On February 11, 2015, ALJ Theodore R. Essex issued the public version of Order No. 13 (dated February 3, 2015) in Certain Loom Kits for Creating Linked Articles (Inv. No. 337-TA-923).

By way of background, this investigation is based on a July 1, 2014 complaint filed by Choon's Design Inc. ("CDI") alleging violation of Section 337 in the importation into the U.S. and sale of certain loom kits for creating linked articles that infringe claims 2-4 of U.S. Patent No. 8,485,565 (the '565 patent).  See our July 2, 2014 and August 5, 2014 posts for more details on the complaint and Notice of Investigation, respectively. 

According to the Order, CDI filed a motion for summary determination on domestic industry and that there has been a violation of Section 337 by Respondents Island In The Sun LLC ("Island"), Quality Innovations Inc. ("Quality"); Yiwu Mengwang Craft & Art Factory ("Yiwu"), Shenzhen Xuncent Technology Co., Ltd. ("Shenzhen"), My Imports USA LLC ("My Imports"), Jayfinn LLC ("Jayfinn"), Hongkong Haoguan Plastic Hardware Co., Limited ("HK Haoguan"), Blinkee.com ("Blinkee"), Eyyup Arga ("Eyyup") and Itcoolnomore (collectively, "Respondents") as well as a request for a general exclusion order.

Validity and Enforceability

ALJ Essex found that while an inter partes review ("IPR") challenging claims 1 and 5-14 of the '565 patent is pending before the Patent Trial and Appeal Board at the U.S. Patent & Trademark Office, the IPR does not challenge claim 4.  Additionally, because no arguments or evidence were presented in the investigation that claim 4 was invalid, ALJ Essex found that the '565 patent was valid and enforceable.

Importation

CDI argued that the accused products were manufactured abroad and then were sold in the United States and ALJ Essex agreed that the importation requirement was met by the Respondents.

Infringement

The '565 patent claims a method and device for creating a linked item. In the investigation, CDI asserted only dependent claim 4, which ultimately depends from claims 1-3.  With respect to claim construction, CDI noted that there was no dispute over the meaning of any particular claim terms.  CDI also defined a person of ordinary skill in the art as "a person having knowledge of the challenges faced by a designer for items for bracelet-making – in particular, challenges associated with both the design and manufacture of bracelet-making kits."  ALJ Essex agreed with, and adopted, the constructions proposed by CDI and also determined that each of the Respondents infringed claim 4 of the '565 patent.

Domestic Industry – Technical Prong

ALJ Essex next found that the evidence showed that the Rainbow Loom® practices each and every limitation of claim 4 of the '565 patent. Therefore, ALJ Essex found that CDI had satisfied the technical prong of the domestic industry requirement.

Domestic Industry – Economic Prong

CDI submitted that it has made, and continues to make, a substantial investment in the exploitation of the '565 patent including research and development.  CDI contended that all of the inventive activity and initial work occurred in the United States notwithstanding that its Rainbow Loom® is currently manufactured outside of the United States.

For example, CDI asserted that the inventor of the Rainbow Loom® fashioned the original prototype in his home in Michigan and then paid Wichita State University to manufacture a number of successful plastic prototypes.  CDI also argued that the inventor continued to refine the concept and paid a patent attorney to draft provisional, international (PCT), and non-provisional patent applications concerning the prototype loom kit.  Regarding the production of the kit, CDI asserted that the inventor spend several thousand dollars on molds and took a week off from his job to visit the Chinese factory that would eventually produce the Rainbow Loom® kits.  CDI asserted that the expenses were significant and represented the entirety of his family's savings at the time.

CDI also pointed out that the inventor and his wife spent countless hours in their home assembling the loom kits, that the inventor built a freight elevator in his home to move the heavy items, and that the inventor purchased a tractor to move heavy packages around his house and a parts washer to wash parts prior to assembly.  CDI contended that the inventor's time during the assembly was spent on quality control and enhancement.

CDI also noted that during this time, the inventor took an unpaid three month sabbatical from his engineering position at Nissan to develop his loom kit, giving up salary and risking his seniority and status at Nissan.  Moreover, CDI submitted that the inventor put forth significant effort and expenditures for the sale and marketing of the loom kits, including creating a website, planning, directing, and shooting instructional YouTube videos, and renting booths at trade shows.  CDI further submitted that the inventor's efforts were focused and concentrated, taking the product from conception to production in 10 months.

Based on the above evidence, ALJ Essex found that CDI had made investments in research and development of the Rainbow Loom® kits.  ALJ Essex further found these investments to be substantial because he used his personal money and his focused and concentrated efforts to create the Rainbow Loom® kit business within a couple of years helped create a domestic industry for his loom kit.  ALJ Essex found that the sufficiency of the evidence was further bolstered by the success of the Rainbow Loom® kit and the accolades that the inventor received.

Based on the above evidence, ALJ Essex granted CDI's motion for summary determination.

Remedy – General Exclusion Order

CDI argued that a general exclusion order prohibiting the entry of all infringing loom kits is warranted.  Specifically, CDI argued that there is a widespread pattern of unauthorized use as evidence by the presence of loom kits available via the internet. CDI also contended that the following business conditions warranted a general exclusion order:  (1) low barriers to entry into the market; (2) market conditions that invite infringers due to high potential profits on loom kits; (3) difficulty in identifying sources of knockoff Rainbow Loom® kits; and (4) the continued counterfeiting of Rainbow Loom® despite the threat of lawsuits, numerous cease and desist letters, and use of other intellectual property to stop the infringement.

After evaluating the evidence, ALJ Essex found that the evidence clearly showed that infringing multi-piece loom kits are widely available on the Internet.  Additionally, ALJ Essex found that (1) there is relatively easy entry into the loom market by those willing to copy the Rainbow Loom®, (2) that the market conditions invite infringers due to potential profits, (3) that because of the difficulty in identifying the manufacturers of infringing goods, it is hard to identify the source of the knockoff Rainbow Loom® kits, and (4) that the evidence of CDI's filing of nine lawsuits, sending of numerous cease and desist letters and 161 advisory letters, there was clear evidence that counterfeiting persists even as CDI uses other means to stop the infringers.  ALJ Essex also found that there was no evidence showing that a general exclusion order would place an undue burden on public health and welfare or competitive conditions in the United States or on U.S. customers.  Accordingly, ALJ Essex found that issuing a general exclusion order was warranted.  ALJ Essex also recommended a bond of 100% during the Presidential review period because it would be difficult to calculate the average price differential between CDI's loom kits and the infringing products.