ITC — Recent Commission Opinion Emphasizes Need To Show A "Nexus" Between Patent Claims and An R&D Based Domestic Industry

Since the 1988 amendments to Section 337, complainants at the ITC have been able to rely on non-manufacturing activities to establish the required domestic industry under subparagraph (a)(3)(C). Those amendments expanded the protections of Section 337 to companies that might not make protected articles in the U.S., but were nonetheless investing in technology development in the U.S. Examples include complainants whose domestic industry is based on research and development of the technology (such as universities or companies that designed products in the U.S. but manufactured them abroad), as well as domestic industries based on licensing patents (such as non-practicing patent assertion entities).
Historically, the Commission did not require these complainants to prove the existence of an actual article that practiced the patented technology. For license-based domestic industries in particular, that meant the mere existence of the license could be sufficient, even where the licensees never practiced the technology. That practice changed with a pair of Federal Circuit cases InterDigital Communications v. ITC, 707 F.3d 1295 (Fed. Cir. 2013) and Microsoft v. ITC, 731 F.3d 1354 (Fed. Cir. 2013), which effectively added an "articles" requirement to subparagraph (C). See e.g. Microsoft, 731 F.3d at1362 (a complainant must "provide evidence that its substantial domestic investment—e.g., in research and development—relates to an actual article that practices the patent"). In other words, under InterDigital and Microsoft, a complainant asserting a subparagraph (C) domestic industry must now meet both what the Commission calls the "economic prong" of domestic industry (i.e., "substantial investment in its exploitation") as well as the "technical prong" (i.e. the existence of a protected "article" that practices the patent claims).
In the recent 859 Investigation, Certain Integrated Circuit Chips and Products Containing the Same, Inv. No. 337-TA-859, the Commission clarified that the new "article" requirement of the "technical prong" imposed by InterDigital and Microsoft did not replace or alter a different requirement under the "economic prong" showing under subparagraph (C): a complainant proceeding under subparagraph (C) must still show a nexus between the claimed licensing, engineering, or research and development activities, and the asserted patent claims. See 859 Investigation, Comm'n Op'n at 38 (Aug. 22, 2014). Investments in a product that happens to include the patented technology are now necessary, but may no longer be sufficient; rather, a complainant must show that the investments are sufficiently related to the patent claims themselves.
Complainant Realtek in the 859 Investigation failed to make such a showing. While Realtek was performing U.S. based research on a product that also happened to incorporate the patented integrated circuit bond-pad technology, the domestic research was unrelated to the asserted patent claims. See id. at 44-47. In rejecting Realtek's arguments that the domestic research was aimed at achieving the same kinds of improvements as the patents (e.g., faster and more reliable microchips), the Commission offered the analogy of "an automobile with an improved engine (developed in the United States) and patented tires (developed overseas)" that resulted in a "faster" car. See id. at 50. The Commission noted that in that situation, there would need to be an explanation for how investments in engine-related research should be credited to a tire-patent. Because all of Realtek's research on the patented bond-pad technology was performed outside the U.S., the Commission found that Realtek had failed to meet the "economic prong" of the domestic industry requirement. See id.
An important caveat to the Commission's decision in the 859 Investigation however, is the Commission's acknowledgment that evidence of an investment in an article may be sufficient where "such evidence supports the inference that the investment exploits the patented invention." See id. at 42. In other words, investments in products that embody the patented invention will likely be sufficient. Using the Commission's car analogy, if patent claims are directed to an entire car (e.g., "Claim 1. A car comprising...), then investments in research and development or engineering of the patented car itself would likely be sufficient to infer that the investments were directed to "exploitation" of the patented technology.
While it is too soon to tell whether the 859 Investigation reflects a stricter standard for showing a subparagraph (C) domestic industry, there is at least some indication that complainants performing traditional product research in the U.S. will still be able to rely on those investments to the extent the products embody the asserted patents. In the 912 Investigation, for example, Certain Earpiece Devices having Positioning and Retaining Structure and Products Containing Same, Inv. No. 337-TA-912, Complainant Bose Corporation successfully moved for summary determination on a subparagraph (C) domestic industry, with the ALJ finding that the "claimed investments [were] domestic activities that relate to exploitive activities for the domestic industry products," and "it was undisputed that the claimed investments relate to the exploitation of the [asserted] patent." See 912 Inv., Notice Of The Commission's Determination Not To Review An Initial Determination Granting Complainant's Mot. For Summ. Determination That The Economic Prong Of The Domestic Indus. Requirement Is Satisfied, at 2 (Oct. 7, 2014). Based on the public version of the complaint, Bose relied on investments in research, development, and design of certain "earpiece devices" (such as the Bose Bluetooth headset and Bose SIE2 sport headphones), taking place at their facilities in Massachusetts. See Compl. at 7-9. The complaint further described activities such as "development of products for manufacturing and sale" and "research, which encompasses invention and enhancement, into technologies that might be incorporated into future earpiece devices," occurring at Bose's facilities in the U.S. See id, Compl., Ex. 6 (public) at 2-3.
*Bose Corporation was represented in the 912 Investigation by Fish & Richardson attorneys, including one of the co-authors of this blog post.

Authors: W. Peter Guarnieri, Cherylyn Esoy Mizzo