Lashify Win Gives ITC Discretion on How Wide to Open Court Doors
In this article for Bloomberg Law, Karthik Ravishankar, Kristina Cary and Jenny Quang discuss two recent decisions that expand the parts of a business the ITC can look at to decide if a patent holder has met one of the threshold requirements to seek relief from unlawful imports in that forum.
Two recent decisions from the Federal Circuit offer some guidance as to how the US International Trade Commission will reinterpret a threshold requirement to bring an action under Section 337 of the Tariff Act, governing unfair import investigations.
Most recently, the US Court of Appeals for the Federal Circuit in Lashify, Inc. v. ITC revisited the standard for determining which patent owners are eligible to seek relief from the ITC. The court’s new interpretation of Section 337’s “domestic industry” requirement could make it easier for complainants to meet the ITC’s threshold requirements, enabling them to seek the unique and powerful relief the ITC provides. The domestic industry prong requires a showing of significant domestic investments in an industry relating to protected articles before the patent holder can seek relief from unlawful imports at the ITC.
The March 5 ruling builds on a Feb. 7 decision in Wuhan Healthgen Biotech Corp. v. ITC, which emphasized that even small market segments can be substantial enough to satisfy the domestic industry requirement. The two decisions suggest that the ITC can look at more parts of a business to satisfy the economic prong, and that smaller parts of that business can potentially satisfy the economic prong. Alternatively, the ITC could take a more qualitative approach, which could somewhat diminish the impact of these recent decisions.
Lashify is the first application of the US Supreme Court’s landmark Loper Bright v. Raimondo decision to the ITC. The Federal Circuit exercised its “independent judgment” under Loper Bright to construe Section 337, which it used to reject the ITC’s narrower interpretation of the statutory language.
The decision marks a significant departure from decades of precedent. In Lashify, the Federal Circuit held that the ITC erred in categorically excluding expenditures in sales, marketing, warehousing, quality control, or distribution from the domestic industry analysis. As the ITC explained in its final determination—including the dissenting commissioners—it had been “well settled that sales and marketing activities alone cannot satisfy the domestic industry requirement.”
The panel found that the ITC was attributing limitations that weren’t in the plain text of the statute. As a result, the ITC must now “count Lashify’s employment of labor and capital even when they are used in sales, marketing, warehousing, quality control, or distribution.”
Then, citing Wuhan Healthgen, the court directed the ITC to then “make a factual finding of whether those qualifying expenses are significant or substantial based on a holistic review of all relevant considerations.”
In Wuhan Healthgen, the Federal Circuit affirmed the ITC’s finding that complainant Ventria Bioscience satisfied the economic prong of the domestic industry requirement, even though its investments were “qualitatively small.”
In reaching its decision, the court applied longstanding precedent regarding the application of the domestic industry requirement, including the seminal Lelo Inc v. ITC, where the court in 2015 held that Section 337 requires “a quantitative analysis” to determine whether a complainant has made significant investments in “plant and equipment” or “labor and capital.”
The court at the time didn’t consider the ITC’s interpretation of the statutory text, nor revisit its own interpretation of the same.
It’s too early to tell how the ITC will react to Lashify and Wuhan Healthgen. Both decisions suggest that complainants should be able to rely on more types of investments, and new categories of their businesses, to satisfy the economic prong.
Complainants that could not have brought an ITC case because their domestic spending largely were sales, marketing, warehousing, quality control, or distribution can now potentially satisfy the economic prong under Lashify.
Similarly, a complainant relying on a patented article that is a very small part of its business may take comfort from Wuhan Healthgen as a confirmation that there is no quantitative threshold preventing it from meeting the domestic industry requirement.
That said, the Federal Circuit’s decisions leave the ITC with some discretion. The commission may interpret Lashify as an opportunity to prioritize qualitative significance in analyzing the economic prong.
In that scenario, the ITC could determine that a domestic industry isn’t “significant” even if including sales and marketing expenses because those expenditures lack qualitative significance to the patented articles.
Similarly, the ITC may take issue with a heavily domestic small market product because it pales in comparison to a complainant’s foreign investment in a similar product line.
Complainants and respondents alike will continue to test the limits of Section 337 and, under Loper Bright, the Federal Circuit could have its hands full resolving the ambiguity.
The cases are: Lashify, Inc. v. Int’l Trade Comm’n, No. 23-1245 and Wuhan Healthgen Biotech. Corp. v. ITC, Fed. Cir., No. 23-1389.
