When the Respondent is the Domestic Industry

A final initial determination was issued recently in Magnetic Tape Cartridges (Inv. 1058) finding that respondent Fujifilm had violated Section 337 by importing computer storage tapes that infringed patents owned by Sony.  Although Sony produces its own competing cartridges, it does so without sufficient investment in U.S. operations to satisfy the domestic industry test.  Instead, Sony relied on the cartridges of U.S.-based IBM with whom it has a cross-licensing agreement that includes the asserted patents.  What makes this case particularly notable is that IBM’s cartridges are made by Fujifilm.  

So, the respondent in the investigation makes both the accused product and the domestic industry product.

ibm drive this one.jpeg

This peculiar outcome was made possible in large part by the administrative law judge's decision—against the advise of ITC staff lawyers participating in the case—to count in his domestic industry analysis IBM's investments in developing the tape drives used to read the IBM-branded cartridges made by Fujifilm.

In its petition for review of the initial determination, Fujifilm is asking the Commission to reverse that decision and argues that the outcome is inconsistent with "the fundamental purpose of Section 337": 

Sony’s attempt to co-opt products made by a respondent for its own domestic industry is improper and flies in the face of the legislative intent for Section 337, which was designed to be “utilized on behalf of an industry in the United States. . . . Here, Sony’s actions are not “on behalf of” any industry in the United States. Rather, Sony seeks to use Fujifilm-manufactured 3592 tape cartridges made in Japan as a sword to exclude products and components that support Fujifilm’s robust LTO domestic industry.

Unsurprisingly, neither Sony nor the ID here cites any authority that would permit negating the very domestic interests that Section 337 was designed to protect. Nor does the ID identify any Commission precedent or legislative history that allows a complainant to rely on a respondent’s products for purposes of domestic industry. The ID, therefore, is inconsistent with the fundamental purpose of Section 337 to the extent it allows Sony to rely on Fujifilm-manufactured 3592 tape cartridges for purposes of establishing a domestic industry.

Is it a fundamental purpose of Section 337 to further the interests of domestic industries?  Or is the domestic industry test merely a formality needed to justify the use of trade restrictions that enforce the rights of U.S. patent owners?  The ITC's final determination in this investigation will tell us something about where the Commission stands on this question.