As noted in a previous post, ALJ Lord issued a domestic industry ruling, which the Commission later vacated without position, finding that R&D-based investments in plant and equipment or labor and capital cannot count towards satisfying subsections (A) or (B) of the domestic industry requirement, 19 U.S.C. § 1337 (a)(3).  Two recent decisions from the ITC appear to conflict with ALJ Lord’s position, leaving the issue ripe for the Commission to directly address.

Statutory Framework

The ITC has jurisdiction over cases involving “industr[ies] in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.”  19 U.S.C. § 1337(a)(2).  A complainant can meet this “domestic industry” requirement by establishing that it has made a: (A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in the exploitation, including engineering, research and development, or licensing of the patent in suit.  19 U.S.C. § 1337 (a)(3).

Certain Electric Skin Care Devices

In Certain Electric Skin Care Devices, Brushes and Chargers Therefor, and Kits Containing Same, ITC Inv. No. 337-TA-959, the complainant provided evidence of expenditures relating to facilities and personnel utilized for both manufacturing and R&D.  ALJ Lord held that the R&D-related expenditures cannot be counted toward meeting the requirement for significant investment in plant and equipment (subsection (A)) or significant employment of labor or capital (subsection (B)).  ALJ Lord further explained that “non-manufacturing expenses would need to be backed out of the calculation of qualifying investments under subsection (A) and (B).”

She explained that, because subsection (C) was enacted after subsections (A) and (B), “there would have been no need to enact subsection (C) explicitly to include [investment in engineering, research and development, or licensing] as ones giving rise to domestic industry expenditures … subsection (C) cannot be superfluous; therefore, expenses for design, engineering and research and development cannot be allocated to [subsections (A) or (B)].”

The Commission, on review of ALJ Lord’s initial determination, affirmed the finding that the complainant satisfied the economic prong requirement under subsections (A) and (B), but vacated ALJ Lord’s findings pertaining to the determination that the “non-manufacturing expenditures would need to be backed out of the calculation of qualifying investments under subsections (A) as well as (B).”  And notably while the Commission vacated these particular findings, it specifically took no position as to whether R&D-based investments in plant and equipment or labor and capital can count towards satisfying subsections (A) or (B) in its opinion.

Certain Air Mattress Systems

In Certain Air Mattress Systems, Components Thereof, and Methods of Using Same, Inv. No. 337-TA-971, ALJ Bullock found that respondents’ products infringe one of the two asserted patents, but that there was no violation of Section 337 because the economic prong of domestic industry was not established.  As we previously posted, ALJ Bullock based his decision on an improper allocation of expenditures between the two asserted patents.

The Commission reviewed and reversed ALJ Bullock’s determination.  In its heavily redacted decision, the Commission appears to have found that expenditures relating to design and R&D can count towards satisfaction of at least subsection (B) of the domestic industry requirement.  Specifically, the Commission appears to have counted investments in “employees working on R&D, engineering and technical projects relating to the DI Products.”  It should be noted, however, that there is no indication that parties here raised the same arguments that ALJ Lord raised in Certain Electric Skin Care Devices, and, thus, it is not known whether the Commission addressed those arguments.

Certain Digital Video Receivers

In his recently issued initial determination in Certain Digital Video Receivers and Hardware and Software Components Thereof, Inv. No. 337-TA-1001, ALJ Shaw found a violation of Section 337 holding that R&D investments can count towards satisfaction of subsections (A) and (B) of the domestic industry requirement.  Here the issue was directly addressed.  Respondents specifically argued in their post-hearing briefs that R&D expenditures cannot be counted towards satisfaction of subsections (A) or (B).  Judge Shaw rejected this argument and specifically included complainants’ R&D expenses under both subsections (A) and (B).

Respondents have petitioned for review of Judge Shaw’s initial determination, but the Commission has not yet decided whether it will do so.

Takeaway

The open question of whether complainants can use R&D investments to satisfy subsections (A) and (B) of the domestic industry requirement could have significant ramifications for entities seeking remedies in the ITC.  For example, complainants relying on investments in R&D to meet subsection (C) must establish a nexus between the investments and the claimed subject matter of the patent—which is not required for satisfaction of subsections (A) or (B).

The Commission has an opportunity to provide direct guidance on this issue in the Certain Digital Video Receiversinvestigation, and resolve the apparent split in authority between the administrative law judges.  Given the recent departures of Commissioners Kieff and Pinkert, and no replacement nominations as of yet by the President, it is unclear how the currently constituted Commission might come out on this issue.

Until the Commission directly addresses this issue, complainants in the ITC should preserve arguments that their R&D expenditures count towards satisfaction of subsections (A) and (B), and respondents should preserve arguments that they cannot.