Commissioner Karpel Disputes "Per Se Exclusion" Of Post-Sale Technical Customer Support Activities

Summary: On July 17, 2023, the Commission issued a Notice electing to review in part and, on review, to affirm ALJ Bhattacharyya's Initial Determination finding no violation of Section 337. At the issuance of the Initial Determination only Apple—one of thirteen Respondents originally named in the Complaint—remained in the Investigation. The remaining Accused Products included Apple iPhone, iPad, and Watch products containing "envelope tracking" chips manufactured by third-parties Qualcomm and Qorvo. Complainant Arigna asserted a single patent and claimed a domestic industry existed under prongs A and B through the investments of its licensee, third-party Microchip. Arigna alleged Microchip's domestic investments included post-sale customer service and support, which ALJ Bhattacharyya declined to credit. The Commission affirmed these findings, but Commissioner Karpel issued a footnote in the Commission's Notice disagreeing with the Initial Determination's "per se exclusion" of Arigna's post-sale investments.

Arigna's Prong B (Labor and Capital) Investments: Complainant Arigna asserted that a domestic industry existed under prong B through licensee Microchip's investments in engineering, research and development, and technical ("post-sale") customer support. Apple argued, inter alia, that Arigna improperly characterized sales and marketing expenditures to bolster its domestic industry and further that Arigna could not rely on domestic industry expenditures that pre-date Arigna's licensee Microchip's license to the patent.

ALJ Bhattacharyya declined to credit Arigna's post-sale technical service and support investments. Citing the 1153 Investigation she explained that, although "technical assistance" investments may be credited, "technical marketing" activities are sales-related and should be excluded. In her view, Arigna was partially engaged in technical marketing analogous to activity which the Commission declined to credit in the 1046 Investigation. ALJ Bhattacharyya did not credit these investments because Arigna failed to allocate between technical assistance and technical marketing. ALJ Bhattacharyya also declined to credit Microchip's pre-license expenses, explaining that Arigna did not cite any Commission precedent allowing reliance on the expenditures of a licensee before the license period— and that the Commission consistently excludes them. ALJ Bhattacharyya also found that Arigna did not demonstrate a domestic industry exists under prong A noting that it suffered from the same issues as its prong B domestic industry.

Commissioner Karpel's Footnote on Post-Sale Activity: Although the Commission affirmed ALJ Bhattacharyya's economic prong analysis, Commissioner Karpel disagreed with the Initial Determination's exclusion of investments in post-sale technical service and support which she described as including "field engineering and product line marketers, who engage in customer-facing engineering activities." In Commissioner Karpel's view, Section 337 does not require the "per se exclusion" of customer-facing engineering activities regardless of whether they are characterized as sales and marketing. She noted that in the past, although the Commission has declined to find a domestic industry where only sales and marketing activity exist, it has nevertheless considered these investments as part of an overall domestic industry.

Originally published in ITC Trial Lawyers Association's 337 Reporter Monthly Round-Up covering July 2023.

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