• ITC Opinion Sets Standards for Analyzing Portfolio Licenses and the Domestic Industry Requirement
  • September 27, 2011
  • Law Firm: Cadwalader, Wickersham & Taft LLP - Washington Office
  • Patentees in ITC proceedings have often asserted that the domestic industry element is satisfied by substantial investments in licensing the patents in suit as evidenced by large licensing operations dedicated to licensing a large portfolio of patents, including the patents in suit.  Until the ITC's opinion in Navigation Devices, Inv. No. 337-TA-694 (issued in public version form July, 2011) evidence of expenditures to license a portfolio of patents that included the suit patents was generally sufficient to prove the domestic industry element -- even though ITC precedent was not clear as to exactly how much proof was required to link or allocate investments to licensing the specific patents in suit.

    In Navigation Devices the ITC invited and received comments from the public on how much proof is required, and what kind of proof is required, to satisfy the domestic industry requirement with respect to particular patents at issue when the patents are licensed as a part of a portfolio.  Among the non-party commentators, Google, Hewlett Packard, and Cisco jointly argued for an interpretation of the statute requiring a licensing domestic industry show substantial investment in activity that genuinely advances adoption of the technology in new products with regard to the patents in suit.  nVidia also supported a high standard to prove domestic industry.  Tessera argued that in the portfolio context all expenditures associated with exploitation through licensing a patent portfolio should be attributable to the licensing of each patent within the portfolio with respect to Section 337(a)(3)(C).  Qualcomm argued for a flexible approach that takes into account the licensor's particular commercial circumstances.

    In its Navigation Devices opinion, the ITC found that the portfolio evidence submitted by the Complainant did not satisfy the domestic industry requirement, and the ITC made clear pronouncements about the highly factual analysis that it will undertake to ensure a connection between investments in licensing and the specific patents at issue in order to meet the statutory requirement of "substantial investments in [the patent's] exploitation . . . [by] licensing."

    The ITC explained that there are three initial requirements for satisfying the domestic industry requirement in this portfolio context.  "First, the statute requires that the investment in licensing relate to 'its exploitation,' meaning an investment in the exploitation of the asserted patent."  Navigation Comm'n Op at 7 (emphasis added).  This requirement - the nexus between the licensing activities and the asserted patent -- may be proven by a showing that the licensing activities are "particularly focused on the asserted patent" or the asserted patent has been a key patent or "relatively important" to the licensing activities.  The following were listed as considerations in showing and evaluating the nexus between an asserted patent and licensing activities:  (1) it [the patent] was discussed during the licensing negotiation process, (2) it has been successfully litigated before by complainant, (3) it relates to a technology industry standard, (4) it is a base patent or a pioneering patent, (5) it is infringed or practiced in the United States, or (6) the market recognizes its value in some other way.

    Prospective Complainants will be particularly interested in the ITC's pronouncement that the ITC is particularly impressed by (and will potentially find dispositive on the issue of nexus) a showing that licensing activities relate to the suit patent by way of licensee practice of a claim of the suit patent.  Comm'n Op. at 10 ("if a licensee's product is an 'article protected by' the patent, then the license is by definition connected to that patent.").  To satisfy this standard, a patentee would presumably have to show that a claim of an asserted patent reads upon a licensee's product - a showing that is not otherwise required when asserting a licensing industry.  Although a showing of licensee practice of a claim may add to a patentee's evidentiary burden, it provides a solid standard and target for showing a nexus between licensing activity and the patents in suit.  See also Navigation Comm'n Op at 12 ("Evidence that the patent-at-issue is practiced or infringed in the United States may also be relevant to the value of the patent and may suggest a high value relative to that of the other patents in the portolio.").1

    The second requirement for proving a licensing industry in the portfolio context is that the activities asserted as licensing activities in fact actually relate to licensing.  In other words, a Complainant may demonstrate a nexus between licenses and the patent in suit, but when the Complainant presents evidence of investment in activities with respect to those licenses, it must then show that the activities are actually related to such licensing.  This portion of the ITC opinion is not lengthy or detailed, but the ITC does observe by way of example that some activities are more worthy to be counted as licensing activities when they are activities undertaken solely for licensing purposes rather than for other purposes that may have multiple purposes (e.g., patent infringement analysis, that may be undertaken for a variety of purposes).

    The third statutory requirement for proving a domestic industry in the portfolio context is to demonstrate that the alleged investment in licensing is domestic investment, i.e., "it must occur in the United States."  On this point the ITC clarified that its analysis is a "fact-focused and case-specific inquiry that takes into account the extent to which the complainant conducts its licensing activities in the United States, including the employment of U.S. personnel and utilization of U.S. resources in its licensing activities."  Navigation Comm'n Op. at 14-15.

    To summarize, in the portfolio context, the Complainant must make a showing of (1) a nexus between its licenses and the specific patents in suit; (2) a nexus between its asserted licensing activities and the licensing of the patents in suit; and (3) a nexus between investments in the asserted licensing activities and the United States.  The ITC explained that once it has assessed these matters, the ITC will next inquire into whether the investments are "substantial," as required by the statute.  On this latter assessment, the ITC has noted that it adopts a flexible approach, "whereby a complainant whose showing on one or more of the three 337(a)(3)(C) requirements is relatively weak may nevertheless establish that its investment is 'substantial' by demonstrating that its activities and/or expenses are of a large magnitude." Navigation Comm'n Op. at 15.

    1 The ITC also asserted that it may consider other factors, apart from a showing of licensee practice of the patent to show a nexus between a license and the patent in suit, including (1) the number of patents in the portfolio; (2) the relative value contributed by the asserted patent to the portfolio; (3) the prominence of the asserted patent in licensing discussions, negotiations and any resulting license agreement; and (4) the scope of technology covered by the portfolio compared to the scope of the asserted patent. Navigation Comm'n Op. at 10.

    2 Other factors the ITC identified as relevant to determining whether an investment is "substantial" include: (1) the existence of other types of "exploitation" of the asserted patent such a research, development, or engineering; (2) the existence of license-related ancillary activities such as ensuring compliance with license agreements and providing training or technical support to its licensees; (3) whether complainant's licensing activities are continuing; and (4) whether complainant's licensing activities are those that are reference favorably in the legislative history of section 337(a)(3)(C).