Federal Circuit Affirms ITC’s Determination on Sec. 337 Domestic Industry Litigation Expenses

ItoGuest Commentary

by Emi Ito Ortiz, Adduci, Mastriani & Schaumberg, L.L.P.

On May 13, 2013, in Motiva, LLC v. U.S. Int’l Trade Comm’n, No. 12-1252 (Fed. Cir. May 13, 2013), the Federal Circuit affirmed the International Trade Commission’s determination that a complainant failed to satisfy the domestic industry requirement of Section 337 based on litigation expenses allegedly related to licensing.  The case was an appeal from ITC Investigation No. 337-TA-743, Certain Video Game Systems and Controllers.  Section 337 requires a complainant to prove it has “an industry in the United States, relating to the articles protected by the patent . . .  [that] exists or is in the process of being established.”  19 U.S.C. § 1337(a)(2).  Such an industry can be based, inter alia, on a substantial investment in exploitation of the patent through licensing.  See 19 U.S.C. § 1337(a)(3)(C).  In Motiva, the Federal Circuit agreed with the ITC that litigation expenses can count towards the establishment of a domestic industry only if the litigation encourages the adoption and development of articles that incorporate the asserted patents.

Underlying Investigation.  In the underlying investigation, Motiva accused Nintendo of violating Section 337 by importing, selling for importation, or selling after importation its Wii game system, which allegedly violated two Motiva patents.  Nintendo asserted that Motiva had no domestic industry because it did not have commercialized products incorporating the asserted patents nor activities aimed at creating such products.  Instead, Motiva’s sole activity relating to the patents at issue was litigation against Nintendo, which was insufficient to establish a domestic industry.  The ITC sided with Nintendo, finding no domestic industry.

Federal Circuit’s Ruling.  The Federal Circuit found that there was substantial evidence to support the ITC’s determination that Motiva failed to satisfy the domestic industry requirement.  While the court acknowledged that a complainant could prove a domestic industry through litigation activities that are “substantial and directed toward a licensing program that would encourage adoption and development of articles that incorporated” the asserted patents, it found that the facts were clear that Motiva did not have those types of litigation activities.  The court rejected Motiva’s argument that winning the litigation against Nintendo was essential to developing investors and licensees, and that the Wii was the only obstacle to the adoption of its patent in the marketplace.  The panel agreed with the ALJ and the Commission that the presence of the Wii in the market had no impact on Motiva’s efforts to exploit its patents, that Motiva was never close to launching a product incorporating the patents nor showed any interest in doing so, and that Motiva’s litigation was targeted at financial gains, rather than encouraging adoption of its patents.

Nintendo Wii

Nintendo Wii

Motiva’s argument that the litigation was a necessary precursor to the development of an industry using the patented technology was weakened by evidence that it never asked for a preliminary injunction from the district court and waited three years before seeking relief from the Commission.  The Federal Circuit concluded there was “simply no reasonable likelihood that, after successful litigation against Nintendo, Motiva’s patented technology would have been licensed by partners who would have incorporated it into ‘goods practicing the patents.’” (quoting InterDigital Commc’ns, LLC v. U.S. Int’l Trade Comm’n, 707 F.3d 1295, 1299 (Fed. Cir. 2013)).

The Federal Circuit also affirmed the Commission’s use of the complaint’s filing date as the relevant date  at which to determine if the domestic industry requirement was met, consistent with Bally/Midway Mfg. v. U.S. Int’l Trade Comm’n,  714 F.2d 117 (Fed. Cir. 1983).  The court agreed with the Commission that Motiva’s development activities that ended around 2007 did not support the contention that a domestic industry existed or was in the process of being established at the time the complaint was filed, in 2010.

ImplicationsMotiva, LLC v. U.S. Int’l Trade Comm’n affirms the ITC’s interpretation of Section 337(a)(3)(C) that litigation expenses can be relied upon to satisfy the domestic industry requirement, but only if those expenses are related to encouraging adoption and development of articles that incorporate the asserted patents.

This is the second Federal Circuit case this year that has affirmed the ITC’s analysis regarding investments in licensing activities.  In January 2013, the Federal Circuit affirmed the ITC in InterDigital Commc’ns, LLC v. U.S. Int’l Trade Comm’n, finding that investment in licensing activities alone is sufficient to satisfy the domestic industry requirement, even if the complainant does not manufacture the product and no licensed products are produced domestically.  707 F.3d 1295 (Fed. Cir. 2013).  The Federal Circuit has also previously affirmed the ITC’s analysis that litigation expenses may support a domestic industry finding only if those expenses are related to licensing the asserted patents.  John Mezzalingua Associates, Inc. v. U.S. Int’l Trade Comm’n, 660 F.3d 1322 (Fed. Cir. 2011).

These decisions suggest that the Federal Circuit believes that the ITC’s approach to licensing-based domestic industries is appropriate and consistent with the statutory language.  Parties looking to the Federal Circuit to either reign in or loosen the ITC’s standards on domestic industry are likely to be disappointed.

Related WLF Educational Materials

CONVERSATIONS WITH: Patent Licensing And The U.S. International Trade Commission
Featuring The Honorable Dick Thornburgh, Of Counsel at the law firm K&L Gates LLP; Deanna Tanner Okun, a partner with the law firm Adduci, Mastriani & Schaumberg, L.L.P.; and Paul H. Roeder, Vice President and Associate General Counsel, IP Litigation and Disputes Group of Hewlett-Packard.

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