On October 4, 2011, a divided Federal Circuit panel issued an opinion that affirmed the Commission’s ruling in Inv. No. 337-TA-650, Certain Coaxial Cable Connectors and Components Thereof and Products Containing Same, that Complainant John Mezzalingua Associates, Inc. d/b/a PPC, Inc. (“PPC”) had failed to satisfy the “domestic industry” requirement. The panel majority ruled that it was appropriate for the Commission to conclude that the expenses PPC incurred in litigating the patent at issue did not rise to the level of a “substantial investment in exploitation” needed to satisfy the domestic industry requirement.

Section 337 prohibits the importation of articles that infringe valid and enforceable U.S. patents only if a domestic industry of products practicing the asserted patents “exists or is in the process of being established” in the United States. 19 U.S.C. § 1337(a)(2). PPC could have satisfied this “domestic industry” requirement by demonstrating “(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in [the asserted patents’] exploitation, including engineer, research and development, or licensing.” 19 U.S.C. § 1337(a)(3).

Because PPC had only licensed the asserted patent—a design patent—it was forced to rely on the third alternative. PPC had granted only one license for the design patent. That license was the result of a settlement agreement that ended years of litigation between PPC and two other parties.

The Federal Circuit Court agreed with the Commission that “expenditures on patent litigation do not automatically constitute evidence of the existence of an industry in the United States established by substantial investment in the exploitation of a patent.” (emphasis added). Indeed, the Commission had ruled the converse would lower the bar for satisfying the domestic industry requirement to such an extent as to effectively render it meaningless. Furthermore, the Court held that, in light of the evidence presented, the Commission properly found that the expenses that PPC had spent during the litigation on the negotiation and drafting of the licensing agreement were not “substantial.”

The dissent, penned by Judge Reyna, argued that the case should be remanded to the Commission to determine if PPC’s research and development expenses were a substantial investment in the patent’s exploitation, and whether PPC’s infringement litigation costs combined with those expenses were sufficient to establish a domestic industry. Characterizing the litigation expense issue as one of first impression, the dissent argued that an industry pattern of refusing to license patents and moving production between businesses overseas suggested there was at least an argument that litigation was necessary in order to obtain a license. Under these conditions, the Commission’s refusal to examine whether PPC’s litigation expenses should be considered for the purposes of establishing a domestic industry was an unduly narrow reading of Section 337.