Commission Clarifies Domestic Industry Requirement Based on Licensing, Terminates Inv. No. 337-TA-694
On July 22, the full Commission reversed ALJ Charneski's finding that the Complainant’s portfolio licensing program satisfied the domestic industry requirement, and offered new guidance on the proof necessary to satisfying the requirement based on licensing, in Inv. No. 337-TA-694, Certain Multimedia Display and Navigation Devices and System Components Thereof and Products Containing Same.
On review of ALJ Charneski’s initial determination that the Complainant’s portfolio licensing program satisfied the domestic industry requirement of 19 U.S.C. § 1337(a)(3)(C), the Commission noted that the statute requires proof of investment in the exploitation of the asserted patent, which involves establishing a nexus between the investments and the asserted patent. Second, the statute requires that the investment relate to licensing. Third, any investment must occur in the U.S. The Commission noted several factors relevant to whether there is a nexus between any investments and the asserted patents, including whether:
• any licensing activities were focused on the asserted patent,
• the licensee's efforts relate to an article protected by the asserted patent,
• the asserted patent has relative importance in the licensed portfolio,
• the asserted patent was discussed during the license negotiation process,
• the asserted patent was successfully litigated,
• the asserted patent relates to a standard,
• the asserted patent is a base or pioneering patent,
• the asserted patent was infringed or practiced in the U.S., or
• the asserted patent has been recognized by the market in some way.
The Commission further noted that any nexus may be stronger where the licensed portfolio includes fewer patents, has a narrow scope of technology compared to the asserted patent, and the patents in the portfolio are all related. The Commission explicitly rejected allocating licensing investments equally among patents in a portfolio, however; any nexus must be established on a case-by-case basis.
The Commission next adopted a flexible approach to determining if, once the three requirements had been shown, investments were “substantial” -- if a showing on any one requirement is weak, the complainant may overcome that weakness by demonstrating a large magnitude of activities/expenses relative to its size. Among the evidence that may also be offered by complainants in support of the “substantiality” requirement is (1) existence of other types of exploitation (research, development, and engineering); (2) existence of ancillary licensing activities (auditing licensees, training licensees), (3) whether licensing activities are continuing; and (4) whether licensing activities are referenced favorably in the legislative history of section 337(a)(3)(C).
With respect to the 694 Investigation, the Commission found that any nexus between licensing investments and the asserted patents was weak because the complainant’s portfolio included hundreds of patents, its licensing efforts were directed towards the entire portfolio, many of the patents were not U.S. patents, and there was no evidence of how the asserted patents fit together congruently with the other patents in the portfolio. The Commission also held that legal invoices that appeared to relate to the asserted patents were not solely an investment in licensing and significantly reduced the amount of investments claimed. As to whether there were "substantial investments," the Commission found that the complainant was a large international company with significant resources, and did not have any engineering, development, or research activities, or any "exploitation" or license-related ancillary activities, in the U.S. The Commission also gave complainant’s licensing activities less weight because those activities "on the whole, reflect a revenue-driven licensing model targeting existing production rather than the industry-creating, production-driven licensing activity that Congress meant to encourage." Given the relatively weak nexus and the lack of "substantial" investment, the Commission held that the complainant had not established a domestic industry.
