Parties in cases involving licensing-based domestic industries may want to be more alert regarding proof of facts in the current legal and political environment.

In a recent case, the U.S. International Trade Commission (ITC) continued the trend of fine-tuning the requirements for establishing a domestic industry based upon licensing activity.1

The case was brought by Rambus against various semiconductor manufacturers and their customers. There were two families of patents, one involving technology for signaling between a controller and a dynamic-random-access-memory device (DRAM) and another between a transmitter and receiver in a digital system. Administrative Law Judge (ALJ) Theodore R. Essex found all asserted claims in both families of patents invalid due to prior art. He additionally found the patent family involving technology for signaling between a controller and a DRAM invalid for "unclean hands." His initial determination did, however, find the existence of a U.S. domestic industry based upon Rambus' licensing activity.

The ALJ's unclean hands finding relates to Rambus' infamous "shredding parties," where pizza, beer and champagne were served to employees in a festive atmosphere while employees engaged in wholesale destruction of documents prior to Rambus' beginning to enforce its patents through litigation.2 In finding that Rambus' spoliation rendered the patents unenforceable under the unclean hands doctrine, the ALJ noted that "[n]ot since the long ago era of the Watergate hearings have the words 'I don?t recall' been used so regularly in answering questions under oath."3

The Commission confirmed the ALJ's claim construction, validity and unclean hands findings, thereby confirming that no violation of Section 337 had been established by Rambus. It went further, though, and reversed the ALJ's finding of the existence of a licensing-based domestic industry.

A domestic industry in a Section 337 case may be established by showing substantial investment in the exploitation of the asserted patents, including by licensing activities.4 Where the complainant's licensing activities and investments involve a group of patents or a patent portfolio, the complainant must present evidence that demonstrates the extent of the nexus between the asserted patent and the complainant's licensing activities and investments.5 The ITC looks at several factors to evaluate the strength of the nexus. The ITC considers: 1) the number of patents in the portfolio; 2) the relative value contributed by the asserted patent to the portfolio; 3) the prominence of the asserted patent in licensing discussions; and 4) the scope of technology covered by the portfolio compared to the scope of the asserted patent.6

To establish a nexus in this case, Rambus introduced three kinds of evidence: its total investment in its entire patent licensing program; the amount of licensing received for patent portfolios that included the two families asserted; and the number of licenses for each of these families.7 The ALJ then extrapolated from this data to reach his conclusion. In reversing the ALJ, the Commission found that it was insufficient to qualitatively or quantitatively determine the required allocation.8 Although the Commission reiterated that circumstantial evidence was sufficient and mathematical precision was not required, it declined to adopt the ALJ's reasoning that circumstantial evidence of the licensing revenues and number of licenses was an adequate proxy for the investments made in licensing the patent families asserted in the case.9

The Commission's findings on domestic industry in this case come in the wake of a similar finding against Freescale Semiconductors by ALJ Robert K. Rogers, Jr. In that case, Freescale sought to establish a domestic industry through its portfolio-wide licensing activities.10 The ALJ found that Freescale failed to meet its burden of showing a nexus between the asserted patents and the licensing activities by failing to properly allocate its expenditures.11

The Rambus case underscores the increasing scrutiny of licensing-based domestic industries in Section 337 litigation. There has been recent congressional criticism of licensing-based domestic industries.12 U.S. House Rep. Devin Nunes (R-Calif.) has circulated a draft bill to amend Section 337 to eliminate licensing from the statute. Parties in cases involving licensing-based domestic industries may want to be more alert regarding proof of facts in the current legal and political environment.