On July 30, 2014, the U.S. International Trade Commission (ITC) issued the public version of Order No. 95, Administrative Law Judge (ALJ) Lord’s Initial Determination (ID) in the 897 investigation, terminating the investigation against Kenyon’s clients, Lenovo Group Ltd. and Lenovo (United States) Inc. (collectively, Lenovo), and other respondents, with a finding that complainant Optical Devices cannot establish a domestic industry under Section 337 of the Tariff Act of 1930, as amended. The ID is now pending review by the ITC.

A Licensing Entity Whose Patent-Related Activities Are Purely Revenue-Driven May Not Prove The Existence of A Domestic Industry Based On Licensee Investments Under Subsections 337(a)(3)(A) And (B), While Avoiding The Requirements Of Subsection 337(a)(3)(C)

Notably, the ID sets forth what may be considered a precedent-setting position, should the ITC affirm on review, that, absent evidence of a complainant’s “own patent-related activities and expenditures” or production-driven licensing, a licensing-based complainant may not rely solely on alleged activities and investments of a licensee under 337(a)(3)(A) and/or (B) to establish that it meets the economic prong of the domestic industry requirement. (ID at 1-2.) Until now, the ITC has generally permitted a complainant to rely on a licensee’s U.S. activities and investments to establish the domestic industry requirement of Section 337.

On the merits, Optical Devices, a company that exists solely to “monetize patents by demanding that companies already manufacturing products enter into license agreements,” (ID at 2), purported to establish domestic industry under Sections 337(a)(3)(B) and (C) based on alleged U.S. investments and activities of two licensees. Optical Devices made no attempt to prove any domestic industry expenditures of its own. (ID at 3.)

The parties filed competing motions for summary determination regarding the domestic industry requirement. In their cross-motion, Lenovo and the other respondents asserted that Optical Devices’ alleged evidence of an economic domestic industry based on its licensees was, among other things, not “significant” under 337(a)(3)(B) or “substantial” under 337(a)(3)(C) and not properly allocated. Lenovo and the other respondents also asserted that, contrary to the allegations in Optical Devices’ complaint, there was no detriment to the alleged domestic industry of Optical Devices’ licensees. Finally, Lenovo and the other respondents asserted that, because the licenses on which Optical Devices relied were revenue-driven, not production-based, the licensees’ alleged investments and activities should be disregarded in their entirety or at least given less weight, because revenue-driven licensing is generally entitled to less weight than production-driven licensing in the domestic industry analysis. See, e.g., Motiva LLC v. Int’l Trade Comm’n, 716 F.3d 596, 601 (Fed. Cir. 2013). In May, ALJ Lord issued Order No. 82 finding that the facts and law at issue counseled against permitting Optical Devices to rely solely on the activities of its licensees to establish a domestic industry and directing Optical Devices to show cause why the respondents’ motion for no domestic industry should not be granted. (Order No. 82 at 12-13.) The parties then extensively briefed the issue of whether Optical Devices could rely solely on its alleged licensees’ investments and activities to prove domestic industry in this investigation.

ALJ Lord concluded in her ID that Optical Devices is “purely a revenue-generating licensing entity whose licenses bear no relation to the production or development of patented technology” and that, as such, Optical Devices may not prove the existence of a domestic industry based only on the alleged domestic activities and investments of its licensees. (ID at 51.) She held that, to bring suit at the ITC, a licensor must demonstrate a “genuine connection to production-driven exploitation of a patent” (ID at 1) – and found that Optical Devices failed to do so. In doing so, she carefully analyzed two lines of legal authority, the Schaper1 “line of cases” and the Multimedia Display2 “line of cases,” along with the parties’ contentions and the undisputed facts found in the record.

Procedural History of the Investigation and Other Findings

As additional background, Optical Devices alleged that Lenovo and others violate Section 337 based on infringement of U.S. Patent Nos. 6,904,007; 7,196,979; 8,416,651; RE43,681; RE90,927; and RE42,913, which relate to optical disc drives, and importation of alleged infringing computer, Blu-Ray and home theater products into the U.S. Optical Devices also alleged that its licensees investments with respect to the asserted patents satisfied the domestic industry requirement. On October 21, 2013, the ITC instituted an investigation based on those allegations.

Order No. 95 (the ID) terminated the investigation before the hearing scheduled for August 2014 with ALJ Dee Lord at the ITC could occur. The due date for petitions for review of the ID has passed and, while no party filed a petition, the ITC may order review on its own initiative if it appears that i) a finding or conclusion of material fact is clearly erroneous, ii) a legal conclusion is erroneous, without governing precedent, rule or law, or constitutes an abuse of discretion, or iii) the determination is one affecting Commission policy. 19 C.F.R. § 210.44. The ITC has 45 days in which to decide to review the ID, i.e., until September 2, 2014, unless it chooses to extend the time period. 19 C.F.R. § 210.43(d)(1).