House Bill Would Deter ITC Actions by Non-Practicing Entities

A bill proposed on May 29th in the House of Representatives would make it more difficult for non-practicing entities (“NPEs”) to sustain patent infringement actions at the ITC by tightening the domestic industry standard to require a showing that complainant’s licensing activities resulted in the development of actual products practicing the asserted patent. H.R. 4763 (“Trade Protection Not Troll Protection Act”).

To establish a domestic industry in an ITC patent infringement action, a complainant must prove, with respect to products that practice the asserted patent, that it has made significant investments in the U.S. in (1) plant, equipment, labor, or capital for manufacturing the practicing products; or (2) engineering, research and development, or licensing related to the practicing products.  19 U.S.C. § 1337(a)(3).

Recent decisions by the Federal Circuit have left uncertainty as to whether proving domestic industry via licensing requires a showing that licensees actually manufacture products practicing the patent.  In Microsoft v. International Trade Com’n, 731 F.3d 1354, 1361-2 (Fed. Cir. 2013), the Court found that failure to identify products that practice the patent meant failure to prove domestic industry.  Id.  By contrast, in InterDigital Communications, LLC v. International Trade Com’n, 707 F.3d 1295 (Fed. Cir. 2013), the Federal Circuit declined to reverse a finding of domestic industry for failure to show practicing products, holding that “[i]t is not necessary [under 337] that the party [or any other domestic party] manufacture the product that is protected by the patent.”  Id. at 1303-4 (emphasis added).

The proposed House bill would eliminate this uncertainty by codifying the requirement that complainants who rely on licensing to establish a domestic industry must show that the licensing activity led to the development of practicing products.  Specifically, it amends subsection (C) of 19 U.S.C. §1337(a)(3) to add the provision that a complainant “may not rely upon activities by its licensees unless the license leads to the adoption and development of articles that incorporate the patent […].” H.R. 4763 at 2: 18-22 (emphasis added).

The bill would also mandate that the ALJ render an early initial determination on domestic industry “not later than 45 days after the filing of the complaint” and limited to the evidence in the complaint.  H.R. 4763 at 3:10-21.  Cases would be dismissed in their early stages if the domestic industry showing were found to be insufficient.  Id. at 3:21-25.