014) (Comm’r Aronoff dissenting)

The domestic industry requirement of § 337 has traditionally required satisfaction of both the “economic prong” and the “technical prong.”  However, the Commission’s practice had previously been not to require a complainant to demonstrate a technical prong in the form of articles practicing the asserted patents for a licensing-based domestic industry.  The Commission based this approach primarily upon the legislative history adding § 337(a)(3)(C) to the domestic industry requirement in 1988.  In the 841 investigation, the administrative law judge (ALJ) relied upon this practice to find that the complainant Technology Properties Limited (TPL) satisfied the domestic industry requirement even though it did not prove the existence of any articles protected by the patent.

In its review of the ALJ’s Initial Determination, the Commission reconsidered its prior practice in light of certain recent U.S. Court of Appeals for the Federal Circuit decisions.  In particular, the Commission interpreted the Federal Circuit’s recent holdings in InterDigital v. ITC (IP Update, Vol. 16, No. 1) and Microsoft v. ITC (IP Update, Vol. 16, No. 10) as requiring articles protected by the patent even for licensing-based domestic industries.  In InterDigital, the court held that “just as the ‘plant or equipment’ referred to in subparagraph (A) [of § 337(a)(3)] must exist with respect to articles protected by the patent, such as by producing protected goods, the research and development or licensing activities referred to in subparagraph (C) must also exist with respect to articles protected by the patent, such as by licensing protected products.”  The Commission found that that “the only plausible interpretation of the opinion is to impose an ‘articles’ requirement for subparagraph (C) domestic industries, including licensing-based domestic industries.”  The Commission further stated that the InterDigital opinion should not be misconstrued to suggest that this requirement may be satisfied by merely pointing to the articles that are accused of infringement.  Additionally, in Microsoft, the Federal Circuit held that §§ 337(a)(2),(3) “unmistakably requires that the domestic company’s substantial investments relate to actual ‘articles protected by the patent.’”  The Commission indicated that “[w]hile Microsoft was decided in the context of engineering and research and development, we do not interpret the opinion to provide a special, and more lenient, test for licensing-based industries.”

Although proof of articles protected by the patent was required, the Commission refused to impose a “production-driven” requirement on licensing-based domestic industries.  The Commission noted that it has only previously “expressed a preference—but not a requirement —for production-driven licensing, giving more weight to evidence of such licensing.”  Applying this revised interpretation of the statutory requirement, the Commission found that TPL failed to satisfy the requirement because it did not prove that any of its own or its licensees’ articles practiced the asserted patents.

In dissent, Commissioner Aranoff relied upon the legislative history and prior Commission precedent to argue that satisfaction of articles protected by the patent should not be required for licensing domestic industries.  Commissioner Aranoff expressed the view that the better reading of the InterDigital opinions is that they do not bind the Commission to requiring an articles requirement for licensing-based domestic industries under § 337(a)(3)(C) because that would be consistent with the Federal Circuit’s ultimate decision to uphold the Commission’s determination of the existence of a domestic industry where InterDigital did not allege, and the Commission never found, any specific articles that practiced the asserted patents.

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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