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Parties Involved:
International Trade Commission
Appellee
LELO Inc.
Appellant
Leloi AB
Appellant
Standard Innovation (US) Corp.
Intervenor
Standard Innovation Corporation
Intervenor

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________ 

LELO INC., LELOI AB,

Appellants

v.

INTERNATIONAL TRADE COMMISSION,

Appellee

STANDARD INNOVATION (US) CORP.,

STANDARD INNOVATION CORPORATION

Intervenors

______________________ 

2013-1582

______________________ 

Appeal from the United States International Trade 

Commission in Investigation No. 337-TA-823.

______________________ 

Decided: May 11, 2015 

______________________ 

HECTOR JULIAN RIBERA, Fenwick & West LLP, Mountain View, CA, argued for appellants. Also represented by

MARION N.G. MILLER; LAUREN ESTELLE WHITTEMORE, 

San Francisco, CA. 

MICHAEL HALDENSTEIN, Office of the General Counsel, 

United States International Trade Commission, Washington, DC, argued for appellee. Also represented by DOMINIC 

L. BIANCHI, JAMES A. WORTH. 

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2 LELO INC. v. ITC

PAUL WHITFIELD HUGHES, Mayer Brown LLP, Washington, DC, argued for intervenors. Also represented by 

GARY HNATH; ROBERT P. LORD, LISA E. MARGONIS, TAMMY 

J. TERRY, CARLYN ANNE BURTON, Osha Liang LLP, Houston, TX. 

______________________ 

Before MOORE, CLEVENGER, and REYNA, Circuit Judges.

REYNA, Circuit Judge. 

Appellants appeal the finding of the U.S. International Trade Commission that the domestic industry requirements of § 337 were satisfied upon a showing of a 

“significant investment in plant or equipment” and a 

“significant employment of labor or capital.”1 See 19 

U.S.C. § 1337(a)(3). Because the ITC’s domestic industry 

analysis and determination was based on qualitative 

factors, we reverse. 

BACKGROUND

Standard Innovation Corporation (“Standard Innovation”), founded in 2004 and headquartered in Ottawa, 

Canada, is the assignee of U.S. Patent No. 7,931,605 (the 

’605 Patent). Standard Innovation markets a line of 

kinesiotherapy devices that includes three models that it 

asserts practice certain claims of the ’605 Patent. In 

September 2009, Standard Innovation formed a U.S. 

subsidiary, Standard Innovation (US) Corp., (“Standard 

U.S.”) to distribute products in the United States. 

Neither Standard Innovation nor Standard U.S. manufactures in the United States. Standard Innovation 

1 Certain Kinesiotherapy Devices and Components 

Thereof, Inv. No. 337-TA-823, Comm’n Op. at 2 (June 17, 

2013) (“Comm’n Op.”)

 

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LELO INC. v. ITC 3

sources parts and components for its devices from thirdparty suppliers in the U.S. and other countries. It contracts Chinese manufacturers to assemble its devices from 

those parts and components. Once finished, the devices 

are exported from China to over fifty countries worldwide, 

including the United States. 

 It is not clear from the record how many different 

inputs, parts, or components (collectively “components”)

are included in each of the asserted devices. The record 

also does not contain evidence as to the respective values, 

prices, or costs of all of the components. The ITC addresses only four components in its domestic industry 

analysis: a backbone material, a rubber, microcontrollers, 

and a pigment.2 Of those components, the backbone 

material, rubber, pigment, and the wafers used in the 

microcontrollers are manufactured in the United States, 

but the record is not clear whether the U.S. suppliers of 

the components are also the manufacturers of the components. Apparently, all other components of the devices 

are produced and sourced abroad. 

Lelo Inc. is a California corporation having its principle place of business in San Jose, California. Leloi AB is 

headquartered in Stockholm, Sweden, and is a majority 

shareholder of Lelo Inc. and Lelo Shanghai Trading Ltd.

(collectively “LELO”). LELO imports three kinesiotherapy devices into the United States. 

I. U.S. DOMESTIC INDUSTRY

Standard Innovation filed a § 337 complaint alleging 

that LELO imported kinesiotherapy devices and components thereof that infringed its ’605 Patent. An ITC 

Administrative Law Judge (“ALJ”) issued an Initial 

2 We refer to these components in general terms because Standard Innovation has requested that detailed 

information about the components remain confidential. 

 

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Determination in which he construed three claim terms of 

the ’605 Patent and determined that all of the accused 

devices meet at least one claim of the ’605 Patent. Certain Kinesiotherapy Devices and Components Thereof, Inv. 

No. 337-TA-823, Initial Determination at 50 (Jan. 8, 2013) 

(“Initial Determination”). The ALJ rejected LELO’s 

arguments that the independent claims of the ’605 Patent 

are invalid as anticipated, obvious, or indefinite under 35 

U.S.C. §§ 102, 103, 112. Id. at 79. 

Despite its findings on infringement and validity, the 

ALJ determined that a violation of § 337 had not occurred

because Standard Innovation failed to satisfy the § 337 

domestic industry requirements. Id. The ALJ rejected 

Standard Innovation’s arguments that its U.S. purchase

of the four components constituted a “significant investment in plant and equipment,” or a “substantial investment in its exploitation, including engineering, research 

and development, or licensing,” under prongs (A) and (C), 

respectively, of the § 337 domestic industry requirement. 

Id. at 71.

Specifically, the ALJ concluded that Standard Innovation’s U.S. purchases were not relevant to a prong (A) 

analysis because Standard Innovation failed to establish 

what portion, if any, the purchase price actually contributed towards a domestic investment in plant or equipment. Id. at 73–74. The ALJ also decided that the 

components were off-the-shelf items and not relevant to 

prong (C) because there was no proof that the components 

were developed specifically for Standard Innovation’s 

devices, or what portion, if any, of the purchase price was 

allocable to research and development costs incurred in 

the development of the components. Id. at 74–75. 

Further, the ALJ determined that even if the purchases were relevant, they were neither “substantial” nor 

“significant” under prongs (A) or (C). Id. at 75. The total 

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LELO INC. v. ITC 5

purchase prices accounted for less than five percent of the 

total raw cost of the devices. Id. at 76.3

II. COMMISSION DETERMINATION

The Commission reviewed the ALJ’s determination, 

revised one of the ALJ’s claim constructions, and determined that one of the accused devices does not meet the 

claims of the ‘605 Patent. Comm’n Op. at 2. The Commission affirmed the remainder of the ALJ’s determinations as to claim construction, infringement, and validity. 

Id. at 2. 

The Commission, however, reversed the ALJ’s domestic industry determination, finding that “Standard Innovation has satisfied the domestic industry requirement 

based on its expenditures on components produced domestically that are critical to [its devices].” Id. at 26. 

The Commission rejected the ALJ’s economic prong 

analysis because Standard Innovation “established that 

the components were critical for [its devices], which the 

ALJ found to be protected by the patent. This is sufficient 

for us to consider the component expenses in our economic 

prong analysis.” Id. at 27–28. The Commission deter3 The ALJ made numerous other quantitative findings that paint a more complete picture of Standard 

Innovation’s domestic investments, e.g., per-unit costs of 

the microcontroller and other components, per-unit costs 

of the domestically-sourced components compared to perdevice revenue, total sales of the devices, and Standard 

Innovation’s aggregate domestic investments. Initial 

Determination at 76. These findings have, however, been 

marked confidential. This Court has repeatedly explained 

that over-marking information as confidential places 

significant limits on this Court’s ability to address the 

relevant issue in a public opinion. We note that these 

findings show, at most, modest investments.

 

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mined, however, that Standard Innovation’s sales and 

marketing data were not relevant to the establishment of 

a domestic industry under prong (C). Id. at 29–30, n. 8. 

The Commission rejected the ALJ’s finding that the 

purchases were neither “substantial” nor “significant” 

under prongs (A) or (C). Conceding that the purchases 

represented “a relatively modest proportion of domestic 

content,” id. at 34, the Commission determined that the 

“contribution of the components at issue from a qualitative standpoint is indeed significant,” id. at 35. The 

Commission found that the ALJ had failed to give “due 

consideration to the critical nature of the components to 

the patented products in the context of the industry and 

the company.” Id. at 34. The Commission reasoned that 

the components were “crucial” because the backbone and 

finishing materials were finalized after extensive effort 

and experimentation, the backbone material specifically 

allowed for beneficial flexibility and resilience, the microcontrollers enabled the devices to “function as a vibrator 

(particularly as a vibrator with multiple modes)” by 

controlling “motor and mode selection.” Id. at 35–36. The 

Commission thus determined that the domestic purchases 

were significant entirely based on their qualitative contribution to the devices.

LELO timely appealed. We have jurisdiction under 

28 U.S.C. § 1295(a)(6).

DISCUSSION

Under 19 U.S.C. § 1337(c), we review ITC Final Determinations in accordance with the Administrative 

Procedure Act (APA), setting aside conclusions found to be 

arbitrary, capricious, an abuse of discretion, or otherwise 

not in accordance with law. 5 U.S.C. § 706(2)(A). We 

review questions of law, as interpreted and applied by the 

ITC, de novo and questions of fact for substantial evidence. Finnigan Corp. v. Int’l Trade Comm’n, 180 F.3d 

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LELO INC. v. ITC 7

1354, 1361–62 (Fed. Cir. 1999); Motorola Mobility, LLC v. 

Int’l Trade Comm’n, 737 F.3d 1345, 1348 (Fed. Cir. 2013). 

This appeal turns on the single question of whether 

qualitative factors alone are sufficient to satisfy the 

“significant investment” and “significant employment” 

requirements of § 337. To answer this question, we look 

first to the plain meaning of the statute. Carcieri v. 

Salazar, 555 U.S. 379, 387 (2009); Hughes Aircraft Co. v. 

Jacobsen, 525 U.S. 432, 438 (1999). 

A claimant asserting patent rights under § 337 must 

satisfy the “domestic industry” requirement set out in the 

statute and establish, “with respect to the articles protected by the patent,” that there is:

(A) significant investment in plant and equipment;

(B) significant employment of labor or capital; or

(C) substantial investment in its exploitation, including engineering, research and development, or 

licensing. 

19 U.S.C. § 1337(a)(3).

The plain text of § 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.” First, the 

terms “significant” and “substantial” refer to an increase 

in quantity, or to a benchmark in numbers. The plain 

meaning of an “investment” is “an expenditure of money 

for income or profit or to purchase something of intrinsic 

value.” Webster’s Third New International Dictionary 

1190 (1986). An “investment in plant and equipment” 

therefore is characterized quantitatively, i.e., by the

amount of money invested in the plant and equipment. 

Similarly, “capital” is “a stock of accumulated goods” and 

“labor” is “human activity that produces goods or provides 

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8 LELO INC. v. ITC

the services in demand in an economy.” Id. at 332, 1259. 

All of the foregoing requires a quantitative analysis in 

order to determine whether there is a “significant” increase or attribution by virtue of the claimant’s asserted 

commercial activity in the United States.

Prior ITC § 337 investigations confirm that a § 337 

analysis is quantitatively based. The ITC first addressed 

the relevant domestic industry requirement in Certain 

Cabinet Hinges, and found that the word “significant” 

denoted “an assessment of the relative importance of the 

domestic activities.” Certain Concealed Cabinet Hinges 

and Mounting Plates, Inv. No. 337-TA-289, 1990 WL 

10608981, Comm’n Op. at 11 (Jan. 8, 1990). The ITC 

reviewed the term “relative importance” in quantitative 

terms, determining that the complainant’s total dollar 

amount of investment was not “significant” relative to its 

overall investment with respect to the articles at issue. Id.

at 11–12. In Certain Pressure Transmitters, the ITC 

determined that the § 337 requirement was satisfied 

based on evidence concerning revenue spent on a manufacturing facility, equipment, research and development, 

and licensing, as well as reviewing the total number of 

people employed at its facility. Certain Pressure Transmitters, Inv. No. 337-TA-304, USITC Pub. 2392, Comm’n 

Op. at 14 (Mar. 19, 1990). 

The ITC has argued it has previously based a domestic industry determination on qualitative factors. See,

e.g., Certain Male Prophylactic Devices, Inv. No. 337-TA546, USITC Pub. 4005, Comm’n Op. at 24–25 (June 21, 

2007) (“Certain Male Prophylactics”). But the cases it 

cites do not stand for the proposition the qualitative data 

alone can satisfy the domestic industry requirements. For

example, in Certain Male Prophylactics, the ITC examined the economic impact of subcontractor domestic 

operations noting that, among other things, those operations reflected a U.S. value added of 34 percent. Id. at 26. 

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LELO INC. v. ITC 9

ing because the domestic industry requirement was not 

satisfied in those cases and cannot stand for the proposition that qualitative factors alone can support a domestic 

industry finding. Certain Printing and Imaging Devices

and Components Thereof, Inv. No. 337-TA-690, Comm’n 

Op. at 17 (Feb. 17, 2011); Certain Stringed Musical Instruments and Components Thereof, Inv. No. 337-TA-586, 

USITC Pub. No. 4120, Comm’n Op. at 17 (Apr. 24, 2008). 

The ITC argues that this case is similar to Certain 

Male Prophylactics, because Standard Innovation’s U.S. 

purchases of components are similar to “subcontracted 

components.” Comm’n. Op. at 26. This argument is 

unavailing. In Certain Male Prophylactics, the subcontractor provided a detailed accounting of the number of 

hours its employees spent working specifically on the 

complainants. The data permitted the ITC a basis to 

compute the magnitude of the “employment of labor.” Id. 

at 25. In addition, the subcontractor provided an accounting of the amount of investment it made in equipment 

that its employees used to perform the contracted services. Id. 

In this case, the U.S. suppliers are neither contractors 

nor subcontractors. They are retailors and the components are off-the-shelf. There is no evidence of any investment made in capital or labor as a result of the 

purchased components. Standard Innovation provides 

only generic purchase prices it paid for the off-the-shelf 

items. These pricing data do not reflect the magnitude of 

labor expended to produce the components, or the amount 

the suppliers invested in their equipment to fulfill Standard Innovation’s orders. The record contains no data 

indicating the share of labor and capital costs attributable 

solely to purchases made by Standard Innovation.4 The 

4 The ALJ apparently attempted to address this issue by subtracting an approximate amount spent on 

 

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ITC has generally applied prong (B) of the domestic 

industry requirement to capital investments in domestic 

facilities. See, e.g., Certain Integrated Circuit Chipsets 

and Products Containing the Same, Inv. No. 337-TA-428, 

ALJ Order at 2 (May 4, 2000); Certain Cutting Tools for 

Flexible Plastic Conduit and Components Thereof, Inv. 

No. 337-TA-344, ALJ Order at 7 (Feb. 10, 1993).

The Commission determined that Standard Innovation’s investment and employment under prongs (A) and 

(B) were quantitatively “modest,” Comm’n Op. at 34, 

which we take to mean “insignificant.” The Commission 

also found that Standard Innovation did not establish 

prong (C). Id. at 29–30, n.8. We agree with the Commission’s finding that investment and employment under 

prongs (A) and (B) were modest and insignificant. The 

Commission erred when it disregarded the quantitative

data to reach its domestic industry finding based on 

qualitative factors. Qualitative factors cannot compensate for quantitative data that indicate insignificant 

investment and employment. As such, Standard Innovation did not establish a “significant” “investment” or 

“employment” under prongs (A) or (B), and did not set 

forth evidence of relevant investments under prong (C). 

Accordingly, Standard Innovation did not satisfy the 

domestic industry requirement of § 337.

foreign activities. Initial Determination at 72. Though 

important, the ALJ’s analysis is incomplete as it does not 

account for the value expended on relevant domestic 

activities, as opposed to total profit or total general administrative costs. In any event, the ITC also failed to 

allocate profits or revenue attributed to relevant domestic 

activities. Comm’n Op. at 33–34. 

 

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CONCLUSION

 We hold that qualitative factors alone are insufficient 

to show “significant investment in plant and equipment” 

and “significant employment of labor or capital” under 

prongs (A) and (B) of the § 337 domestic industry requirements. The purchase of so called “crucial” components from third-party U.S. suppliers are insufficient to 

satisfy the “significant investment” or “significant employment of labor or capital” criteria of § 337 where there 

is an absence of evidence that connects the cost of the 

components to an increase of investment or employment 

in the United States.

Because the ITC’s assessment of domestic industry

contravenes § 337, we hold that the ITC’s Final Determination was not in accordance with law. Accordingly, we 

reverse the ITC’s Final Determination.5 

REVERSED

5 On appeal, LELO also challenges the ITC’s Final 

Determination on claim construction and indefiniteness. 

Because our holding on the domestic industry requirement resolves this appeal, we do not reach those issues. 

 

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