Lelo Inc. v. Int'l Trade Comm'n

• Decision Date: 11 May 2015
• Docket Number: No. 2013–1582.,2013–1582.
• Citation: 114 U.S.P.Q.2d 1840,786 F.3d 879
• Parties: LELO INC., Leloi AB, Appellants v. INTERNATIONAL TRADE COMMISSION, Appellee. Standard Innovation (US) Corp., Standard Innovation Corporation, Intervenors.
• Court: U.S. Court of Appeals — Federal Circuit

786 F.3d 879

114 U.S.P.Q.2d 1840

LELO INC., Leloi AB, Appellants

v.INTERNATIONAL TRADE COMMISSION, Appellee.

Standard Innovation (US) Corp., Standard Innovation Corporation, Intervenors.

No. 2013–1582.

United States Court of Appeals, Federal Circuit.

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.

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.

Opinion

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 sources parts and components for its devices from third-party 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 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 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 determined, 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 micro-controllers 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 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, 129 S.Ct. 1058, 172 L.Ed.2d 791 (2009) ; Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 119 S.Ct. 755, 142 L.Ed.2d 881 (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...