Adduci, Mastriani & Schaumberg LLP

Coaxial Cable — Clarifying 'Domestic Industry'

Law360, New York (April 15, 2010) -- In a long-awaited decision in the field of Section 337 practice, the U.S. International Trade Commission has brought greater clarity to the concept of "domestic industry" to the extent it involves "exploitation" of patents.

Being a trade statute, the exclusionary remedy of Section 337 is available only to companies which can establish they are part of an "industry in the United States." Historically, that meant proving that the company actually made something in the United States utilizing its patent or other intellectual property rights.

In 1988, Congress, recognizing that a great deal of manufacturing had moved off-shore but that enforcement of patent rights had become even more critical, amended Section 337 to provide that a U.S. industry could be premised on substantial investment in "exploitation, including engineering, research and development or licensing" of the intellectual property in question.

Although it has been 22 years since the amendment, the meaning of this broadening provision did not come into focus until the advent of NPEs. By definition, companies to whom that label is properly applied do not practice the intellectual property rights they are seeking to exploit.

The ITC, in recent years, has become a battleground between those who believe that "exploitation" should have the broadest possible meaning, particularly in the context of litigation activities, and those who argue for a more narrow construction. The ITC, in the Coaxial Cable Connectors investigation (337-TA-650), stated that it "cannot embrace either of the opposing views."

Instead, the Commission has adopted a case-by-case approach to allow a nonmanufacturing complainant to demonstrate that it is exploiting the patent in a manner intended by Congress. To the extent it laid down any bright line rules, the ITC made it clear that "patent infringement litigation activities alone, i.e., patent litigation activities that are not related to engineering, research and development or licensing, do not satisfy the requirements" of the statute.

The ITC went on to say, "However, litigation activities (including patent infringement lawsuits) may satisfy these requirements if a complainant can prove that these activities are related to licensing and pertain to the patent at issue, and can document the associated costs." Thus, the ITC, while not recognizing litigation itself as satisfying the domestic industry test, will value it as contributing to a domestic industry if it can be shown to be related to a company's licensing efforts.

In perhaps its most far-reaching statement of intent, the ITC said "we will also consider licensing activities for which the sole purpose is to derive revenue from existing production." This bodes well for NPEs who, in today's parlance, are seeking to monetize the value of their patent portfolios on behalf of their investors.

While the legislative history with respect to this aspect of the 1988 amendments is admittedly lean, the ITC concluded that ordinary usage of the term exploitation supports an expansive reading of the term. That, in turn, will allow companies that can establish the necessary facts to avail themselves of Section 337's exclusionary remedy.

As the Coaxial Cable Connectors case demonstrates, a variety of facts must be viewed to allow the domestic industry analysis to be conducted.

The ITC instructs that, on remand, the Administrative Law Judge presiding over the investigation determine the extent to which complainant's "litigation activities and costs, including any relevant costs associated with conducting settlement negotiations and drafting and negotiating the license, may be related to licensing if, for instance, the patentee and accused infringer were in licensing negotiations before the suit was filed or while it was ongoing, if the patentee made a concerted effort to license the patent, or if the patentee has an established licensing program."

The ITC goes on to say that complainant "must show that each asserted litigation activity is related to licensing" of the asserted patents.

The ITC's decision not only establishes the analysis it will use in the future but also provides a blueprint for those who wish to use Section 337 as an IP enforcement tool but were uncertain as to the steps needed to be taken. While not every potential licensor will be able to meet these statutory criteria, the ITC has certainly clarified a murky issue surrounding its jurisdiction.

--By Tom M. Schaumberg, Adduci Mastriani & Schaumberg LLP

Tom Schaumberg is a partner with Adduci Mastriani & Schaumberg in the firm's Washington, D.C., office. He has conducted nearly 50 Section 337 investigations at the ITC and is the editor of “A Lawyer’s Guide to Section 337 Investigations Before the U.S. International Trade Commission,” published in February 2010 and offered by the American Bar Association. He may be contacted at schaumberg@adduci.com.

The opinions expressed are those of the author and do not necessarily reflect the views of Portfolio Media, publisher of Law360.

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