Federal Circuit, May 11, 2015

LELO appealed the finding of the U.S. International Trade Commission (USITC) that the economic prong of the domestic industry requirement of § 337 were satisfied by evidence of only the qualitative nature of components purchased from domestic suppliers.  The final determination of the USITC (“the Commission”) conceded that purchases of domestically produced components represented “a relatively modest proportion of domestic content,” but the “contribution of the components at issue from a qualitative standpoint is indeed significant” due to the critical nature of the components in the context of the industry and company.

On appeal, the Federal Circuit addressed the question of whether qualitative factors alone are sufficient to satisfy the “significant investment” and “significant employment” elements of the economic prong factors enumerated in 19 U.S.C. § 1337(a)(3).  The Federal Circuit looked to plain meaning of the statute, which the Federal Circuit concluded required a quantitative analysis because the terms “significant” and “substantial” refer to an increase in quantity or to a benchmark in numbers and the plain meaning of an “investment” is “an expenditure of money for income or profit or to purchase something of intrinsic value.”  The Federal Circuit also analyzed prior Commission decisions, but concluded that the prior decisions of the Commission did not stand for the proposition the qualitative data alone can satisfy the domestic industry requirements.

In the present case, the Federal Circuit found that the U.S. suppliers of the components of the patent owner’s domestic industry product were neither contractors nor subcontractors, but were retailers selling off-the-shelf components.  In addition, the Federal Circuit did not find any evidence of any investment made in capital or labor as a result of the purchased components.  Further, the Federal Circuit determined that the purchase of so called “crucial” components from third-party U.S. suppliers are insufficient to satisfy the “significant investment” or “significant employment of labor or capital” criteria of § 337 where there is an absence of evidence that connects the cost of the components to an increase of investment or employment in the United States.

The Federal Circuit interpreted the determination of the Commission that Standard Innovation's investment and employment was quantitatively “modest” to mean “insignificant” and concluded that the Commission erred when it disregarded the quantitative data to reach its domestic industry finding based on qualitative factors. 

Based on the above determinations, the Federal Circuit held that qualitative factors cannot compensate for quantitative data that indicates insignificant investment and employment and concluded that qualitative factors alone are insufficient to show “significant investment in plant and equipment” and “significant employment of labor or capital” under prongs (A) and (B) of the § 337 domestic industry requirements.  Accordingly, the Federal Circuit reversed the Final Determination of the USITC.