The expenses incurred in patent litigation do not automatically qualify as a substantial investment in licensing to satisfy the “domestic industry” requirement of 19 U.S.C. § 337 even if that litigation culminates in a patent license.  Rather, an ITC complainant must establish a nexus between its litigation expenses and licensing of the patent-at-issue and establish that the investment was substantial.

This case came to the Federal Circuit on appeal from the International Trade Commission (“ITC”) where PPC filed a complaint asserting that the importation of certain coaxial cable connectors constituted patent infringement and therefore violated 19 U.S.C. § 337.  PPC challenged the determination of the International Trade Commission that it failed to prove the “domestic industry” requirement to establish a violation of section 337.  The Federal Circuit affirmed.

Section 337 makes it unlawful to import articles that infringe a valid and enforceable U.S. patent only if a “domestic industry” relating to the articles protected by the patent exists.  A complainant can satisfy the domestic industry requirement by establishing one of the following; (1) significant investment in plant and equipment; (2) significant employment of labor and capital; or (3) substantial investment in its exploitation, including engineering, research and development, or licensing.  PPC had spent years litigating the patent-at-issue and other patents in three separate courts, which concluded in a patent license to the other party in that litigation.  The principal issue on appeal is whether the expenses PPC incurred in asserting and defending the validity of the patent constituted a “substantial investment in exploitation” of the patent through licensing.

The ITC acknowledged that in some circumstances enforcement-related litigation expenses may support a finding that a domestic licensing industry exists.  However, The ITC found that PPC had not adequately tied its litigation expenses to licensing and that any investment PPC had made in licensing was not substantial.  The Federal Circuit agreed with the ITC that patent litigation expenses should not automatically be considered a substantial investment in licensing even if the lawsuit culminates in a license.  The Federal Circuit also found substantial evidence supported the ITC’s factual findings that PPC had not established a nexus between its litigation expenses and licensing and that any licensing expenses were not substantial.  The Federal Circuit found the following factors important; (1) there was no evidence of licensing efforts pre-litigation or during the litigation; (2)  PPC obtained a permanent injunction for two years prior to the license evidencing the purpose of litigation was to exclude rather than license; (3) the particular litigation resulting in the license of the patent-at-issue involved a different patent; (4) the minimal legal expenses related to the negotiation and drafting of the license agreement was not a substantial investment; and (5) PPC had no formal licensing program and there was no evidence of licensing to others.

A copy of the opinion can be found here.