By: Yury Kalish and Blaney Harper – In a recent decision, the ITC rejected respondent’s argument that complainant did not meet its domestic industry (“DI”) requirements because of declining investments over the years leading up to the Complaint.  In re Certain Magnetic Data Storage And Tapes And Cartridges Containing The Same (II), Inv. No. 1076 Initial Determination (October 25, 2018).  ALJ Cheney found that even in such circumstances the investment qualified as “significant” and therefore met the economic prong of the DI requirement.  The key factor in the ITC’s analysis was that the complainant maintained ongoing qualified activities with respect to relevant products.

In this investigation, Complainants (“Fujifilm”) accused Respondents (“Sony”) of infringing patents related to magnetic tape media for data storage.  In order to find that a violation of Section 337 had occurred, ALJ Cheney analyzes Fuljifilm’s domestic industry investments.

Under the statute, a complainant may satisfy the economic prong of domestic industry if its investment in plant or equipment, or its employment of labor or capital, is “significant.”  19 U.S.C. § 1337(a)(3)(A) and (B).  Fujifilm pointed to its investment in the manufacturing facility in Massachusetts in fiscal years 2013-2017.  Sony put forward several arguments challenging the significance of these investments, most of which were dismissed by ALJ Cheney as “attorney argument” and not evidence.  However, one of the arguments received substantive analysis.  Sony argued that Fujifilm’s domestic investments were insignificant because they have decreased since 2014 and that “the percentage of total sales by these products will never increase because new generations cannibalize the sales of older ones.”  Initial Determination at 167.  Sony relied on the Commission’s Opinion in Inv. No. 910 to argue that “[d]omestic industries that are in an advanced state of decline like Fujifilm’s are subject to particular scrutiny and are accorded less weight.”  Id. at 168.

ALJ Cheney acknowledged that “evidence of a diminishing domestic industry may be relevant in some contexts.”  Id.  For example, the Federal Circuit found that “complainant’s ‘old activities’ years before the filing of the complainant did not satisfy the domestic industry requirement.”  Id. (citing Motiva, LLC v. Int’l Trade Comm’n, 716 F.3d 596, 601 n.6 (Fed. Cir. 2013)).  However, ALJ  Cheney distinguished this case because here “Fujifilm’s domestic industry not only existed but [] Fujifilm continues to invest in that industry.”  Id.  Even as recently as the third quarter of FY2017, Fujifilm reported investments including depreciation expenses in plant and facilities, depreciation expenses in machinery and equipment, storage costs, and labor costs.  ALJ Cheney also noted that even in Inv. No. 910, cited by Sony, the Commission explicitly stated that “where production, development or sales of protected articles have declined or even ceased entirely, a domestic industry may nevertheless be established based on past significant or substantial investments relating to the protected articles provided that complainant continues to maintain ongoing qualifying activities under section 337(a)(3) at the time the complaint is filed.”  Id. at 168 (internal quotations omitted).  ALJ Cheney concluded that even though Fujifilm’s domestic investment has declined, it still had significant domestic investments relating to the products, and that it continues to maintain ongoing qualified activities as to those products.

Takeaway

This decision is another example of the complexities involved with satisfying the domestic industry requirement at the ITC.  Complainants and respondents alike should be mindful that declining investments can still form the basis for domestic industry but that without ongoing qualified activities with respect to relevant products, respondents may challenge the sufficiency of such investments.

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Blaney Harper, who co-chairs the Firms intellectual property ITC practice, focuses on strategic patent litigation representing electronics, software, and information technology companies in matters such as patent enforcement in United States District Courts and the International Trade Commission (ITC). Blaney also represents and counsels clients concerning patent portfolio development and patent prosecution and appeal, including Inter Partes Review, in the USPTO. Blaney co-chairs the Firm's ITC practice and is the IP Practice Coordinator for the Washington Office.