ITC ALJ Breaks New Ground, Further Heightening the DI Requirement for NPEs

Managing Intellectual Property

An Administrative Law Judge of the International Trade Commission recently held that a purely revenue-driven non-practicing entity (“NPE”) did not prove that it satisfied the domestic industry (“DI”) requirement, because it relied solely on the activities of its licensees without also proving that it exploits the asserted patents under § 1337(a)(3)(C). Certain Optical Disc Drives, Components Thereof, & Prods. Containing Same, Inv. No. 337-TA-897, Order No. 95 (July 17, 2014) (Lord, ALJ) (“Optical Disc Drives”). ALJ Lord’s Initial Determination is reviewable by the Commission. This ruling would require purely revenue-driven NPEs to make some showing that they exploit the asserted intellectual property under 19 U.S.C. § 1337(a)(3)(C) in every case.

ALJ Lord found that the complainant, an NPE called Optical Devices LLC, “exists solely” to engage in revenue-driven licensing practices. Specifically, an Investment Agreement and Business Plan produced by Optical Devices lacked any discussion of production-driven licensing, acknowledged that the time for such production had passed, and stated that the only purpose of its licenses was to obtain revenue. Optical Devices relied entirely on the activities of its licensees, Sharp and Sony, to satisfy the DI economic prong under § 1337(a)(3)(A) & (B). ALJ Lord determined that these licenses “are unambiguously revenue driven in nature and have no relationship of any kind to exploitation of the patented technology through production.” Optical Devices made no attempt to rely on any of its own expenditures under subsection (C).

ALJ Lord found that under the plain meaning of the statute, a complainant who seeks to establish a DI based solely on revenue-driven licensing must proceed under subsection (C), which explicitly references licensing, as opposed to subsections (A) and (B), which make no mention of licensing. Licensing can form the basis of a DI under subsections (A) and (B) only where the patentee’s licenses are related to product development. ALJ Lord determined that her holding is consistent with the legislative history underlying the enactment of 1337(a)(3)(C) in 1988 and with the Commission’s opinion in Certain Multimedia Display & Navigation Devices, Inv. No. 337-TA-694 (Aug. 8, 2011). Finally, ALJ Lord discussed a line of cases beginning with Schaper Mfg. Co. v. Int’l Trade Comm’n, 717 F.2d 1368 (Fed. Cir. 1983), which she says stand for the proposition that in “proper cases,” the complainant’s licensing activities will promote exploitation of the patented technology.

ALJ Lord found that this was not a “proper case” under Schaper, because Optical Devices’ licenses are purely revenue-driven and Optical Devices adduced no evidence of its own efforts to exploit the asserted patents.  In noting that the complainant failed to identify a single investigation that squarely addressed this issue, ALJ Lord appeared to acknowledge that her determination, if adopted by the Commission, would set new precedent.  Indeed, if affirmed by the Commission, ALJ Lord’s decision would continue the trend of recent decisions heightening the DI requirement for NPEs.

By Jordan L. Coyle and Bas de Blank
This article was originally published in Managing Intellectual Property in August 2014.