On April 14, 2010, in an important opinion that issued in the investigation named Certain Coaxial Cable Connectors and Components Thereof and Products Containing the Same, Inv. No. 337-TA-650, Comm’n. Op. (2010), the U.S. International Trade Commission (ITC) determined that litigation activities directly related to licensing of patent(s) at issue may be used to help to satisfy the economic prong of the domestic industry requirement of section 337(a) of the Tariff Act of 1930. In its opinion, the ITC emphasized that patent infringement activities alone (i.e., such activities that are not related to engineering, research and development, or licensing), do not satisfy the requirements of the economic prong, but litigation activities—including patent infringement lawsuits—may satisfy the economic prong if a complainant can prove that such activities are related to licensing activities that pertain to the patent(s) at issue, and can document the associated costs.

In a proceeding by the ITC where an exclusionary order is sought under Section 337, barring the importation of certain products found to infringe one or more claims of a valid patent, the ITC must find, among other things, that the complainant has a “domestic industry” in the U.S. for the products to-bebarred. 19 U.S.C. § 1337(a)(2). A finding of domestic industry requires the satisfaction of technical and economic “prongs.” The technical prong requires that the complainant establish that an industry practices at least one claim of a patent(s)-at-issue, whereas the economic prong requires the complainant to establish that an industry exists or is being established.

With respect to the economic prong, section 337(a)(3)(C) states that “an industry in the United States shall be considered to exist if there is in the United States . . . substantial investment in . . . exploitation [of the patent], including engineering, research and development, or licensing.” In its opinion in Certain Coaxial Cable Connectors, the ITC declined to determine that patent infringement litigation activities taken alone constitute “exploitation” under the section 337(a)(3)(C) because, as the ITC reasoned, such a determination would render the domestic industry requirement a nullity. The ITC further determined that allowing patent infringement litigation activities, standing alone, to constitute a domestic industry would place the bar for establishing a domestic industry so low as to effectively render it meaningless. The ITC did conclude, however, that licensing is an activity that is clearly within the realm of “exploitation” as contemplated by section 337(a)(3)(C), but the issue it must determine is whether litigation activities that are related to licensing may be considered exploitation.

The ITC first reasoned that the word “licensing” in section 337(a)(3)(C) suggests the “exploitation” of a patent in a manner similar to “engineering” and “research and development.” Furthermore, the ITC reasoned that “Congress contemplated that the domestic industry requirement would cover entities such as ‘universities and other intellectual property owners who engage in extensive licensing of their [patent] rights to manufacturers,’” and that the licensing provision was added to the domestic industry requirement in 1988 in order to overcome a Commission decision (see, Certain Products with Gremlin Character Descriptions, Inv. No. 337-TA-201, Comm’n. Op. (1986)) where a licensor was unable to show a then-existing injury requirement, notwithstanding that the licensees were able to do so.

The ITC concluded that in order to establish that a substantial investment in exploitation of the patent has occurred through licensing, a complainant must prove that each asserted activity is related to licensing, and that licensing activities pertain to the particular patent(s)-at-issue. Such activities may include, among other things, drafting and sending cease-and-desist letters, filing and conducting a patent infringement litigation, conducting settlement negotiations, and negotiating, drafting, and executing a license. The mere execution of a license does not necessarily capture all prior expenditures to establish a substantial investment in the exploitation of the patent(s)-at-issue, but a complainant must clearly link each activity to licensing efforts concerning the asserted patents.

Finally, when determining whether litigation activities related to licensing satisfy the economic prong, the ITC held that it may take into account certain factors, such as (1) the type of activity; (2) the relationship between the activity, licensing, and the patent-at-issue; (3) the amount of the investment; and (4) whether the activity is of a type that Congress explicitly indicated may establish a domestic industry (for example, activities that encourage practical applications of the invention or bring the patent technology to the market).