February 2013
Domestic Industry Requirement of Section 337 Does Not Require Domestic Production
| Judges: Newman (dissenting), Mayer, Bryson (author) |
| [Appealed from ITC] |
In InterDigital Communications, LLC v. International Trade Commission, No. 10-1093 (Fed. Cir. Jan. 10, 2013), the Federal Circuit denied a combined petition for panel rehearing and rehearing en banc concerning the domestic industry requirement of section 337, explaining that a party’s patent licensing activities may satisfy this requirement, even if no domestic party manufactures any article protected by the patent.
InterDigital Communications, LLC and InterDigital Technology Corporation (collectively “InterDigital”) asked the ITC to investigate whether two of its patents, U.S. Patent Nos. 7,190,966 and 7,286,847, were infringed by Nokia Inc. and Nokia Corporation (collectively “Nokia”). The ALJ found that Nokia did not infringe the InterDigital patents and the ITC affirmed. On appeal, the Federal Circuit held that the ITC erred in construing certain critical claim terms and reversed the ITC’s finding of no infringement. The Court also dismissed Nokia’s argument that InterDigital’s patent licensing activities did not satisfy the domestic industry requirement of section 337, holding that patent licensing alone may satisfy this requirement, regardless of whether the objects of the licensing activities are made in the United States. In a combined petition for panel rehearing and rehearing en banc, Nokia presented one issue: whether InterDigital’s patent licensing activities satisfied the domestic industry requirement of section 337.
In denying Nokia’s petition, the Federal Circuit first analyzed the text of paragraphs 337(a)(2) and337(a)(3). The Court focused its analysis on the phrases “relating to the articles protected by the patent” and “with respect to the articles protected by the patent,” which Nokia cited in support of its position that InterDigital’s patent licensing activities failed to meet the domestic industry requirement. In particular, the Court explored the application of the phrase “with respect to the articles protected by the patent” to subparagraphs 337(a)(3)(A)-(C). With respect to subparagraph 337(a)(3)(C), the Court stated that “[t]he ‘substantial investment in [the patent’s] exploitation, including engineering, research and development, or licensing’ must be ‘with respect to the articles protected by the patent,’ which means that the engineering, research and development, or licensing activities must pertain to products that are covered by the patent that is being asserted.” Slip op. at 3 (alteration in original). The Court found InterDigital’s licensing activities to present “a classic case for the application of subparagraph (C),” noting that InterDigital “licenses its wireless technology and patents to significant handset and device manufacturers throughout the world,” resulting in significant revenue, as well as substantial salaries and benefits for InterDigital employees engaged in licensing activities. Id. at 5-6. Moreover, the Court held that InterDigital’s “substantial investment in exploitation of its intellectual property” is “with respect to the articles protected by the patent,” as required by section 337, “because the patents in suit protect the technology that is . . . found in the products that it has licensed and that it is attempting to exclude.” Id. at 6.
“It is not necessary that the party manufacture the product that is protected by the patent, and it is not necessary that any other domestic party manufacture the protected article.” Slip op. at 16.
The Federal Circuit next considered the legislative history of the 1988 amendment to section 337, which introduced the statutory language at issue. The Court noted that, prior to the 1988 amendment, section 337 required proof that the challenged importation had the effect or tendency “to destroy or substantially injure an industry, efficiently and economically operated, in the United States, or to prevent the establishment of such an industry.” Id. at 8 (quoting 19 U.S.C. § 1337(a) (1982)). The ITC had interpreted that language to require proof of the existence (or prospect) of a domestic industry that was manufacturing the articles protected by intellectual property before excluding infringing products. In response to objections regarding the restrictive nature of this requirement, proposals were introduced in Congress to expand the coverage of section 337 to American industries that did not manufacture products but were engaged in engineering, research and development, or licensing of technology that others used to make products.
In discussing the legislative history of section 337, the Court highlighted the arguments set forth in favor of and in objection to eliminating the industry requirement from section 337. Those in favor of eliminating that requirement pointed out that the pre-1988 law “prevents intellectual property owners such as universities and research institutions from using the ITC for enforcing their patents.” Id. at 11 (citations omitted). Those against eliminating the industry requirement argued that doing so would convert the ITC’s mission from a trade forum into an intellectual property court and allow foreign owners of U.S. patents to bring exclusion actions before the ITC even though they had no substantial U.S. connections. The Federal Circuit characterized the resulting legislation as a “compromise bill,” stating that it “retained the industry requirement but made clear that it would not be necessary for a complainant to prove that patent-protected goods were being produced in this country.” Id. at 12. The Court observed that the House and Senate Reports made clear that section 337 was intended to protect domestic industries that were exploiting patents through means such as engineering, research and development, or licensing. The Court further considered it important to the disposition of this case that those reports explained that the new statutory provision “does not require actual production of the article in the United States if it can be demonstrated that significant investment and activities of the type enumerated are taking place in the United States.” Id. at 13 (citing H.R. Rep. No. 100-40, Pt. 1, at 157 (1987); S. Rep. No. 100-71, at 129 (1987)).
After analyzing the text and legislative history of section 337, the Federal Circuit briefly addressed Nokia’s argument that the panel’s decision departed from the Court’s prior precedent, stating that none of the cases cited by Nokia in support of that proposition addressed the issue presented in this case. Thus, the Court concluded that “section 337 makes relief available to a party that has a substantial investment in exploitation of a patent through either engineering, research and development, or licensing.” Id. at 16. The Court further held: “It is not necessary that the party manufacture the product that is protected by the patent, and it is not necessary that any other domestic party manufacture the protected article. As long as the patent covers the article that is the subject of the exclusion proceeding, and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337.” Id.
Judge Newman dissented. According to Judge Newman, the panel majority erred in holding that the domestic industry requirement is met by licensing the importation of foreign-made products. Judge Newman stated that the purpose of the licensing amendment to section 337 was to enlarge the benefit and incentive to domestic industry by giving licensors access to ITC exclusionary procedures; the purpose was not to eliminate the requirement of domestic manufacture of the licensed articles. Judge Newman also analyzed various ITC rulings on whether licensing alone satisfies the domestic industry requirement, noting that such rulings are conflicting. Judge Newman further stated that the majority’s interpretation of section 337 conflicts with the weight of Federal Circuit precedents, “which require domestic production, or preparation to produce, articles protected by the patent.” Newman Dissent at 27. Thus, based both on an analysis of the legislative history of section 337 and Federal Circuit precedent, Judge Newman concluded that the domestic industry requirement is not met by foreign manufactures.
