ITC: Licensee Investments May Satisfy Domestic Industry Requirement

By Dr. Eric Becker
March 12, 2017

Silicone Wafers by Don DeBold via Flickr : CC BY 2.0

International Trade Commission Administrative Law Judge Mary Joan McNamara ruled in an Initial Determination on February 8, 2017 that Silicon Genesis Corporation (“SciGen”) satisfied the economic prong of the domestic industry requirement for establishing a violation under Section 337.

SciGen is a non-practicing licensor of a patented process for manufacturing silicon-on-insulator wafers.  Their licensees include SunEdison Semiconductor, Ltd (“SunEdison”) and Shin-Etsu Chemical.  SciGen filed a complaint on May 25, 2016 to request an injunction barring Soitec, S.A. (“Soitec”) from importing certain accused silicon-on-insulator wafer products into the United States.

Judge McNamara’s order considers three issues pertaining to domestic industry that may be of interest to non-practicing patent owners.

First, the order considers whether a complainant may use a licensee’s activities to satisfy the domestic industry requirement under 19 U.S. Code § 1337.  SciGen sought to establish a domestic industry by proving SunEdison made substantial investments in plant, equipment, marketing and labor and by demonstrating the necessary nexus between those activities and the patents at issue.  Judge McNamara explained that domestic industry is not limited to the activities of the patentee and may be satisfied based on a licensee’s activities alone.

Second, the order considers whether a licensee must participate in a complaint when the patentee relies on that licensee’s activities to establish a domestic industry.  SciGen relied on evidence of SunEdison’s investments even though SunEdison did not participate in the complaint.  Soitec argued that SunEdison should have been a co-complainant since SciGen is a non-practicing entity with no domestic industry of its own.  Judge McNamara explained that the Commission does not require third-party licensees to participate as co-complainants.

Third, the order considers whether a change to a licensee’s status is material to a ruling on domestic industry.  GlobalWafers Co., Ltd. (“GlobalWafers”) acquired SunEdison in and around December of 2016, several months after SciGen filed its complaint with the ITC.  Soitec argued that the SciGen should not be allowed to treat SunEdison as a licensee because SunEdison was no longer an independent company and because GlobalWafers may not hold a license to the asserted patents.  Judge McNamara explained that the appropriate date for determining domestic industry is the date a complaint is filed even though, in cases where evidence shows a dwindling industry, the Commission may consider activities beyond the complaint date.  Judge McNamara therefore found the SunEdison acquisition to be largely irrelevant to the issue of a domestic industry in this case.

In order to establish a violation under 19 U.S. Code § 1337 for the importation of patented articles, a complainant must show that there is a domestic industry relating to the patented articles.  This domestic industry requirement has both an economic prong and a technical prong.  A complainant satisfies the economic prong by establishing one of three disjunctive economic criteria.  Those criteria are: significant investment in plant and equipment; significant employment of labor, or capital; or substantial investment exploiting the patent, including engineering, research and development, or licensing.  A complainant satisfies the technical prong by establishing that they practice or exploit the patents at issue.

SciGen offered evidence on domestic industry in the form of testimony from SunEdison’s former Chief Scientist and Director of Intellectual Property.  SciGen also offered testimony from both their economic expert who quantified SunEdison’s investments using publicly available data, and from their technical expert who analyzed a video describing SunEdison’s manufacturing processes.

Judge McNamara weighed the evidence on domestic industry after ruling SciGen did not err in basing its arguments on SunEdison’s activity.  Judge McNamara ruled that SciGen succeeded in establishing the economic prong of the domestic industry requirement while reserving judgement as to the technical prong.

The Author

Dr. Eric Becker

Dr. Eric Becker is an economic expert at Becker North, Inc. He specializes in the application of economics to complex commercial disputes. His experience in intellectual property matters includes the analysis of economic damages, lost profits, reasonable royalty, commercial success, and domestic industry. Dr. Becker earned his Ph.D. in economics from Yale University.

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