On February 7, 2017, the ITC issued a Notice modifying the ALJ’s Initial Determination in Certain Electric Skin Care Devices, Brushes and Chargers Therefor, and Kits Containing Same, ITC Inv. No. 337-TA-959 and issuing general and limited exclusion orders and cease and desist orders.  Of note, the Commission vacated but took no position on the ALJ’s holding that R&D-related expenditures should not be counted toward meeting the domestic industry requirement under subsections A or B of the statute.

Statutory Framework

The ITC has jurisdiction over cases involving “industr[ies] in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.”  19 U.S.C. § 1337(a)(2).  A complainant can meet this  “domestic industry” requirement by establishing that it has made a: (A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in the exploitation, including engineering, research and development, or licensing of the patent in suit.  19 U.S.C. § 1337 (a)(3).

The Case

On February 18, 2016, the complainant filed a motion for summary determination on the existence of a domestic industry and violation of Section 337 with respect to various defaulting respondents.  The ALJ found that a domestic industry exists and that a violation of Section 337 occurred with respect to the importation of the accused infringing products.

With respect to the domestic industry issue, the ALJ determined the complainant provided sufficient evidence of expenditures relating to facilities and personnel utilized for manufacturing under subsection (A) and (B), but held that the R&D-related expenditures should not be counted toward meeting the requirement for significant investment in plant and equipment (subsection (A)) or significant employment of labor or capital (subsection (B)).  ID at 24-26. The ALJ further explained that “non-manufacturing expenses would need to be backed out of the calculation of qualifying investments under subsection (A) and (B),” and instead that such R&D related expenses would only apply under subsection (C).

As noted in our April 2016 client alert, the ALJ’s holding on domestic industry seemingly contradicts previous Commission precedent.  For example, in Certain Marine Sonar Imaging Devices, Including Downscan and Sidescan Devices, Products Containing Same, and Components Thereof, the Commission held that a domestic industry existed under subsection (B) in light of expenditures on employees engaged specifically in research and development.  Marine Sonar Imaging, Inv. No. 337-TA-921, Comm’n Op. at 58-64.

On May 26, 2016, the Commission determined to review the 959 Investigation ID in part, including the ALJ’s findings on domestic industry.  The Commission, however, did not request any briefing on domestic industry topics.  In its Notice on review, with respect to the ALJ’s domestic industry findings, the Commission determined to:

1.  Vacate the subsection labeled “Significant Investment” on pages 21-22 of the ID;

2.  Take no position on, and therefore vacate, the ID’s analysis and findings pertaining to the ID’s determination that the “non-manufacturing expenditures would need to be backed out of the calculation of qualifying investments under subsections (A) as well as (B).” ID at 25;

3.  Affirm the ID’s finding that complainant satisfied the economic prong requirement under subsections 337(a)(3)(A) and (B); and

4.  Take no position on, and therefore vacate, the ID’s analysis and findings regarding whether complainant satisfied the economic prong requirement under subsection (C) of section 337(a)(3).

The Commission further determined to issue a general exclusion order with respect to products that infringe the asserted claims of U.S. Patent Nos. 7,320,691 and 7,386,906 and a limited exclusion order against respondents for products that infringe U.S. Design Patent No. D523,809 and asserted trade dress rights.  The Commission also entered cease and desist orders against the respondents.

Takeaway

Practitioners were eagerly awaiting the Commission’s take on whether expenditures on plant and equipment or labor and capital relating to R&D activities count towards subsections A and B of the domestic industry requirement.  Unfortunately, the Commission determined not to take a position on this nuanced legal question at this time.  The public version of the Commission’s opinion is not yet available.  It may provide some more insight on this issue.  Jones Day will continue to monitor the Investigation, and will provide updates as they develop.

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