Lelo Inc. and Leloi AB v. ITC et al., No. 2013-1582, 2015 U.S. App. LEXIS 7708 (Fed. Cir. May 11, 2015) (Reyna, CJ.). Click Here for a copy of the opinion.
Standard Innovation Corporation and Standard Innovation (US) Corp. (collectively, "Standard") filed a complaint against Lelo Inc. and Lelo AB (collectively, "Lelo") with the International Trade Commission ("ITC"). Standard alleged violation of Section 337 of the Tariff Act of 1930 for the importation into the U.S. and sale of certain kinesiotherapy devices and related components that infringe one or more claims of U.S. Patent No. 7,931,605 and U.S. Patent No. D605,779. Standard later withdrew the '779 design patent from the investigation. To obtain relief from the ITC for patent infringement, Section 337 requires that Standard demonstrate a domestic industry in the U.S. that relates to articles protected by the asserted '605 patent. The domestic industry requirement consists of a technical prong and an economic prong.
After an evidentiary hearing, an administrative law judge ("ALJ") issued an Initial Determination ("ID") construing the terms of the asserted claims, finding the '605 patent valid and infringed, and finding no violation of Section 337 on the grounds the Standard did not satisfy the economic prong of the domestic industry requirement. Specifically, purchases of certain off-the-shelf components were deemed insufficient to satisfy the economic prong because they were small in dollar amount. There was no indication of "what portion, if any, the purchase price actually contributed towards a domestic investment in plant or equipment . . . [or] to research and development costs incurred in the development of the components." Further, even if the purchase price of the components could be attributed to domestic activities, such investments were insubstantial and insignificant.
The International Trade Commission ("ITC") reviewed the ID and determined that Standard satisfied both the technical and economic prongs of the domestic industry requirement and that there was a violation of Section 337 with respect to the '605 patent. Although the ITC essentially agreed that the "modest" investments were trivial in amount, it found that the "crucial" nature of the purchased components to the overall devices was "sufficient" to find that the investments satisfied the economic prong of the domestic requirement. While the investments were small, the "contribution of the components at issue from a qualitative standpoint is indeed significant." Lelo appealed the ITC's final determination.
The Federal Circuit reversed the ITC's decision, concluding that Standard did not satisfy the economic prong of the domestic industry requirement for the '605 patent. The decision "turn[ed] on the single question of whether qualitative factors alone are sufficient to satisfy the 'significant investment' and 'significant employment' requirements of § 337." The plain text of Section 337 requires "a quantitative analysis in determining whether a petitioner has demonstrated a 'significant investment in plant and equipment' or 'significant employment of labor or capital.'" Rejecting the ITC's "qualitative approach," the Court explained that "the terms 'significant' and 'substantial' refer to an increase in quantity, or to a benchmark in numbers." The record was devoid of information that would indicate the "magnitude of labor expended to produce the components, [] the amount the suppliers invested in their equipment, . . . [or] the share of labor or capital costs attributable solely to purchases made by Standard Innovation." Agreeing that Standard's investment and employment prongs (A) and (B) were quantitatively "modest and insignificant," the Court concluded that "[q]ualitative factors cannot compensate for quantitative data that indicate insignificant investment and employment."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
