By Thomas Carey. Chair of our Business Practice Group
The international patent system is premised on the notion that each country regulates patent laws and their enforcement within its own borders. International commerce does not always lend itself to such tidy compartments, however, forcing courts and legislatures to address complex situations. Two recent decisions of the Federal Circuit Court of Appeals, as well as another case that is ripe for decision by that court, offer new guidelines for patent owners.
Inbound Sales. Lelo Inc. v. International Trade Commission, decided in May 2015, considered the power of the International Trade Commission (ITC) to ban the import of items made abroad. That power stems from 19 USC § 1337, which permits the ITC to ban imports of infringing articles that pose significant harm to an industry (actual or nascent) in the U.S. To demonstrate the existence of a protectable industry, the statute requires the patent holder to prove that there has been substantial investment in plant and equipment; or significant employment of capital or labor; or significant investment in the exploitation of the patent, which may take the form of engineering, R&D or licensing activity.
In Lelo, the patent holder was Standard Innovation Corporation (SIC), whose products were not manufactured in the US. Instead, they were made in China by a manufacturer that assembled components sourced from many countries. Four of the components, accounting for about 5% of the total cost of the bill of materials, came from the US.
Lelo, a California corporation, imported a product competitive with SIC’s product and, it turns out, one that infringed SIC’s patents. SIC sought a ban on the import of Lelo’s product into the US.
The initial review of the matter was conducted by an administrative law judge who held that the ITC lacked the power to ban the import of Lelo’s product because there was insufficient evidence of a US industry that would be harmed by the infringement. Specifically, there was no proof that SIC’s purchases of US-sourced components were the result of significant capital investment or R&D in the US, or that they resulted in an increase in labor here.
On appeal, the ITC reversed the judge because it deemed the US-sourced components to be qualitatively significant because of “the critical nature of the components to the patented products.”
The Federal Circuit then reversed the ITC, stating that the statute compels a quantitative analysis. The court referred to a 2007 decision that, where US subcontractors contributed 34% of the value of a product, there was a significant US industry to protect. That earlier case was distinguished both because of the gap between 34% and 5% and because of the different nature of the sourcing. The 2007 case involved US subcontractors to a US patent holder. By contrast, SIC did not subcontract the manufacture of the US components; its Chinese supplier bought off-the-shelf articles from retailers. (More)
Inbound Sales. Lelo Inc. v. International Trade Commission, decided in May 2015, considered the power of the International Trade Commission (ITC) to ban the import of items made abroad. That power stems from 19 USC § 1337, which permits the ITC to ban imports of infringing articles that pose significant harm to an industry (actual or nascent) in the U.S. To demonstrate the existence of a protectable industry, the statute requires the patent holder to prove that there has been substantial investment in plant and equipment; or significant employment of capital or labor; or significant investment in the exploitation of the patent, which may take the form of engineering, R&D or licensing activity.
In Lelo, the patent holder was Standard Innovation Corporation (SIC), whose products were not manufactured in the US. Instead, they were made in China by a manufacturer that assembled components sourced from many countries. Four of the components, accounting for about 5% of the total cost of the bill of materials, came from the US.
Lelo, a California corporation, imported a product competitive with SIC’s product and, it turns out, one that infringed SIC’s patents. SIC sought a ban on the import of Lelo’s product into the US.
The initial review of the matter was conducted by an administrative law judge who held that the ITC lacked the power to ban the import of Lelo’s product because there was insufficient evidence of a US industry that would be harmed by the infringement. Specifically, there was no proof that SIC’s purchases of US-sourced components were the result of significant capital investment or R&D in the US, or that they resulted in an increase in labor here.
On appeal, the ITC reversed the judge because it deemed the US-sourced components to be qualitatively significant because of “the critical nature of the components to the patented products.”
The Federal Circuit then reversed the ITC, stating that the statute compels a quantitative analysis. The court referred to a 2007 decision that, where US subcontractors contributed 34% of the value of a product, there was a significant US industry to protect. That earlier case was distinguished both because of the gap between 34% and 5% and because of the different nature of the sourcing. The 2007 case involved US subcontractors to a US patent holder. By contrast, SIC did not subcontract the manufacture of the US components; its Chinese supplier bought off-the-shelf articles from retailers. (More)
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