Written by: T. Tyler Golian, Sheila Swaroop and Jonathan Bachand

Lashify, Inc. v. International Trade Commission

Before: Prost, Taranto, and Chen. Appeal from ITC Investigation.

Summary: The Federal Circuit expands the economic prong of the domestic-industry analysis to include domestic spending on marketing, sales, distribution and quality control for products manufactured abroad.

Addressing a question of first impression, the Federal Circuit expanded the scope of the International Trade Commission’s (“ITC”) domestic-industry economic prong. The court held that, when a patentee seeks to prove a domestic industry by showing a significant employment of labor or capital, that showing can include expenditures relating to sales, marketing, warehousing, distribution, and quality control, even if the patentee’s products are made overseas. This decision reversed the ITC’s determination that the activities of a “mere importer” were insufficient to establish significant employment of labor or capital in the United States to meet the domestic-industry requirement.

The language at issue from § 1337(a)(3) states:

[A]n industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the patent . . . concerned—

(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.

19 U.S.C. § 1337(a)(3) (emphasis added). This is known as the ITC’s “domestic industry requirement.” It is typically split into a technical prong—i.e., whether there are “articles protected by the patent”—and an economic prong—i.e., whether one of the requirements for investment or employment of subsections (A)-(C) have been met.

This decision involved the interpretation of sub-prong (B), which relates to significant employment of labor or capital. In the decision below, the ITC found that the patentee had failed to meet this sub-prong because sales, marketing, warehousing, quality control, and distribution expenses were akin to those incurred by a mere importer and could not qualify as domestic-industry investments. Two commissioners dissented and concluded that these expenses standing along could meet the requirement.

The Federal Circuit reversed and determined that “significant employment of labor or capital” was not subject to a “carveout of employment of labor or capital for sales, marketing, warehousing, quality control or distribution. Nor is there a suggestion that such uses, to count, must be accompanied by significant employment for other functions, such as manufacturing.” The court’s reversal included vacatur of the ITC’s decision and a remand to determine if the economic prong was met as properly construed.

The decision in Lashify expands the categories of domestic expenditures that innovators can rely upon to satisfy the economic prong of the ITC’s domestic-industry requirement.

Editor: Sean Murray