Opinion ID: 614670
Heading Depth: 1
Heading Rank: 2

Heading: PPC's Investment in Exploitation

Text: Section 337(a)(3)(C)'s applicability to litigation expenses is an issue of first impression before the ITC and before this court. The ITC correctly characterized PPC's asserted litigation expenses as rais[ing] an important issue of statutory interpretation, namely, whether litigation activities can constitute `exploitation' under section 337(a)(3)(C) so as to support a finding of a domestic industry. Comm'n Op. at 41, 43. As noted above, the ITC answered that question as follows: We conclude that patent infringement litigation activities alone, i.e., patent infringement litigation activities that are not related to engineering, research and development, or licensing, do not satisfy the requirements of section 337(a)(3)(C). However, litigation activities (including patent infringement lawsuits) may satisfy these requirements if a complainant can prove that these activities are related to licensing and pertain to the patent at issue, and can document the associated costs. Id. at 44. This interpretation of § 337(a)(3)(C) is to be reviewed de novo, since no deference is owed to the ITC under Chevron in this instance. [3] The original Tariff Act of 1930 required a showing of domestic industry, as well as an independent showing of injury to that domestic industry, to bring a successful claim under section 337. See, e.g., Akzo N.V. v. ITC, 808 F.2d 1471, 1486-87 (Fed. Cir.1986) ([T]o prove a violation of § 337, the complainant must show both an unfair act and a resulting detrimental effect or tendency.). In 1988 Congress eliminated the injury requirement and added what is now section 337(a)(3) to specify how a domestic industry may be established. At that time the ITC was already finding a domestic industry to be shown via manufacturing activity such as investment in manufacturing infrastructure or employment of labor or capital. S.REP. NO. 100-71, at 129 (1987); H.R.REP. No. 100-40, at 157 (1987). Believing that the ITC was too rigidly requiring such manufacturing activity, Congress considerably lowered the domestic industry requirement threshold by permitting non-manufacturing activity such as licensing and research to show the existence of a domestic industry. H.R. REP. NO. 100-40, at 157. Thus, the following text of section 337(a)(3) was enacted: an industry in the United States shall be considered to exist if there is in the United States, with respect to the articles protected by the patent, copyright, trademark, mask work, or design concerned (A) significant investment in plant and equipment; (B) significant investment in labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing. 19 U.S.C. § 1337(a)(3). Under Chevron we must first look to whether Congress has directly spoken to the issue of whether litigation activities can alone support a finding of a substantial investment in exploitation under § 337(a)(3)(C). 467 U.S. at 842-43, 104 S.Ct. 2778. Neither party contends that Congress has directly addressed this precise issue. Indeed, the plain language of § 337 is silent as to how litigation or patent enforcement expenses should be treated. In the legislative history of the 1988 amendment to section 337, Congress was clear that [t]he mere ownership of a patent. . . would not be sufficient to satisfy [the domestic industry requirement]. The owner of the property right must be actively engaged in steps leading to the exploitation of the intellectual property, including application engineering, design work, or other such activities. S. REP. NO. 100-71, at 130. Congress gave examples of universities or small startup companies licensing their rights to manufacturers as acceptable kinds of domestic industries. Id. at 129; Comm'n Op. at 47-48. Although Congress clearly intended to require something more than mere ownership of a patent, it did not exclude litigation activities as indicia of being actively engaged in the exploitation of the patent. The question then becomes whether the ITC's interpretation to exclude litigation expenses not tied to licensing was a permissible construction, i.e., one which is not arbitrary, capricious, or manifestly contrary to the statute. Chevron, 467 U.S. at 842-44, 104 S.Ct. 2778. The ITC conceded that the plain language of section 337(a)(3)(C) does not limit the kinds of activities that can be considered exploitation, but rather provides an exemplary listing of activities that can constitute exploitation. Comm'n Op. at 45; 19 U.S.C. § 1337(a)(3)(C). Nevertheless, the ITC decline[d] . . . to venture beyond these three examples because we are not convinced that patent infringement litigation activities unrelated to engineering, research and development, or licensing constitute `exploitation' for purposes of the statute. Comm'n Op. at 45. It emphasized that Congress could have easily included patent infringement litigation [in the list], but did not. Id. at 45. Furthermore, the ITC believed that [a]llowing patent infringement litigation activities alone to constitute a domestic industry would place the bar so low as to effectively render it meaningless, and Congress plainly intended for more than mere ownership of patent right to suffice. Id. at 46. Hence, the ITC announced a litigation-licensing nexus rule. Id. at 50. The ITC's interpretation of section 337(a)(3)(C) is unduly narrow, and is manifestly contrary to the statute. Chevron, 467 U.S. at 842-44, 104 S.Ct. 2778. Congress did not enact language that limited the term exploitation to activity only related to one of the named examples listed in the statute. Congress left the list open-ended to provide flexibility for what may be deemed to constitute exploitation, expressing that criteria other than the examples would appropriately qualify for consideration. See § 337(a)(3)(C) (exploitation, including engineering, research and development, or licensing) (emphasis added); see also S. REP. NO. 100-71, at 130 (1987) (discussing the consideration of engineering, design work, or other such activities ) (emphasis added). The ITC failed to articulate any reasonable basis in the legislative historylet alone an extraordinary showing of contrary intentionsto justify such a departure from the plain meaning of the statutory language. See Garcia v. United States, 469 U.S. 70, 75, 105 S.Ct. 479, 83 L.Ed.2d 472 (1984). The legislative history compels that exploitation be read broadly in accordance with the statutory text. See S. REP. NO. 100-71, at 130. The ITC's construction artificially and arbitrarily narrowed the domestic industry requirement. The majority misapprehends the threshold domestic industry requirement through its perception that the ITC is fundamentally a trade forum, not an intellectual property forum. This view ignores the statutory role of the ITC and the legislative purpose of section 337, and tends to place an undue expectation of trade-related or production-related activity when analyzing the domestic industry requirement. The ITC took a similar view of itself and of section 337, suggesting that exploitation is shown only by taking steps to foster propagation or use of the underlying intellectual property or by engaging in activities that serve to encourage practical applications of the invention or bring the patented technology to market. Comm'n Op. at 49. As this court has observed, however, [w]hen Congress amended section 337 of the Tariff Act of 1930 in 1988 to provide the definition of domestic industry now found in subsection (a)(3), it stated that its purpose was `to make [section 337] a more effective remedy for the protection of United States intellectual property rights. ' Texas Instruments Inc. v. ITC, 988 F.2d 1165, 1181 (Fed.Cir.1993) (quoting Omnibus Trade and Competitiveness Act of 1988, Pub.L. No. 100-418, § 1341(b), reprinted in 1988 U.S.C.C.A.N. (102 Stat.) 1107, 1212 (codified at 19 U.S.C. § 1337)) (emphasis added). Thus when Congress amended § 337 it revised the standing requirement to eliminate the need to show material injury, a factor that is plainly trade-related, and thereby charged the ITC with administering a statute having a primary purpose of enforcing valid intellectual property rights. See Thomas A. Broughan, III, Modernizing § 337's Domestic Industry Requirement for the Global Economy, 19 FED. CIR. B.J. 41, 79 (2009) (The statute requires the ITC to consider the health and public welfare and competitive conditions in balancing the interests of U.S. consumers against those of owners of intellectual property. . . .). Subsequent to the 1988 amendment, the number of actions for enforcement of intellectual property rights against infringing imports have increased and become the most prominent of complaints brought before the ITC. See William P. Atkins & Justin A. Pan, An Updated Primer on Procedures and Rules in 337 Investigations at the U.S. International Trade Commission, 18 U. BALT. INTELL. PROP. L.J. 105, 107 (2010) (Section 337 has evolved almost exclusively into an intellectual property enforcement statute.); Joel W. Rogers & Joseph P. Whitlock, Is Section 337 Consistent with the GATT and TRIPS Agreement?, 17 AM. U. INT'L L.REV. 459, 470-471 (2002) (Section 337 is a powerful border enforcement mechanism to be used against imports that infringe a U.S. patent. . . . Section 337 is often used for intellectual property claims instead of other `unfair methods of competition' claims.). I disagree with both the ITC and the majority in that with regard to section 337 investigations, I view the ITC as an intellectual property enforcement forum. In its capacity as an administrator of an important intellectual property enforcement statute, it is error for the ITC to limit the scope of its section 337 investigations to those where the complainant is involved in traditional trade-based or goods-based activities. The ITC must understand that patentees have no affirmative right to practice their inventions, but only the right to exclude others from doing so. TransCore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271, 1275 (Fed.Cir.2009). A patent right is therefore empty without the ability to meaningfully enforce it against infringers. Congress recognized this fact when it added section 337(a)(3)(C) to give patentees more effective means to enforce their rights. Tex. Instruments, 988 F.2d at 1181. By permitting patent rights to be more effectively enforced at the border, Congress again advanced the axiom that enforceable patent rights are good for innovation and for the economy. See Hilton Davis Chem. Co. v. Warner-Jenkinson Co., Inc., 62 F.3d 1512, 1529 n. 1 (Fed.Cir. 1995) (Newman, J., dissenting) (Technologic innovation has driven the American economy, over the past century, to the exclusion of virtually all other growth factors. . . . [P]atent-based innovation has a positive impact on the economic system as new industries and new goods displace the old.); Andrew Beckerman-Rodau, Patents are Property: A Fundamental But Important Concept, 4 J. BUS. & TECH. L. 87, 93 (2009) (Absent the ability to assert patent property rights, fewer inventions will be patented and the public storehouse of knowledge will decrease without the public disclosure from those patents.); see also 35 U.S.C. § 271(a) (deeming importation of a patented article to constitute infringement). Conversely, the incentive for domestic producers to innovate is all but destroyed if their patents are being infringed by foreign companies that vanish at the first sign of legal opposition to their importation or domestic sales, only to later resurface under a new name with more infringing products. For such situations, Congress made meaningful relief available to patentees by enabling the ITC to issue exclusion orders to stop infringement at the border. As shown in PPC's case, there exists strong motivation for infringers to circumvent U.S. patent enforcement efforts, a circumstance that can only be effectively addressed through the issuance of a general exclusion order. Initial Determination at 143. Although standing for such exclusionary relief requires activity beyond mere ownership of a patent, S. REP. NO. 100-71, at 130, Congress deemed that standing could exist via any exploitation of the patenti.e., any activity that puts the patent to a productive use or otherwise takes advantage of it. See Williams v. Taylor, 529 U.S. 420, 431, 120 S.Ct. 1479, 146 L.Ed.2d 435 (2000) (explaining that Congress is presumed to have intended each word in a statute would be given its ordinary, contemporary, common meaning); Comm'n Op. at 49 (finding that when Congress amended section 337 in 1988, to exploit meant to put to a productive use or to take advantage of). This threshold is intentionally very low, in keeping with Congress' goal to make section 337 a more effective patent enforcement statute. Indeed, a patentee need not even be engaged in the exploitative activity per se as long as its activity is an  investment in [the patent's] exploitation. § 337(a)(3)(C) (emphasis added). A domestic industry can be shown to exist by those actively engaged in steps leading to the exploitation of the intellectual property. S. REP. NO. 100-71, at 130 (emphasis added). Under the broad language of section 337(a)(3)(C), patent infringement litigation is an investment in the exploitation of a patent. Securing a judgment of validity and infringement substantially strengthens and increases the value of the patent. See John R. Allison et al., Valuable Patents, 92 Geo. L.J. 435, 439-440 (2004) ([L]itigated patents tend to be much more valuable than others on average. . . .). Stronger patent rights are also better able to attract investment to support an industry and provide higher returns on those investments. See Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L.REV. 989, 994 (1997) ([I]ndividuals will not invest in invention or creation unless the expected return from doing so exceeds the cost of doing sothat is, unless they can reasonably expect to make a profit from the endeavor.). In these ways, infringement litigation can be a productive and advantageous use of patent rights which better fortify the patentee's position in the marketplace. Indeed, it appears that absent PPC's infringement actions the '539 patent would never have become sufficiently valuable or marketable for PPC to have obtained the license agreement that it did. The infringing competitors only stopped infringing and licensed PPC's patents at the point of a sword forged and tempered in the district courts. When faced with a flood of infringing copy-cat imports able to undercut their prices, it is unreasonable that entities like PPC be discouraged from first enforcing a patent in litigation in lieu of producing the patented article to compete in the marketplace while at a clear economic disadvantage. Likewise, when an industry is highly reluctant to license patents in the relevant technological field, a patentee should be able to pursue litigation as an alternative or precursor to licensing negotiations without diluting its patent rights. Litigation in these contexts constitutes an investment in exploitation. Entities that are or can become market participants in the field of the patented technology should not be deemed to lack standing for a section 337 action if those entities have substantially staked out their claim to the technology via infringement litigation. Litigation undertaken to enforce patent rights and enhance the value of a patent or pave the way for a stronger competitive advantage constitutes an investment in exploitation under section 337(a)(3)(C), regardless of that activity's relationship to licensing, engineering, research, or production. Here, the ITC's determination to exclude litigation costs untethered to licensing from consideration has impermissibly and arbitrarily limited the reach of section 337 for patent owners. III. CONCLUSION For the foregoing reasons, I would reverse the ITC determination and remand for additional fact finding as to how much investment PPC made into the research and development of the design, and to determine whether PPC's infringement litigation costs, alone or in combination with its research and development costs, are substantial enough to give rise to the existence of a domestic industry.