1. Mid Winter Institute Meeting January 2012 Joseph A. Calvaruso Orrick, Herrington & Sutcliffe LLP Recent Developments In The ITC: The Domestic Industry Requirement And the Scope Of ITC Jurisdiction Over Non-US Activities © AIPLA 2012

2. Growth in ITC 337 Investigations © AIPLA 2012 (est.)

3. Growth in Foreign Complainants © AIPLA 2012 Percentage Foreign Data obtained from www.usitc.gov, via S. Alex Lasher, The Evolution of the Domestic Industry Requirement in Section 337 Investigations Before the United States International Trade Commission, 18 U. Balt. Intell. Prop. L.J. 157, n130 (2010).www.usitc.gov

4. Background and Statutory Framework THE DOMESTIC INDUSTRY REQUIREMENT © AIPLA 2012

5. 19 U.S.C. § 1337(a)(2) A two-pronged test for statutory IP rights under 19 U.S.C. § 1337(a)(2) and (3): § 1337(a)(2) – Technical Prong “only if an industry in the United States, relating to the articles protected by the patent, copyright, trademark, mask work, or design concerned, exists or is in the process of being established.” © AIPLA 2012

6. “Technical” Prong § 1337(a)(2) – Technical Prong Generally, a complainant must show that it is practicing a valid claim of each asserted patent in the U.S. The practiced claim need not be the same claim infringed by respondent. Determination as to whether a patent is “practiced” is analyzed in the same manner as a determination of infringement. © AIPLA 2012

7. 19 U.S.C. § 1337(a)(3) § 1337(a)(3) – Economic Prong “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 employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.” © AIPLA 2012

8. Certain Semiconductor Chips With Minimized Chip Package Size and Products Containing Same Inv. No. 337-TA-432 (June 2002) First case to find the existence of a domestic industry based solely on the licensing activities of a non-practicing entity (NPE). Found clear intent by Congress to allow entities actively licensing in the U.S. to meet the domestic industry requirement without showing the existence of an article covered by the asserted patents. Complainant had extensive licensing activity in this case. © AIPLA 2012

9. Certain Integrated Circuits, Processes for Making Same and Products Containing Same Inv. No. 337-TA-450 (2002) Taiwanese complainant sought to satisfy domestic industry requirement based on the activities of its U.S. sales subsidiary. Existence of domestic industry confirmed by complainant’s leasing office space, providing engineering support to customers and third party vendors, and employing engineers to perform that assistance in the U.S. © AIPLA 2012

10. Certain Electronic Devices Including Handheld Wireless Communication Devices Inv. No. 337-TA-667/337-TA-673 (combined) (2009) Complaint filed by an NPE, Saxon Innovations. Saxon licensed Motorola, which engineered and produced articles covered by Saxon’s patents in the U.S. All the time the complaint was filed, Saxon had not received any revenue from its licensing activities. Respondents argued that the ITC had never found a domestic industry based on licensing activities that produced no revenue. The ITC found that Saxon met the domestic industry requirement based on the investment in engineering activities of its U.S. licensee, Motorola, even though that activity was not directly related to patented features of the articles in question. © AIPLA 2012

11. “Coaxial Cable” John Mezzalingua Assocs., Inc. v. ITC 660 F.3d 1322 (Fed. Cir. 2011) Complainant PPC manufactured connectors for connecting coaxial cables to electronic devices. PPC sought to stop importation of all connectors infringing its design and utility patents. Because PPC did not practice its design patent, PPC attempted to satisfy the domestic industry requirement by showing a substantial investment in “exploitation” of the patent under § 1337(a)(3)(C). © AIPLA 2012

12. Coaxial Cable Complainant’s DI Argument PPC argued that its litigation expenses should be considered in determining whether it had made a substantial investment in exploitation: PPC Sued Respondent Arris on the design patent in Florida, and obtained an injunction. PPC sued Arris’s distributor ICM in Colorado on the design patent over connectors supplied by Arris. PPC sued Arris in Wisconsin on a related utility patent. Two years later, after a jury verdict in the Wisconsin case, PPC and Arris entered settlement discussions and PPC signed a license agreement with Arris including the design patent. © AIPLA 2012

13. Coaxial Cable Analysis and Results The Federal Circuit agreed with the ITC that under § 1337(a)(3)(C), a complainant must show a connection between its litigation expenses and “engineering, research and development, or licensing.” PPC’s litigation expenditures were not sufficiently tied to licensing. Received only one license, only partly related to the design patent. Waited two years after an injunction before licensing the patent. Little evidence of offers to license before commencing litigation. © AIPLA 2012

14. Coaxial Cable Analysis and Results (cont’d) PPC’s litigation expenditures were not sufficiently tied to licensing. (cont’d) Litigation was not all based on the design patent in question. No letter offering settlement was sent. No settlement discussions during litigation. No established licensing program. No other efforts to license. © AIPLA 2012

15. Coaxial Cable Implications of CAFC Decision In order to rely on litigation expenditures under § 1337(a)(3)(C), evidence must show that the litigation was conducted as part of an overall licensing effort and not focused solely on obtaining an injunction and money damages. Efforts to license or settle with a potential defendant should be ongoing and talks or settlement discussions should be conducted throughout the process. © AIPLA 2012

16. “Pioneer” In re Certain Multimedia Display and Navigation Devices Inv. No. 337-TA-694 (July 22, 2011) Pioneer asserted infringement of two patents related to navigation systems. Pioneer attempted to show a domestic industry under § 1337(a)(3)(C) based on investment in licensing. The ITC found that Pioneer had not satisfied the economic prong, and set forth detailed factors for consideration of this issue in future cases. © AIPLA 2012

17. Pioneer Analysis The Commission clarified that § 1337(a)(3)(C) first requires three elements: A. the investment in licensing relates to exploitation of the asserted patent; B. the investment relates to licensing; and C. the investment occurs in the United States. Failure to meet any one of these three requirements will result in a finding of no domestic industry. After determining that the above three elements are met, the Commission must weigh whether the investments are “substantial,” in light of the particular facts of the case at hand. © AIPLA 2012

18. Pioneer Nexus to Asserted Patents Factors in Determining a Nexus to the Asserted Patents Whether the licensee’s efforts relate to a protected article Number of patents in the portfolio Relative importance or value of the asserted patent to the portfolio Prominence of the asserted patents in licensing discussions © AIPLA 2012

19. Pioneer Nexus to Asserted Patents (cont’d) Factors in determining the relative importance or value of an asserted patent in a portfolio: Successfully litigated by complainant Relates to a technology industry standard Considered a “base patent” or “pioneering patent” © AIPLA 2012

20. Pioneer Nexus to Licensing and the U.S. Nexus to licensing The Commission refers to the considerations laid out by the CAFC in Coaxial Cable. Nexus to the United States Fact-focused and case-specific inquiry into the extent to which complainant conducts its licensing operations in the United States. Employment of U.S. personnel Utilization of U.S. resources © AIPLA 2012

21. Pioneer Substantiality Test Factors in determining substantiality: Existence of other types of “exploitation” of the asserted patents Research, development, engineering,... Existence of license-related ancillary activities Ensuring compliance, providing training or technical support,... Whether licensing activities are continuing Whether licensing activities are revenue-driven or production- driven Return on licensing investment © AIPLA 2012

22. Pioneer Commission Decision Pioneer’s investment was not substantial because: In-House activity’s nexus to asserted patents was “attenuated” Licensing efforts were directed to Pioneer’s entire “navigation portfolio,” including many patents, and did not specifically address, highlight, or discuss the asserted patents No evidence how licensing was related to exploiting the asserted patents Technological scope of portfolio is broad, and no evidence regarding how the asserted patents “fit together congruently” © AIPLA 2012

23. Certain Video Game Systems & Controllers, Inv. No. 337-TA-743 Complainant Motiva LLC is an NPE consisting of only the inventors of the two asserted patents Respondents: Nintendo Co., Ltd. and Nintendo of America, Inc. (Orrick was counsel to Respondents) Accused products: Wii and controllers Initial Determination issued on Nov. 2 found Motiva had not satisfied the domestic industry requirement. © AIPLA 2012

24. Domestic Industry Requirement Summary Since the 1988 amendments allowing non-manufacturing activities to satisfy the domestic industry requirement under § 1337(a)(3)(C), use of the ITC, especially by foreign entities, has greatly increased. From 1988 to 2010, there is a line of ITC cases relaxing the domestic industry requirement, further increasing the attractiveness of the ITC as a forum for NPEs and foreign complainants. But with recent decisions, the ITC and Federal Circuit have heightened the standard for showing domestic industry under § 1337(a)(3)(C). © AIPLA 2012

25. Extraterritorial Trade Secret Misappropriation TIANRUI GROUP v. ITC SLIP OP. 2010-1395, 2011 U.S. APP. LEXIS 20607 (FED. CIR. OCT. 11, 2011). © AIPLA 2012

26. TianRui Group Facts Complainant, Amsted, manufactured railway wheels in the U.S. In China, TianRui hired nine employees from Amsted’s licensee, all of whom knew that the licensed Amsted process was a trade secret. TianRui began using Amsted’s trade secrets in manufacturing railway wheels in China, which were then exported to the U.S. The ITC issued an exclusion order based on “overwhelming evidence” of trade secret misappropriation. TianRui appealed to the CAFC on jurisdictional grounds. © AIPLA 2012

27. TianRui Group CAFC Opinion on Foreign Conduct Federal Circuit Held: Section 337 covers “[u]nfair methods of competition [or] unfair acts in the importation of [those] articles” 19 U.S.C. § 1337(a)(1(A). Trade secret determinations under § 337 are governed by federal common law. The presumption against extraterritoriality does not apply to § 337. It focuses on “an inherently international transaction — importation.” The foreign activity is only one element of a claim of domestic injury. © AIPLA 2012

28. TianRui Group CAFC Opinion on Foreign Conduct (cont’d) Federal Circuit Held (cont’d): The ITC’s ruling does not interfere with Chinese law because the Commission’s authority is limited to setting conditions for importation of articles into the U.S. © AIPLA 2012

29. TianRui Group CAFC Opinion on Injury For non-statutory IP (trade secrets, unfair practices), section 337 requires that the unfair practices threaten to “destroy or substantially injure” a domestic industry. § 1337(a)(1)(A). But Section 337 does not require that non-statutory IP be related to the injured domestic industry. Although Amsted no longer practiced the specific misappropriated trade secrets, TianRui Group’s wheels could directly compete with Amsted’s wheels made from a different process. This competition was sufficient to satisfy the injury requirement. © AIPLA 2012

30. TianRui Group Summary The ITC has authority to exclude imported products where the manufacturer engaged in unfair competitive practices such as trade secret misappropriation abroad. In unfair competition cases, the IP right in question does not have to relate to the injured domestic industry. The ITC will apply federal common law in cases of unfair competition and trade secret misappropriation. © AIPLA 2012

31. Joseph A. Calvaruso Orrick, Herrington & Sutcliffe LLP 51 West 52 nd Street New York, NY 10019 jcalvaruso@orrick.com 1-212-506-5140 www.orrick.com/ip Thank You © AIPLA 2012