When even the ITC can't find your "domestic industry"

In patent-based Section 337 cases at the U.S. International Trade Commission, the agency can only ban allegedly infringing imports "if an industry in the United States, relating to the articles protected by the patent . . . exists or is in the process of being established." According to the law's legislative history, the ITC's job is "to adjudicate trade disputes between U.S. industries and those who seek to import goods from abroad." And the purpose of the domestic industry requirement in Section 337 is to ensure that the law can only "be utilized on behalf of an industry in the United States."

There is a long-term trend, however, within the ITC's jurisprudence of adopting interpretations of Section 337 that broaden the agency's jurisdiction over a greater share of private patent disputes. This trend is evident for the statute's importation requirement and the public interest factors, but it is especially apparent for the domestic industry test.

The ITC's quest to expand its jurisdiction is troubling because the agency is already a mostly redundant venue for patent litigation in which the vast majority of investigations exist as supplements to lawsuits in federal court. Expanding the agency's jurisdiction will lead to more duplicative litigation, more forum shopping, and the inappropriate application of trade remedies to a larger share of domestic legal disputes.

Under current practice, Section 337's domestic industry requirement is incredibly easy to satisfy. Complainants that make no products at all can establish a domestic industry based on the activities of an unwilling licensee or even on their own investments in "licensing activity." The law does not require that domestic industry products be manufactured in the United States, but the Commission routinely finds that a domestic industry exists even when all production-related activity (like engineering and design) occurs abroad.

For example, the ITC found a violation of Section 337 recently in Road Milling Machines (Inv. 1067) where the complainant was a foreign multinational company that designed and manufactured construction equipment entirely in Europe. The domestic industry in that case was based solely on post-importation activities of the company's U.S. subsidiary limited to "modifications, field service and repair, technical support, warranty, and technical training."

It's pretty impressive then when a case comes along where the quantity of domestic investment is just so low, that the complainant can't even pass the ITC's exceedingly lax standard.

Ruixing H269.PNG

On September 12, the ITC released a public version of an initial determination in Certain Carburetors and Products Containing Such Carburetors (Inv. 1123) in which the agency's chief administrative law judge found that complainant Walbro LLC failed to establish the existence of a domestic industry.

Although Walbro's corporate headquarters is in the United States, the company conducts a lot of its business from Japan, where it apparently designs products that are manufactured in Asia and sold to a global market.

The respondents in this case include not only foreign manufacturers of competing carburetors but also a large number of major American retailers—namely Amazon, Walmart, Target, Kmart, Lowe's, Home Depot, Menards, Sears, and Cabela's—that sell lawn equipment and other products containing those carburetors.

The initial determination found that Walbro's investments in U.S.-based activities (which are limited to "calibration" of the carburetors for use in specific end products) were "quantitatively insignificant" in light of the company's extensive sales revenue. The specific amounts of those investments and the sales revenue remain confidential, but the ALJ gave a hint in the ID when he stated he "was unable to locate any opinion in the past four years in which the Commission has held that an investment amounting to less than 5% of sales" was sufficient to establish the existence of a domestic industry.

The implication of the ID's analysis is that Walbro's "domestic industry" products are in fact wholly foreign in origin.

Most patent cases at the ITC are not what anyone could reasonably describe as a "trade dispute," but it's encouraging to know that the domestic industry test—assuming the Commission doesn't overturn this initial determination on review—is not yet completely toothless.