On May 11, 2015, the U.S. Court of Appeals for the Federal Circuit issued a precedential opinion reversing the International Trade Commission's (the "Commission") final determination finding a violation of Section 337 in Lelo Inc., et al v. Int'l Trade Comm'n (2013-1582). This was an appeal by Respondents Lelo Inc. and Lelo AB (collectively, "Lelo") in connection with Certain Kinesiotherapy Devices and Components Thereof (Inv. No. 337-TA-823).
By way of background, the investigation is based on a December 2, 2011 complaint filed by Standard Innovation Corporation and Standard Innovation (US) Corp. (collectively, "Standard Innovation") alleging violation of Section 337 in the importation into the U.S. and sale of certain kinesiotherapy devices and components thereof that infringe one or more claims of U.S. Patent No. 7,931,605 (the '605 patent) and U.S. Patent No. D605,779 (the D'779 patent). Standard Innovation withdrew the D'779 patent from the investigation. An evidentiary hearing was held in August 2012. On February 8, 2013, ALJ Pender issued an Initial Determination ("ID") construing the terms of the asserted claims and finding the '605 patent valid and infringed, but finding no violation of Section 337 on the grounds that Standard Innovation did not satisfy the economic prong of the domestic industry requirement. See our February 11, 2013 post for more details.
On March 25, 2013, the Commission determined to review the ID in its entirety. Seeour March 27, 2013 post for more details. After examining the record, petitions for review, and the parties' submissions, the Commission determined that Standard Innovation satisfied both the technical and economic prongs of the domestic industry requirement and that there was a violation of Section 337 with respect to the '605 patent. See our July 18, 2013 post for more details. Specifically, the Commission determined that Standard Innovation's purchases of crucial components from U.S. subcontractors satisfied the economic prong of the domestic industry requirement. The Commission noted that the ALJ failed to give "due consideration to the critical nature of the components to the patented products in the context of the industry and the company."
In its decision, the Federal Circuit reversed the Commission's finding that Standard Innovation satisfied the economic prong of the domestic industry requirement for the '605 patent. The Federal Circuit noted that "[t]his appeal turns on the single question of whether qualitative factors alone are sufficient to satisfy the 'significant investment' and 'significant employment' requirements of § 337." The Federal Circuit interpreted the plain text of § 337 as requiring "a quantitative analysis in determining whether a petitioner has demonstrated a 'significant investment in plant and equipment' or 'significant employment of labor or capital.'" The Federal Circuit rejected the cases cited by the Commission, which the Commission asserted stood for the proposition that qualitative data alone can satisfy the domestic industry requirements. Specifically, the Federal Circuit distinguished Certain Male Prophylactic Devices, Inv. No. 337-TA-546, USITC Pub. 4005, Comm'n Op. at 24–25 (June 21, 2007) by noting that Standard Innovation's U.S. suppliers are not contractors or subcontractors but are simply retailors and the components they supply are off-the-shelf. Looking to the Commission's quantitative analysis, the Federal Circuit agreed with the Commission's determination that Standard Innovation's investment and employment under prongs (A) and (B) were quantitatively "modest and insignificant." Accordingly, the Federal Circuit reversed the Commission and held that Standard Innovation did not satisfy the domestic industry requirement of § 337.