United States: ITC Finds Expenditures For Discontinued Products Satisfy The Domestic Industry Requirement

In its January 6, 2016, Opinion in Certain Marine Sonar Imaging Devices, Including Downscan and Sidescan Devices, Products Containing Same, and Components Thereof, Inv. No. 337-TA-921 (public version), the  International Trade Commission ("ITC") reversed-in-part Administrative Law Judge Shaw's Initial Determination and, inter alia, clarified that, under certain circumstances, a complainant may rely on expenditures related to discontinued products to satisfy the economic prong of the domestic industry requirement.

Statutory Framework

The ITC has jurisdiction only over cases involving "industr[ies] in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established." Section 337(a)(2). This requirement is met only if there is "(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing." Section 337(a)(3).

The Case

Complainant Navico alleged a domestic industry for U.S. Patent No. 8,605,550 ("the '550 Patent") under subparagraphs (A), (B), and (C) of Section 337(a)(3) by relying on domestic expenditures between 2009 and the 2014 filing of the complaint for the design, development, service, repair, and support of its LSS-1 product. While Navico discontinued sales of the LSS-1 in February 2012, it alleged that its investments in the LSS-1 product continued after 2012 in the form of technical customer support, warranty and repair work, research and development of software updates, and the sale and support of components for replacing damaged or defective parts of the LSS-1. ALJ Shaw's July 2, 2015, Initial Determination found that Navico failed to satisfy the economic prong of the domestic industry requirement for the '550 Patent because Navico stopped investing in the LSS-1 product in 2012 when it was discontinued. The Initial Determination therefore rejected the alleged expenditures from 2013 through 2014.

The Commission held that the Initial Determination erred as "[p]ast expenditures may be considered to support a domestic industry claim so long as those investments pertain to the complainant's industry with respect to the articles protected by the asserted IP rights and the complainant is continuing to make qualifying investments at the time the complaint is filed." Op. at 55 citing Certain Television Sets, Television Receivers, Television Tuners, and Components Thereof, Inv. No. 337-TA-910, Comm'n Op. at 68 (Oct. 30, 2015). According to the Commission, Navico's post-2012 expenditures in warranty, technical customer service, and software development were sufficiently tied to the patented technology and were "qualifying investments" at the time the complaint was filed, such that Navico's investments from 2009 through 2012 should also be credited toward the domestic industry. Op. at 56-57.

The Commission explained that Navico's post-2012 expenditures were "qualifying investments" because they met at least subparagraphs (B) and (C) of Section 337(a)(3). Op. at 57. In coming to this conclusion, the Commission found that most of Navico's labor and capital and research and development expenditures for that time period related to the employment of personnel engaged in research and development for software updates to the operating system used in Navico's head units that was directly tied to the LSS-1 domestic industry product. Op. 59, 64. The Commission rejected the Initial Determination's finding that such expenditures on software updates were not attributable to the domestic industry of the '550 Patent because they were also applicable to products that did not practice the '550 Patent. The Commission clarified that evidence of domestic investments related to products in addition to the alleged domestic industry product did not diminish the fact that the complainant's investment also applies to the domestic industry articles. Op. at 60. The Commission also found that Navico's investments in warranty and technical support were "qualifying investments" such that pre-2012 expenditures should be credited toward the domestic industry of the '550 Patent. Op. at 60-62.

Key Takeaway

Investments in products that were discontinued prior to the filing of a Section 337 ITC complaint may be relied upon to satisfy the economic prong of the domestic industry requirement, if it can be shown that qualifying domestic investments tied to the claimed technology were made after the product was discontinued. Investments that may be found to be "qualifying investments" include domestic expenditures in research and development of software updates as well as warranty and technical support. 

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