By: Spencer Beall and Blaney Harper – In a recently issued Commission Opinion, the ITC affirmed ALJ Bullock’s application of the Federal Circuit’s rule that a quantitative analysis must be performed in order to determine whether a complainant has satisfied the economic prong of the domestic industry requirement under Section 337(a)(3).   In the Matter of Certain Carburetors and Products Containing Such Carburetors, Inv. No. 337-TA-1123, Comm’n Op. (Oct. 28, 2019) (citing Order 77 (Aug. 12, 2019).  We have previously reported on different ways that complainants can satisfy the domestic industry standard, and how declining domestic investments may still qualify as significant.

In his Initial Determination, ALJ Bullock granted summary determination for Respondents upon finding that Complainant, Walbro, LLC (“Walbro”) failed to show substantial or significant investment in its patented carburetors to satisfy the domestic industry requirement.  To show the existence of a domestic industry under Section 337(a)(3), a complainant must demonstrate significant or substantial investment in its patented technology by providing evidence of (A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in exploitation, including engineering, research, and development, or licensing.  While Walbro tried to rely on qualitative data showing investment in activities necessary to sell its carburetors (e.g. calibration activities), this was not sufficient.  ALJ Bullock adhered firmly to the Federal Circuit’s rule in Lelo Inc., v. Int’l Trade Comm’n, 786 F.3d 879 (Fed. Cir. 2015) emphasizing how quantitative, not qualitative, data is required to satisfy the domestic industry requirement.

Walbro’s quantitative evidence showed that Walbro’s investment in its domestic industry carburetors was equivalent to less than 5% of Walbro’s carburetor sales.  Walbro argued that because the carburetor industry is declining, Walbro’s investment should carry more weight as significant added-value.  While ALJ Bullock noted that the domestic industry analysis is fluid and “depend[ent] on the facts in each investigation, the article of commerce, and the realities of the marketplace,” he held that Walbro needed to show a higher investment in proportion to its size as a large multinational company.  The Commission agreed with ALJ Bullock but made it a point to note that ALJ Bullock’s order should not be construed as setting a minimum required threshold, as that would be inconsistent with the ITC’s flexible approach to the economic prong of domestic industry.

With respect to the application Lelo, the Commission agreed with ALJ Bullock that once the ITC concludes an investment is insignificant based on the quantitative evidence, it cannot then disregard that conclusion and use qualitative factors to compensate for the deficiency.  Qualitative factors can influence the domestic industry analysis when the quantitative evidence is unclear but qualitative factors alone cannot compensate for quantitative factors that indicate insignificant investment.

Takeaway

This decision is a reminder that quantitative factors are required to establish domestic industry at the ITC.  While the analysis of “significance” is flexible and dependent on a number of factors, qualitative factors alone will not be sufficient under Section 337(a)(3).  Complainants and respondents should also be mindful that while there is no rule of thumb for what constitutes a “substantial” or “significant” investment, larger, multinational complainants will likely be expected to show a greater absolute investment than complainants of smaller size.

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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.