2. Domestic Industry Requirements & Non-Practicing Entities

An essential element of a Section 337 violation is the domestic industry requirement. This requirement may be met by showing that the complainant has made sufficient investments in the United States with respect to articles protected by the IP right concerned.

The statute was amended in 1988 to allow IP rights-holders that do not manufacture products (i.e., non-practicing entities) to obtain remedies at the USITC. Congress made note in amending the statute that inventors, universities, start-ups, and other entities that conduct R&D, engineering, or licensing activities are equally entitled to Section 337 relief as are manufacturing industries. In fact, one of the motivations behind the amendments was to overturn the USITC’s decision denying relief to a licensing entity, Warner Brothers, in connection with copyrighted Gremlins products because the USITC did not recognize licensing as a domestic industry.

An issue currently receiving attention is whether non-practicing entities (NPEs) should be permitted to obtain relief at the ITC. There is no commonly understood definition of an NPE. For analytical purposes, entities that do not manufacture a product that practices the specific patents asserted in a Section 337 complaint are referred to here as Category 1 NPEs. Category 1 NPEs include manufacturers whose products do not practice the asserted patents; inventors who may have done R&D or built prototypes, but do not make a product covered by the asserted patents and are therefore relying on licensing to meet the domestic industry requirement; research institutions, such as universities and laboratories, that do not make products covered by the patents, and therefore are relying on licensing to meet the domestic industry requirement; and start-ups that possess IP rights but do not yet manufacture a product that practices the patent. Another category of NPEs that do not manufacture products that practice the asserted patents, and whose business model primarily focuses on purchasing and asserting patents, are referred to here as Category 2 NPEs.

Some commentators have recently suggested that NPE filings, particularly by Category 2 NPEs, account for the increased caseload at the USITC, because of the U.S. Supreme Court’s decision in eBay v. MercExchange. However, this suggestion does not appear to be supported by data concerning complaint filings at the USITC since the eBay decision was issued.

Data concerning NPE filings at the USITC show the following:

 Since the eBay decision on May 15, 2006, the USITC instituted 258 investigations through the first quarter of 2012. Of these, only 21 investigations (or 8%) involved complaints that were filed by Category 2 NPEs.

· Only one Category 2 NPE complainant was successful in obtaining an exclusion order – this was Rambus in Inv. No. 337-TA-661.

 Category 1 NPEs accounted for 26 investigations (or 10%) of the 258 investigations.

 Only two Category 1 NPEs were successful in obtaining an exclusion order – these were Tessera in Inv. No. 337-TA-605, and UNeMed Corporation, the technology transfer office of the University of Nebraska Medical Center, in Inv. No. 337-TA-679.

3. Settlements

About half of all investigations instituted at the USITC ultimately terminate based on settlements or consent orders. It has been suggested by some commentators that NPEs file complaints at the USITC for the purpose of obtaining settlements. However, due to the relatively small number of NPE investigations, data concerning settlements are inconclusive.

http://usitc.gov/press_room/documents/featured_news/337facts.pdf