The International Trade Commission has issued its final determination in the first Section 337 investigation conducted under an expedited procedure. When the Commission instituted Certain Products Having Laminated Packaging, Laminated Packaging, and Components Thereof (Inv. 337-TA-874) (“Laminated Packaging”) earlier this year, it directed the presiding judge to conduct an early hearing and to issue an early decision on whether the complainant had satisfied the economic prong of the domestic industry requirement. 78 Fed. Reg. 19007, 19008 (March 28, 2013). On July 5, the judge issued an initial determination which found that the complainant had not demonstrated that the economic prong had been satisfied. Order No. 15. On September 3, 2013, the Commission issued its final determination affirming the judge’s decision with respect to the economic prong issue.
Section 337 requires that a domestic industry either exist or be in the process of being established before relief will be granted. Section 337(a)(3) states that:
[A]n industry in the United States shall be considered to exist if there is in the United States, with respect to articles protected by the patent… concerned –
(A) significant investment in plant and equipment;
(B) significant employment of labor or capital; or
(C) substantial investment in its exploitation, including engineering, research and development, or licensing.
19 U.S.C. § 1337(a)(3). The questions of how much the complainant (or its licensees) have invested in the activities described in the statute and whether these investments are “significant” or “substantial” are referred to as the “economic prong” of the domestic industry question.
The complainant in Laminated Packaging asserted that the “articles protected by the patent” consisted of not only the laminated packaging that was the focus of the asserted claims, but the products contained within the laminated packaging such as wine, candles, and cosmetics. The complainant went on to argue that the investments its licensees – manufacturers and sellers of wine, candles, and cosmetics – had made in the products contained in the packaging should be included in the domestic industry analysis.
The judge rejected the complainant’s argument. The judge stated that the “critical question” before him was whether the laminated packaging used by the licensees was integral to the products such that the product and packaging should be considered as a whole for purposes of the economic prong analysis. He ruled that the complainant had failed to provide evidence showing that the packaging is “so essential or integral to the licensees’ final products that it should be considered part of the final product” and found that the “domestic industry product” was limited to the packaging only. The judge went on to find that because the complainant had provided evidence as to how much its licensees invested in the product and packaging together, and failed to provide sufficient evidence showing how much the licensees invested in packaging alone, it had failed to carry its burden with respect to the economic prong of the domestic industry requirement. The judge further found that even if one accepted at face value the complainant’s evidence regarding the amount of its licensees’ investments, it had failed to provide a context for determining whether these investments were “significant” and had failed to establish that the licensees’ packaging was manufactured in the United States. Finally, the judge held that the complainant had failed to establish that its expenditures on patent infringement litigation were clearly linked to licensing efforts, or that these expenditures were “substantial” as required by the statute.
Upon review of the judge’s decision, the Commission agreed, noting:
[Complainant’s] arguments to the ALJ were based predominantly on [complainant’s] mistaken premise that it ought to be able to capture its licensees’ expenditures related to products, such as candles or lip gloss, placed in laminated packages rather than the expenditures related only to the laminated packages themselves.
Commission Opinion at 15.
The Commission affirmed the judge’s analysis and conclusion, finding that the domestic industry product was the packaging alone, that the complainant had failed to explain how its claimed expenditures were “significant” or “substantial”, and that the complainant had “failed to provide any context or benchmark” that would enable it to determine the substantiality of its investments. Commission Opinion at 16-19 (original emphasis). The Commission also addressed the complainant’s assertion that the unpaid work of two of the complainant’s principals in enforcing the patents at issue should be considered in the domestic industry analysis:
While the Commission does not require precision in documenting sweat equity, some evidence sufficient to verify this investment is needed to support such a claim. The importance of this type of support is particularly indispensable here because [the principals] owned, and divided their time among, more than twenty other companies.
Commission Opinion at 19-20
The Commission found that the complainant had waived the argument that its principals’ “sweat equity” should be part of the domestic industry analysis, but that in any event the evidence presented was not sufficiently reliable to be credited toward a showing that a domestic industry existed. Commission Opinion at 20.
In Laminated Packaging, the Commission was able to successfully utilize an expedited procedure to dispose of a Section 337 investigation. Details about the Commission’s pilot program under which it will utilize such a procedure when appropriate in the future can be accessed here.
 A portion of the judge’s initial determination questioned whether the Commission had the authority to institute the expedited procedure. The Commission addressed this portion of the ID in its final determination and concluded in the affirmative.
The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.