Federal Circuit Limits Domestic Industry Requirement For Licensors

In Mezzalingua Assocs., Inc. v. Int’l Trade Comm’n, 100 U.S.P.Q.2d 1462 (Fed. Cir. 2011), Mezzalingua d/b/a PPC manufactures cable connectors that are used to connect coaxial cables to electronic devices, such as cable television receivers.  PPC owns design patent, U.S. Patent No. D440,539 (“the ‘539 design patent”), which is for a design of one such connector.  PPC has granted only one license for the ‘539 design patent, which was executed in early 2004 between PPC and Arris International, Inc. at the conclusion of years of litigation.  Other than this license and its enforcement litigation, PPC does not use the ‘539 design patent.
PPC attempted to enforce the ‘539 at the ITC and claimed that the domestic industry harmed fell under 19 USC § 1337(a)(1)(E).  This provision allows a patent owner to show an industry through investment in licensing program, and PPC asserted that this investment could include enforcement.  Using this theory of domestic industry, PPC filed a 337 action regarding the importation of coaxial cable connectors that allegedly infringe four of PPC’s patents, including the ‘539 design patent.

The ITC found that a 337 Action was not available for the ‘539 design patent. Specifically, the ITC found that there was a lack of evidence of domestic industry.  According to the ITC, allowing district court litigation expenses renders domestic industry requirement useless and there was no showing  of a licensing program outside of litigation as only licenses are issued after litigation.
On appeal, the Federal Circuit upheld the ITC.  The Federal Circuit noted that the 337’s domestic industry requirement is to be applied flexibly.  Further, the law specifically allows licensing and research and not pure manufacturing, and that patent litigation can be investment.  However, the Federal Circuit held that this was not a per se rule such that not all patent litigation can be included as a licensing program cost.  Instead, the patent owner must show a nexus between the patent and the industry, and there needs to be evidence of licensing pre-litigation to use subsequent litigation costs.

In reviewing the facts in light of this analysis, the Federal Circuit noted that the ITC specifically noted no evidence of offer, cease and desist prior to litigation.  While PPC had indicated that the industry did not take licenses without litigation, this was not relevant since there must be evidence that the patent owner at least tried to obtain licenses prior to litigation in order to provide this nexus.  As such, the litigation costs themselves could not be attributed to the domestic industry as defined under 19 USC § 1337(a)(1)(E).
The Federal Circuit next looked to post litigation licensing, and noted that such post litigation licensing can be evidence of domestic industry.  However, in this case,PPC’s post-litigation licensing was de minimus and there was similarly no evidence of non-litigation licensing program.  As such, the Federal Circuit affirmed the ITC’s finding of no domestic industry.
Significance for Patent Owners
The ITC is a preferred mechanism for obtaining injunctions after eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).  Therefore, if a non-practicing entity (NPE) wants an injunction, the district court not as viable an option as most NPEs do not manufacture even de minimus amounts.  There, for injunctive relief, NPEs need to rely on 337 Actions which require a domestic industry, but allow licensing programs to qualify for obtaining injunctive relief.  Since NPEs often have informal or minimal R&D or licensing programs and instead rely on filing suit and then negotiating terms, this decision should make harder for NPEs to use ITC.  At the same time, patent owners (including non-NPEs like PPC) who wish to obtain injunctive relief (and possibly at the ITC) should ensure that they establish pre-litigation license programs to demonstrate an existing domestic industry should the ITC route become necessary.
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