In a ruling with serious consequences for patent infringement claims brought before the International Trade Commission (ITCInternational Trade Commission), the U.S. Court of Appeals for the Federal CircuitSee CAFC recently broadened the “domestic industry” requirement of Section 337 of the Tariff Act. This decision lowers the standard by which companies must meet the “economic prong” of the requirement, opening the door for more patent holders—including non-practicing entities (NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it.)—to litigate claims at the ITCInternational Trade Commission.
The case involved Lashify, Inc., a manufacturer of eyelash extension kits, which accused competitors of infringing on its design and utilityAn invention must useful to be patentable. Very few inventions are invalidated as lacking utility. Perpetual motion machines, for example, are typically found invalid for lacking utility. patents. In 2022, the ITCInternational Trade Commission denied Lashify standing, ruling that the company did not meet the economic prong of the domestic industry requirement. Under the ITC’s previous, already broad, interpretation, the Commission required companies to show “sufficient domestic investments” beyond just “sales and marketing activities.” These investments included significant expenditures on plant and equipment, labor or capital, or large investments in engineering, research and development, or licensing.
However, in his March decision, Judge Richard G. Taranto reversed this precedent, allowing Lashify to move forward with its case. He ruled that sales and marketing activities in the U.S. could count toward meeting the economic prong if they were deemed “significant.” This paves the way for entities with no manufacturing or R&D in the U.S., only advertising investments, to block competitors from accessing U.S. markets via Section 337 enforcement action at the ITCInternational Trade Commission.
Judge Taranto’s decision relied on precedent from the recent Loper Bright Enterprises v. Raimondo ruling, which overturned the long-standing “Chevron” deference to agency interpretations of ambiguous statutes. As I noted in Patent Progress last July, Lashify had argued that in light of the ruling, the ITC’s interpretation of the economic prong was “owed no deference,” empowering the court to override it.
This ruling risks enabling the very type of abuse that Section 337 was designed to prevent. NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. are already a major issue at the ITCInternational Trade Commission. In fact, according to the ITC’s own data, one-third of Section 337 investigations at the ITCInternational Trade Commission are initiated by NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it., and my own estimates suggest it could be even higher.
Lowering the bar for meeting the domestic industry requirement will encourage more NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. to use the threat of ITCInternational Trade Commission exclusion orders to extract settlements from productive companies without ever contributing to the U.S. economy.
With patent trollAn entity in the business of being infringed — by analogy to the mythological troll that exacted payments from the unwary. Cf. NPE, PAE, PME. See Reitzig and Henkel, Patent Trolls, the Sustainability of ‘Locking-in-to-Extort’ Strategies, and Implications for Innovating Firms. abuse rampant at the ITCInternational Trade Commission, policymakers should be raising—not lowering—standards for companies to prove they contribute to domestic industry and that the exclusion orders they seek are in the American public’s best interest. That’s where Congress can come in, by reintroducing and passing the Advancing America’s Interests Act. (AAIA).
The AAIA would tie the domestic industry standard to actual product development, ensuring that only companies who invest in the U.S. economy are able to use the ITCInternational Trade Commission for enforcement. It would also strengthen disclosureOne of the primary objectives of the patent system. In return for the government-granted right to exclude that is embodied in the patent, the inventor must disclose to the public through his patent the invention for which protection is sought. Inventors unwilling to disclose their invention to the public may instead opt for trade secret protection. requirements for third-party investors backing ITCInternational Trade Commission petitioners, increasing transparency and preventing foreign funders from using the ITCInternational Trade Commission to serve their interests. Finally, the AAIA would reinforce the ITC’s public interest provision, ensuring that the agency affirms any exclusion orderAn order issued by the U.S. ITC as a result of a 337 action, excluding from entry into the United States goods found to infringe a U.S. patent. will benefit the American public before issuing it.
In this case, Lashify leveraged the Loper Bright ruling, which aimed to restore policymaking authority to Congress by reducing bureaucratic overreach. Now it’s on Congress to fulfill this authority by taking up legislation that ensures Section 337 investigations aren’t improperly abused.
