A Big Win for Small Business Patent Owners: Leveling the Patent Litigation Playing Field

This week on IPWatchdog Unleashed, I speak with F. Scott Kieff, former Commissioner on the International Trade Commission (ITC), and Joshua Hartman, head of Merchant & Gould’s ITC practice group. Our conversation, which took place on June 4, focused on the landmark ruling by the Federal Circuit in Lashify, Inc. v. International Trade Commission, which was a big win for small business patent owners. We discuss the consequences of the Lashify ruling and the politics of the decision, including whether the decision fits within an America First view of domestic and global markets. Kieff also discusses the historical evolution of the ITC, why it was initially created, and how it is purposefully deadlocked politically to require cooperation.

“What has always drawn my attention to the ITC is that it is a fairly collaborative and yet aggressive forum for building a detailed factual record around which you can gather a host of opinions,” Kieff explained as he gave his initial thoughts. “And so, if you’re the kind of client or lawyer who thinks you have the fact and the arguments and the goods, then that’s the kind of process you ought to be drawn towards because it’s where a record will show the facts and it’s where the arguments can be reflected in the opinions and the disagreements… And if you’re confident in yours, that’s where you want to go.”

“Collaborative yet aggressive is a great way to describe the ITC,” Hartman said. “I think we’re on the precipice of what could be a new era in Section 337 litigation for a few different reasons. Lashify… is a decision that issued a few months ago from the Federal Circuit… it changes the ITC’s approach to the domestic industry requirement… a fundatmental requirement for a complainant to obtain relief. The ITC had been interpreting its statute for one way for nearly 40 years. The Federal Circuit said, you’ve been getting it wrong this whole time.”

“At a very high level, Lashify is a relatively new company founded by a sole inventor,” Hartman went on to explain. “Its main line of business is a DIY solution for applying artificial eyelash extension. They also sell the applicators and the eyelashes and components that are needed to install the artificial eyelashes. The sole inventor was very successful in building up her business. She grew it from a single person operation to over 100 people in her employment.”

The ruling itself by the Federal Circuit vacated an ITC determination that prevented small business owner and patentee Lashify from accessing the ITC. The reason the ITC had ruled that Lashify could not seek relief from the ITC was, as Hartman explained, because of what many characterize as an outdated view of the economic prong of the domestic industry requirement. To access the ITC to seek exclusion from import against products that infringe a patent, the patent owner is required to show (1) that it maintains the required level of economic activity within the United States, and (2) this economic activity is devoted to exploiting the intellectual property right at issue. This standing requirement is known as the “domestic industry requirement,” and the two sub-requirements are respectively referred to as the “economic prong” and the “technical prong” of the domestic industry requirement.

The reason that the Lashify decision and access to the ITC matters so much for patent owners is because the ITC is not bound by the Supreme Court’s eBay decision, which means patent owners are able to obtain injunctive relief in the form of either a cease-and-desist order or an exclusion order, or both. These two powerful injunctive remedies available in the event a 337 Investigation concludes with a finding of patent infringement, if granted, close off the U.S. marketplace for infringing products and typically will bring disputes to a head, often as part of a global licensing agreement.

As a result of the historic preference given to those who manufacture in the United States, generally speaking those who are “mere importers” of products that they then sell in the United States have been unable to take advantage of the favorable ITC jurisdiction—particularly importers who were small businesses without any continuing research and development after the initial invention. Meanwhile, those large enterprises that have no manufacturing capacity or capabilities in the United States were still allowed access to the ITC based on non-sales and non-marketing activity in the United States (i.e., ongoing research and development).

The way the law developed over many years there was really no acceptable level of research and development that would allow a small business patent owner to satisfy what was becoming an increasingly heavy threshold to access the ITC. Meanwhile, the likes of Apple and other giant corporations who exclusively manufacture overseas and import their products for sale—just as Lashify was doing—are allowed to access the ITC. Of course, Apple and other giant corporations are engaging in a much greater level of domestic activity, but the nature and quality of the activity by these giant corporations is often very similar to the nature and quality of the activities engaged in by smaller entities that had been historically refused access to the ITC.

During our conversation we discuss the Lashify ruling, its importance, and whether the ITC will become a more favorable and welcoming venue for more patent owners moving forward. We also discuss the recent request by the ITC for rehearing by the Federal Circuit.

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