Federal Circuit Rules Sales and Marketing Expenses for Foreign-Made Products May Satisfy ITC Domestic Industry Requirement

In a precedential decision issued on March 5, the Federal Circuit held that the International Trade Commission (“ITC”) must consider various domestic expenditures related to foreign-made products in determining whether the economic prong of the domestic industry requirement has been met. The decision provides Complainants with additional options and flexibility in establishing entitlement to relief.

The case is Lashify, Inc. v. International Trade Commission. Lashify, Inc. (“Lashify”) sells artificial eyelash extensions and related products. Lashify brought an ITC action seeking exclusion of products that allegedly infringe three of Lashify’s patents. The ITC denied relief because it held that Lashify had failed to meet the domestic industry requirement.

In addition to proving infringement and withstanding any challenges to patent validity, an ITC Complainant must prove that a domestic industry exists with respect to the Complainant’s asserted patents. There are two prongs to this requirement. Under the “technical prong,” a Complainant must show that there is a market in the United States for products that practice the asserted patents (either the Complainant’s own products or products authorized by the Complainant). The ITC held that Lashify had established the technical prong for two of its three asserted patents, and that ruling was not disturbed on appeal.

Under the “economic prong,” the Complainant must separately prove that there are “significant” or “substantial” economic activities in the United States with respect to the patented products. The relevant statute, Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), provides various options as to which economic activities may satisfy the economic prong. At issue here is the provision that the prong is satisfied by “significant employment of labor or capital” under Section 337(a)(3)(B).

Because all of Lashify’s manufacturing is conducted abroad, Lashify cited labor and capital expenditures related to “sales, marketing, warehousing, quality control, and distribution” for its products. The ITC held that such expenditures were excluded from consideration and thus held that the economic prong had not been met. On that basis, the ITC denied relief as to the remaining two patents.

On appeal, the Federal Circuit interpreted the relevant statute without deference to the ITC’s interpretation in light of the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 412 (2024). The specific question before the court was whether the phrase “significant employment of labor or capital” in 19 U.S.C. § 1337(a)(3)(B) includes expenditures related to the categories that the ITC excluded—“sales, marketing, warehousing, quality control, and distribution”—in the absence of any U.S. manufacturing activities.

The Federal Circuit held that the ITC erred in interpreting the statute to exclude those activities. The court held that the provision “straightforwardly states” that any “significant employment of labor or capital” is sufficient to satisfy the economic prong of the domestic industry requirement, regardless of what form that labor or capital takes, provided that such employment of labor or capital is “with respect to the patented articles.” There was no dispute that Lashify’s expenditures were associated with the patented products, and thus there was no basis for the ITC to exclude the categories of expenditures Lashify cited.

The court thus vacated the ITC’s decision and remanded the case with instructions to consider the expenditures that had been excluded.

The Federal Circuit’s decision gives patent owners a great deal of flexibility in establishing a domestic industry within a global economy. It is now clear that a company can perform all of its manufacturing abroad and still show a domestic industry through robust U.S.-based expenditures in non-manufacturing activities.

If you have additional questions related to the recent ruling by the Federal Circuit Court, reach out to your Quarles attorney or:

• Matthew Holohan: (303) 381-9891 / matthew.holohan@quarles.com