Context: In 2020, Zircon filed a complaint with the United States International Trade Commission (USITC or ITC) against Stanley Black & Decker that gave rise to an investigation In the Matter of Certain Electronic Stud Finders, Metal Detectors and Electrical Scanners (no. 337-TA-1221). The Administrative Law Judge (ALJ) identified the infringement of some valid patent claims, but threw out the complaint for failure to establish the domestic industry requirement, which the Commission (the highest level of the agency) affirmed.
What’s new: Today the United States Court of Appeals for the Federal Circuit affirmed the ITC decision based on Zircon’s failure to establish the economic prong of the domestic industry requirement (PDF). Like the ITC, the Federal Circuit considered it insufficient for a complainant to present only aggregated economic data (for the purpose of proving a significant or substantial domestic industry investment) for an entire group of products in this case, where only 14 of 53 domestic industry products practice all three patents-in-suit while each of the others practices only one or two of those patents.
Direct impact: Unless a further appeal changes the outcome, complainants must now be careful in similar scenarios to provide economic data (such as on R&D investment) separately for a subset of domestic industry products that practices all of the asserted patents or for a subset that practices only a given one. The starting point is that the domestic industry investment must be proved with respect to each patent. It’s also possible to rely on products that each practice all of the asserted patents. But conflating products the way Zircon did won’t work. Today’s Federal Circuit ruling also clarifies that reliance on the ITC’s decision in Certain DRAMs (according to which substantial overlap is sufficient) is misplaced now because the relevant part of Section 337 (the law governing ITC unfair import investigations) was subsequently (in 1988) amended.
Wider ramifications: The domestic industry requirement is also the single most important issue in Apple’s appeal of the Apple Watch ban (April 6, 2024 ip fray article). But in the Apple Watch decision (further to Masimo’s complaint), the ITC took a rather permissive approach to the permissive industry requirement. The two cases raise fundamentally different domestic industry questions, but the fact that the Federal Circuit today affirmed a rather restrictive approach is, at minimum, not a bad sign for Apple’s appeal with a view to the Federal Circuit’s stance on the scope of ITC jurisdiction.
The technical prong of the domestic industry requirement (which is essentially an “infringement” analysis concerning the complainant’s domestic industry products) is undisputed on appeal. It’s all about the economic prong (proving patent-related investments). This passage from the Federal Circuit opinion explains the key issue:
“Throughout these proceedings, Zircon has relied on evidence of its cumulative expenditures on all 53 of its domestic industry products to argue that its investments in plant and equipment, labor or capital, and/or research and development have been significant or substantial. Zircon has acknowledged, however, that not all 53 products practice all three of the asserted patents. Rather, Zircon’s evidence showed that of the 53 products, 14 practice all three of the asserted patents; 21 practice both the ’771 and ’185 patent; 16 practice only the ’662 patent; and two practice only the ’771 patent. […] Zircon did not allocate its expenditures on its 53 stud finder products separately with respect to each of its products or each of the asserted patents. The Commission found that Zircon’s failure to do such an allocation precluded the Commission from evaluating the significance of Zircon’s investments with respect to each asserted patent.”
The Federal Circuit also clarifies that this does not mean there always has to be patent-by-patent evidence of a significant or substantial investment:
“Such a showing might be made, in an appropriate case, without necessarily breaking out investments on a per-patent basis, provided that sufficient evidence is presented to persuade the Commission that the domestic industry requirement is met for each patent. Hence, we agree with Zircon and the Commission that [the] investments do not always need to be broken down patent-by-patent.”
What the ITC would have wanted to see is some disaggregated data, particularly concerning products that practice all patents-in-suit or a single patent-in-suit. Zircon not only disputed the requirement but also argued on appeal that somehow it did meet it. One part of that argument relates to declarations that were submitted, but there was also an in limine ruling excluding some of the related evidence, and Zircon did not challenge that while it could:
“The patent-by-patent allocation of Zircon’s expenditures was not properly before the Commission, and its exclusion is therefore not part of the appeal before us.”
It is politically important for the ITC to maintain a reasonably high standard for the satisfaction of the domestic industry requirement. In this case, the ITC may have been rather strict. In some ways, this case is actually much closer to the ITC’s mandate as envisaged by Congress than cases where the domestic industry argument is solely based on licensing activity, let alone a case like Masimo’s, where the ITC relied on plans for a future product release. The ITC fulfills an important role in U.S. patent enforcement, but from time to time there are lobbying activities aiming to narrow the scope of the ITC’s jurisdiction. The case the Federal Circuit decided today is an excample of the ITC having made a reasonably restrictive decisions relating to the domestic industry requirement.