ALJ Pender’s initial determination in Certain Mobile Device Holders and Components Thereof, Inv. No. 337-TA-1028 (Sept. 12, 2017), finding a violation of Section 337, provides important guidance on what investments count toward the economic prong of the domestic industry requirement.  Although Respondents provided no counterarguments because they had defaulted, ALJ Pender analyzed and challenged each of Complainant’s proofs, ultimately finding that the domestic industry requirement had been met.

The Decision

Under 19 U.S.C. § 1337(a)(2), the ITC will only investigate a claim for patent infringement where there is a domestic industry, i.e., “if an industry 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.”  Under ITC precedent, this requires showing, inter alia, an “economic prong” (which requires certain activities with respect to the protected articles).  One way to prove the economic prong, and the Complainant Nite Ize relied on, is to show the complainant’s own “substantial investment in [the asserted intellectual-property right’s] exploitation, including engineering, research and development, or licensing.”  Section 1337(a)(3)(C).

The bulk of ALJ Pender’s decision addresses the application of subsection (C)’s method of proving that the economic prong is met.  The highly redacted decision goes into detail addressing Nite Ize’s various proofs of domestic industry.  Although ALJ Pender did not agree with much of how Nite Ize attributed its investments, he ultimately found that its investments were substantial enough to meet the economic prong.

First, ALJ Pender addressed allocation of investment attributable to Complainant’s products that are covered by the patent, and thus relevant to subsection (C), as opposed to other unrelated products.  Nite Ize sought to use the ratio calculated by dividing gross profits from the covered products as compared to the companywide gross profits as a reasonable approximation for the percentage of the complainant’s investment properly attributable to the domestic industry products.  ALJ Pender rejected this as a general approach:  “[S]uch a profit-based allocation is only appropriate, if ever, for research and development.”  Revenue-based allocations, by contrast, are needed for estimating manufacturing, distribution, sales, and marketing-type investments.

The second noteworthy holding relates to which products are relevant.  Here, ALJ Pender rejected the Staff’s position that you only consider products that would practice the infringing method by themselves.  “Nite Ize’s research, even when it implicates products which do not directly practice the Asserted Patents,” is properly considered a qualifying, because it is part of the covered-product “ecosystem.”

Takeaway

ALJ Pender’s initial determination, which is still subject to Commission review, highlights the importance of presenting a detailed analysis with respect to domestic industry investments, and it provides specific advice on what information is relevant.  Complainants seeking a remedy from the ITC should endeavor to provide such an analysis even where the respondents have defaulted.

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