CAFC Affirms ITC View on Aggregation of Domestic Industry Costs for Disparate Patents

“[T]he Federal Circuit noted that its own precedent… established that domestic industry expenditures must ‘pertain to products that are covered by the patent that is being asserted.’”

domestic industryOn May 8, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a precedential ruling in Zircon Corp. v. International Trade Commission affirming the U.S. International Trade Commission’s (ITC) ruling that Zircon Corp. had failed to meet the domestic industry requirement to prove a violation of 19 U.S.C. § 1337 due to Stanley Black & Decker’s alleged patent infringement. The Federal Circuit agreed with the ITC that Zircon had failed to provide an adequate basis for evaluating its domestic industry investments by aggregating its investments into products that practiced fewer than all patents asserted by Zircon in the ITC’s Section 337 investigation.

Reasonable Allocation Method Required to Evaluate Expenditures for Each Patent

Zircon filed its Section 337 complaint at the ITC against rival power tool manufacturer Stanley Black & Decker in 2020. Zircon’s complaint accused several electronic stud finders imported by Stanley Black & Decker into the United States for sale as infringing three patents: U.S. Patent No. 6989662, Sensor Auto-Recalibration; U.S. Patent No. 8604771, Hand Tool Having a Pivot Grip for Sensing a Measurement Behind a Target Surface; and U.S. Patent No. 9475185, same title as the ‘771 patent.

Complainants at the ITC seeking a Section 337 investigation are required by statute to show that an industry within the United States relating to the articles protected by the patents concerned exists or is being established. Zircon alleged that its investments in U.S. plants and equipment, employment of labor and capital, and exploitation of the asserted patents met this requirement, but an initial determination found that Zircon failed to satisfy the requirement’s economic prong. Zircon sought review of the initial determination by the ITC, which affirmed the initial determination after finding that Zircon’s aggregation of its investments across all domestic stud finder products, many of which practiced fewer than all patents asserted in the Section 337 investigation, failed to provide a basis by which the ITC could evaluate the significance of Zircon’s investments with respect to each asserted patent.

Throughout its appeal to the Federal Circuit, Zircon relied on evidence of cumulative expenditures on 53 domestic industry products. Of those, only 14 products practice all three patents asserted, 21 products practice both the ‘771 and ‘185 patents, 16 products practice only the ‘662 patent, and two products practice only the ‘771 patent. On appeal, Zircon argued that the ITC was supposed to take a flexible, market-oriented approach to domestic industry, whereas the ITC contended that Section 337 complainants are required as a threshold matter to present a reasonable allocation method to estimate investments attributable to each patent.

Aggregation Only Permissible When Products are Covered by the Same Patents

In siding with the ITC’s interpretations of Section 337’s requirements, the Federal Circuit noted that its own precedent in cases such as Interdigital Communications v. ITC (2013) established that domestic industry expenditures must “pertain to products that are covered by the patent that is being asserted.” While the Federal Circuit agreed with Zircon’s argument that domestic industry investments don’t need to be broken down into a patent-by-patent basis to satisfy the economic prong of the requirement, cases cited by Zircon on appeal stood for the principle that aggregating expenditures for groups of patents is permissible when all products are protected by the same patents.

Zircon may have been able to meet the economic prong of the domestic industry requirement based on the 14 patents practicing all three of the patents asserted, but aggregating expenditures prevented the Commission from quantifying the investment amounts for each of the statutory categories found in Section 1337(a)(3)(A)–(C). Only one ITC ruling cited by Zircon supported the appellant’s conclusion that a single domestic industry can be established for a group of domestic products practicing one or more of the asserted patents. However, the Federal Circuit noted that the cited ruling was issued prior to statutory amendments in 1988 defining the domestic industry and the activities proving a domestic industry exists. Furthermore, while the dynamic random access memory (DRAM) products in the ruling cited by Zircon only differed by storage capacity, Zircon’s patents covered disparate technologies from hand grips to recalibration capability.

On appeal, Zircon also argued that a patent-by-patent breakdown of expenditures was properly before the ITC in a declaration from the company’s president and chief operating officer. However, Zircon did not challenge a motion in limine excluding this evidence during the Section 337 investigation and while it was cited in a witness statement submitted as evidence, that statement did not elaborate on the declaration’s details. Zircon’s witness statement did include testimony on the company’s research and development expenditures since 2010, but the Federal Circuit found no evidence properly corroborating those amounts.

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