On June 10, 2014, ALJ E. James Gildea issued the public version of Order No. 47 (dated May 8, 2014) – an Initial Determination granting Complainant’s motion for summary determination that it satisfies the economic prong of the domestic industry requirement – in Certain Silicon Microphone Packages and Products Containing Same (Inv. No. 337-TA-888). 

According to the Order, Complainant Knowles Electronics, LLC (“Knowles”) filed a motion for summary determination that it satisfies the economic prong of the domestic industry requirement.  Knowles argued that it has made significant and substantial investments in plant and equipment, labor and capital, and engineering and research development related to the SiSonic product line.  Respondents, GoerTek, Inc. and GoerTek Electronics, Inc. (collectively, “GoerTek”) opposed the motion.  GoerTek argued that genuine issues of material fact precluded summary determination in favor of Knowles, including (1) that documents and deposition testimony undermined or contradicted material facts alleged by Knowles regarding its purported investments and expenditures; (2) that certain facts can only be verified through Knowles’ witness, and that ALJ Gildea should have an opportunity to examine the witness and evaluate his knowledge; (3) that Knowles failed to show a nexus between its alleged investments and the products allegedly practicing the asserted patents; and (4) that Knowles has not shown its alleged expenditures are significant or substantial in light of its worldwide or U.S. operations.  On January 15, 2014, Knowles filed a motion for leave to reply to GoerTek’s opposition to the motion.  ALJ Gildea granted this motion in part to the extent it was unopposed by GoerTek regarding the evidence of Knowles’ investments in equipment outside the United States.

Investments in Plant and Equipment

Knowles asserted that it has dedicated significant domestic facility space to its SiSonic product line including facility space at its Itasca, Illinois facility dedicated to engineering, research and development, and production of SiSonic microphone products.  Knowles also relied on a facility that it rents in Cupertino, CA that is used for research and development.  Knowles also asserted that it had substantial domestic equipment investments in the SiSonic product line based on the testing, manufacturing, and assembly of equipment used for engineering, research and development, and small production runs for the SiSonic products.  Knowles argued that these investments in domestic facilities and equipment satisfy subsection (A) of the domestic industry requirement. 

GoerTek argued that Knowles’ factual contentions regarding subsection (A) were undermined by Knowles’ own business records and testimony of its corporate designee.  GoerTek questioned the allocation of space at the Itasca facility because the diagram provided lacked dimensions or specific indications regarding the usage of the space and also argued that Knowles should have a detailed floor plan because of the facility’s recent expansion in 2011.  GoerTek also argued that Knowles must break out how much plant space is used solely for sales and marketing.  GoerTek also raised concerns about Knowles’ Cupertino facility, stating that the lease agreement indicates that it is used for non-technical tasks and that Knowles’ claims regarding monthly rent for the facility were contradicted by Knowles’ business records indicating the base rent.  GoerTek further questioned Knowles’ alleged investment in equipment stating that the corporate designee’s testimony undermined the claim that certain assets are used exclusively for SiSonic products and that Knowles’ calculation of equipment investment is incorrect because a certain asset was disposed of in October 2004 but never sold. 

After reviewing the parties’ arguments and the evidence cited, ALJ Gildea found that there was no material dispute regarding Knowles’ domestic-industry related plant and equipment investments.  Specifically, ALJ Gildea found that GoerTek had not set forth any real and substantial evidence to support judgment in its favor or to contradict or undermine the facts alleged by Knowles.  ALJ Gildea noted that GoerTek had not set forth any specific evidence showing the corporate designee’s declaration was erroneous or that his testimony lacked credibility and that even if GoerTek’s argument with respect to the calculation of a certain asset was viewed in the light most favorable to GoerTek and subtracted out, the figure was so small in relation to the undisputed expenditures to have no impact on the finding of substantial expenditures in plant and equipment. 

Investments in Labor and Capital

Knowles also asserted that it has significant domestic labor and capital dedicated to the SiSonic product line.  Knowles stated that it has numerous employees at both the Itasca and the Cupertino facility dedicated exclusively to the SiSonic product line. 

GoerTek argued that Knowles’ business records and the deposition of Knowles’ corporate designee undermined Knowles’ claims regarding labor and capital.  GoerTek argued that the corporate designee was unable to provide complete testimony regarding how the number of employees dedicated to SiSonic was determined and that he was unable to describe the responsibilities of many of the employees Knowles claimed as relevant to its domestic industry claims. 

After reviewing the parties’ arguments and the evidence cited, ALJ Gildea found that there was no material dispute regarding Knowles’ domestic-industry related labor and capital investments.  ALJ Gildea again found that GoerTek had not set forth any real and substantial evidence to support judgment in its favor or to contradict or undermine the facts alleged by Knowles.  Specifically, ALJ Gildea found that GoerTek had not provided any evidence to show that the employees at the Itasca facility live outside the United States and that whether the employees live in Illinois or over the state line does not controvert the fact that they are domestic employees of the Itasca facility. 

Investments in Engineering Research and Development

Knowles also argued that it would satisfy the domestic industry requirement under subsection (C) as a result of its substantial and on-going domestic investments in engineering, research, and development for the SiSonic products covered by the asserted patents.  Knowles asserted that it employs domestic engineers dedicated exclusively to SiSonic products and that the salary expenditures and hours worked by these engineers are sufficient to show a domestic industry.  GoerTek argued that Knowles relied on the same facts for investments in engineering and research and development as it did with respect to its alleged investments in labor and capital. 

After reviewing the parties’ arguments and the evidence cited, ALJ Gildea found that there was no material dispute regarding Knowles’ engineering and research and development-related investments.  ALJ Gildea again found that GoerTek had not set forth any real and substantial evidence to support judgment in its favor or to contradict or undermine the facts alleged by Knowles. 

Relation to the Asserted Patents

Knowles argued that its investments in SiSonic products are directly linked to the asserted patents and the articles protected by the asserted patents.  Knowles stated that it does not allocate its domestic facilities, equipment, and personnel to particular SiSonic products because each resource is used to further the entire SiSonic product line.  While Knowles argued that no additional allocation of its expenditures was needed to show a domestic industry, it also asserted that its investments would still meet the domestic industry requirements if the investments were allocated to the domestic industry products by applying relative percentages from sales figures. 

GoerTek argued that Knowles failed to show a nexus between its alleged investments and products allegedly practicing the asserted patents.  GoerTek asserted that Knowles could not rely on its investments in the entire SiSonic product line because only a portion of the products in that line are alleged to actually practice the asserted patents.  GoerTek also took issue with Knowles’ proposed allocation of investments based on sales figures because the majority of the sales relate to products manufactured in China and Malaysia. 

ALJ Gildea found that GoerTek’s arguments were unpersuasive based on the Commission’s holding that “[a] precise accounting is not necessary, as most people do not document their daily affairs in contemplation of possible litigation” and the fact that GoerTek does not dispute that all of the resources relied upon by Knowles are used in furtherance of the entire SiSonic product line.  ALJ Gildea also noted that GoerTek did not dispute the relevant facts regarding Knowles’ sales of SiSonic products and the allocation of investments based on relative percentages from sales figures.  Therefore, ALJ Gildea found that Knowles’ allocation of investments based on relative percentages of sales figures was appropriate and that there were no material disputes regarding those allocations.

Significance and Substantiality of Investments

Finally, Knowles argued that its investments were significant and substantial under any standard and in any context and that summary determination may be granted based on its significant domestic investments without considering its separate foreign SiSonic-related investments.  Additionally, Knowles argued that even if Knowles’ foreign investments were considered, there is no minimum relative domestic investment required. 

GoerTek argued that Knowles had not demonstrated that its domestic expenditures were significant or substantial in light of its total worldwide or domestic operations and that a comparison of Knowles’ overall operations was appropriate.  GoerTek further argued that even without a comparison Knowles’ claimed investments were insignificant and insubstantial and that comparing them to Knowles’ worldwide expenditures would just make them appear even less significant.

ALJ Gildea found that GoerTek’s arguments were unpersuasive and that, even in the context of Knowles’ worldwide activities, Knowles had established that it has made significant and substantial investments in its domestic industry related to its SiSonic product line and the products allegedly practicing the asserted patents.  Based on these findings, ALJ Gildea found that Knowles had met the economic prong of the domestic industry requirement under Section 337(a)(3)(A), (B), and (C).  Accordingly, ALJ Gildea granted Knowles’ motion.