Complainants should allocate their investments on a patent-by-patent basis, or, at a minimum, ensure that any aggregate investment is allocated by proper product groupings.

In a May 8, 2024, precedential opinion, the Federal Circuit affirmed the decision of the International Trade Commission (ITC) in Zircon Corp. v. International Trade Commission. This ruling addressed whether, for domestic industry purposes, Section 337 permits complainants to aggregate investments across different products protected by multiple patents when that group of products does not practice all of the asserted patents. The Federal Circuit held that a complainant cannot; rather, a complainant must sufficiently allocate the investments to each of the asserted patents.

Under 19 U.S.C. § 1337(a)(2), a complainant must demonstrate an investment in the existence of a U.S. industry related to the articles protected by the asserted patent (the economic prong of domestic industry). This can be shown by “significant investments in plant and equipment,” “substantial employment of labor or capital,” or substantial investment in the exploitation of the patent, e.g., activities such as engineering, research and development, or licensing.

In this case, Zircon aggregated its expenditures across 53 domestic products to claim significant investments for multiple patents. However, not all 53 products practiced each of the three asserted patents—only 14 products were alleged to practice all three patents; 21 products were alleged to practice two patents; and the remaining 18 products were only alleged to practice one patent. (Sixteen of these 18 products practiced the ’662 patent, and 2 practiced the ’771 patent.) The ITC and the Federal Circuit found that Zircon’s lack of specific allocation made it impossible to assess the significance of the investments on a patent basis, upholding the need for a more specific allocation.

Zircon argued against the need for a patent-by-patent breakdown of investments, citing a “flexible, market-oriented approach.” However, the court emphasized that the domestic industry investments must be allocated on a patent or patent grouping basis. “[T]he domestic industry typically must relate to articles that are all protected by a particular patent, not to a group of articles variously protected by different patents.” This stance is supported by precedents like Interdigital Communications, LLC v. International Trade Commission, which clarified that research and development activities must “pertain to products that are covered by the patent that is being asserted” to meet the domestic industry requirement under section 337(a)(3)(C). 707 F.3d 1295, 1297–98 (Fed. Cir. 2013).

The court acknowledged scenarios where a complainant could satisfy the economic prong for multiple asserted patents with one group of domestic products if all of those products utilized all the asserted patents. However, when products or product groups vary in the patents they practice, separate domestic industries must be established for each group. The ruling pointed to the decision in Certain Audio Digital-to-Analog Converters & Prods. Containing Same, where the complainant was required to demonstrate the existence of two domestic industries because the products practiced different patents and did not overlap. Inv. No. 337-TA-499, Initial Determination, 2004 WL 3121325, at *61 (Nov. 15, 2004).

The court dismissed Zircon’s argument that the Commission should treat its multiple products as a single industry exploiting the patents. The court clarified that the cited case law did not apply to Zircon’s case because Zircon’s aggregated products were not uniformly protected by the same patents. Although Zircon demonstrated substantial investment in 14 products that practiced all three asserted patents, it failed to show the investment of just those 14 products, preventing the Commission from assessing the significance of the investments.

The court also addressed Zircon’s reliance on the Certain Dynamic Random Access Memories, where a single industry was acknowledged for products with substantial overlap and similar manufacturing processes. Inv. No. 337-TA-242, USITC Pub. No. 2034, Comm’n Op., 1987 WL 450856, at *28 (Sept. 21, 1987). However, this precedent was deemed inapplicable because the legislative framework of Section 337 had significantly changed since 1988. (The Federal Circuit also noted factual differences between the two cases.) The amendment clarified that the domestic industry must “relat[e] to the articles protected by the patent.”

In conclusion, Zircon did not meet its burden of proof because it failed to allocate its investments in a manner that allowed the Commission to see the investment in each patent. The Federal Circuit upheld the ITC’s decision, highlighting the need for specific evidence linking investments to each patent.

Moving forward, when proving the economic prong of the domestic industry requirement under Section 337―allocation is paramount. Complainants must carefully link their investments to the patented articles or groups of patented articles such that the Commission can identify the investment on a patent-by-patent or patent grouping basis. As a takeaway for future cases, complainants should allocate their investments on a patent-by-patent basis, or, at a minimum, ensure that any aggregate investment is allocated by product groupings, groupings in which all products in that group practice the same exact same patents, e.g., all products in group 1 practice patent A; all products in group 2 practice patent B. This precise approach is crucial for meeting the stringent standards set forth by the ITC and upheld by the Federal Circuit.

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