Clarifying the “Mere Importer” and Economic Domestic Industry Analysis

I. INTRODUCTION

The International Trade Commission’s (“Commission”) majority[1] and dissenting[2] opinions in Certain In Vitro Fertilization Products, Components Thereof, and Products Containing the Same (“In Vitro Fertilization”) illustrate two different approaches to the domestic industry (“DI”) inquiry. Under 19 U.S.C. §1337 (“Section 337”), protections for statutory intellectual property infringement claims only apply “if an industry in the United States . . . exists or is in the process of being established.”[3] This is known as the domestic industry requirement, which is divided into an “economic prong” and “technical prong.”[4] Section 337(a)(3) provides the economic prong is met if the complainant shows “(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.”[5] To comply with this requirement, complainants must show the “expenditures satisfy the plain language of the statutory text.”[6] These expenditures must be distinguishable from those of a mere importer.[7] Complainants must also show the expenses are quantitatively “significant” or “substantial.”[8]

The Commission has not explicitly defined who qualifies as a mere importer. In Schaper Mfg. Co. v. ITC, the Federal Circuit held that Section 337 did not protect American importers “who cause the imported item to be produced for them abroad and engage in relatively small nonpromotional and non-financing activities in this country.”[9] This negative definition provided the Commission a starting point for subsequent analyses. Nonetheless, much remains unclear. Because of the economic industry requirement’s important gatekeeping function, a coherent definition for the term is important. But it is well settled that “there is no bright-line rule to determine” whether a complainant’s claimed activities are different than those of a mere importer.[10] Generally, activities such as “administrative overhead, inspections, . . . warehousing costs, . . . [and] sales and marketing” are not considered distinguishable from the activities of a mere importer. Conversely, manufacturing in the United States usually signals the complainant is more than a mere importer. Nonetheless, the case-by-case approach used by the Commission has not provided much guidance on which activities a complainant can rely on, and which ones it cannot, when establishing DI.

The majority and dissenting opinions in In Vitro Fertilization are markedly different because they use distinct frameworks to determine whether the DI requirement is met. The majority employs a “line-by-line” approach, whereby it considers every expense claimed by the complainant.[11] If any one expense is deemed to be that of a mere importer, then it is not credited towards establishing DI. The dissent advocates for an “as-a-whole” analysis, which aggregates all of the complainant’s claimed activities.[12] If the complainant is found to be more than a mere importer, all of the claimed expenses are credited.

The development of a specific framework could clarify and simplify the mere importer—and ultimately the domestic industry— inquiry. The discussion below focuses on determining which approach is best suited to achieve this goal.

II. DISCUSSION

A. The Evolution of the Economic Domestic Industry Requirement

Since its enactment through the Tariff Act of 1930, Congress has amended Section 337 multiple times. Most notable are the amendments enacted through the Omnibus Trade and Competitiveness Act of 1988, where Congress expanded the definition of economic DI under the statute.[13] The legislative history shows Congress was worried about “inconsistent and unduly narrow” interpretations of the DI requirement.[14] This preoccupation likely stemmed from determinations such as that in Certain Products with Gremlin Character Descriptions, where the Commission held licensing activities could not constitute a domestic industry.[15] Accordingly, Congress enacted 337(a)(3)(C), which “does not require actual production of [an] article in the United States.”[16] This expanded definition “could . . . encompass universities and other intellectual property owners who engage in extensive licensing of their rights to manufacturers.”

Despite the expansion of the definition of DI, the “fundamental purpose” of these amendments “was to strengthen the effectiveness of section 337.” Congress also emphasized that the “purpose of the Commission [remained] to adjudicate trade disputes between U.S. industries and those who seek to import goods from abroad.” As a result, Congress kept the DI requirement while eliminating the injury test for statutory intellectual property claims. The DI requirement then became an important gatekeeper for Section 337 claims, ensuring the statute’s protections were not accessible to “holders of U.S. intellectual property rights who have no contact with the United States other than owning such intellectual property rights.” This language mirrors the holding in Schaper, which the Commission has interpreted as excluding mere importers from Section 337’s protections.[17] Therefore, in order to properly enforce the economic DI requirement, it is important to be able to distinguish who is a mere importer.

Since the amendments were enacted, the economic DI requirement has not proven prohibitive for most complainants seeking to avail themselves of Section 337.[18] This may be changing. The Federal Circuit’s decision in Lelo Inc. v. ITC provides an important turning point.[19] In Lelo, the Federal Circuit held that “qualitative factors alone are insufficient” to meet the DI requirements set forth in Section 337(a)(3).[20] The opinion suggests this requirement is met by showing “an increase in quantity” or “a benchmark in numbers.” This increased focus on “expenditure of money,” “stock of accumulated goods,” and “human activity that produces goods or provides services” requires a quantitative analysis, and increased scrutiny by the Commission when conducting a DI inquiry. This type of scrutiny is exemplified by the Commission Opinion’s approach in the In Vitro Fertilization investigation.

B. The In Vitro Fertilization Investigation

1. Factual Background

In the In Vitro Fertilization investigation, complainant EMD Serono (“EMD” or “Complainant”) alleged a violation by Fast IVF c/o Domains by Proxy LLC of Scottsdale, Arizona and Hermes Exzanesi of Istanbul, Turkey (collectively, “Defaulting Respondents”) due to trademark infringement and unfair competition.[21] Relevant here is the trademark claim, which alleged the Defaulting Respondents violated Section 337 by importing and selling “certain in vitro fertilization products, components thereof, and products containing same” that infringed their trademark. After the Chief Administrative Law Judge (“Judge”) found the named respondents in default, EMD filed a motion for summary determination. Upon review, the Judge issued an Initial Determination (“ID”) granting EMD’s motion on the trademark claim, but denying it as to the unfair competition claims.[22]

The Commission determined to review the ID in part, “with respect to the economic prong of the DI requirement.”[23] Additional briefing was requested, guided by questions geared towards assessing the activities asserted by EMD, and whether they were different that those of a mere importer. EMD’s responses caused a split among the Commission, which resulted in the issuance of a Commission Opinion and a Dissenting Opinion.

2. Commission Opinion: The Line-by Line Approach

Writing for the Commission, Commissioners Johanson, Kearns, and Stayin determined to vacate the ID’s finding that the economic DI requirement had been met.[24] In what the dissent calls a line-by-line approach, the Commission “assessed the categories of expenses set forth by Complainant itself in its efforts to show” the DI requirement was met.[25] Expenditures not sufficiently related to the DI, historically credited, or those of a mere importer were deemed non-cognizable, including medical grants, marketing and sales expenditures, FDA New Drug Application maintenance fees, and quality assurance and control activities. Alternatively, the Commission determined EMD’s investment in education of healthcare providers was properly credited. Considering only the remaining expenses, the Commission found that Complainant’s activities did not qualify under Section 337(a)(3)(C) because they were not “substantial” “in the context of total sales, the only quantitative context available on the . . . record.”[26] Ultimately, the Commission held that “genuine issues of material fact remain[ed]” as to whether EMD had met the economic DI requirement, and the investigation was remanded. A final determination was issued on April 6, 2022, in which the Judge granted limited exclusion orders against the defaulting respondents, and a cease and desist order against Fast IVF.[27]

3. Dissenting Opinion: The As-a-Whole Approach

In their dissent, Commissioners Schmidtlein and Karpel stated they would have affirmed the Judge’s summary determination. Particularly, the dissent took issue with the majority’s “‘line-by-line’ approach to the ‘mere importer’ test.”[28] The dissent instead advocates for an as-a-whole approach, which “involves consideration of the complainant’s domestic activities as-a-whole.” The dissent first concluded that “[t]aken as-a-whole, the nature and extent of [EMD’s] activities are not those that a mere importer would perform.” Second, the dissent concluded that the activities, taken together, fell within Section 337(a)(3)(C) because they constituted “‘exploitation’ of the asserted marks.” As a result, they determined that all activities claimed by EMD should be credited, including promotion, sales and marketing, and product support and patient assistance activities, which were not credited by the ID.[29] Ultimately, the dissent would have affirmed the Judge’s summary determination as to the trademark claim.

C. Subsequent Commission Investigations

The Commission Opinion in the In Vitro Fertilization investigation has not led to an explicit structural change in how the Commission performs its economic DI analysis. Recent Commission Opinions are illustrative. In January 2022, the Commission decided Certain Percussive Massage Devices (“Massage Devices”), where it reviewed and affirmed the ID’s finding that the economic prong of the DI requirement was met.[30] The opinion in Massage Devices does not go through a detailed review of the economic DI analysis. The ID considered complainant Hyperice’s investments in labor and capital, as Hyperice claimed its employees “facilitate the product development, product engineering, client management, sales, and/or support of the DI products.”[31] The Judge excluded investments in a Boston facility that was not related to the claimed DI products. The ID however did not go into detail around the claimed expenses and why they were credited, apparently applying the as-a-whole approach in the In Vitro Fertilization dissent.

In a footnote, Chair Kearns disagreed with the Commission’s finding that the economic DI requirement was met. He advocated for a line-by-line approach review of Hyperice’s claimed expenses. In conducting such a review, Chair Kearns stated that “most of [Hyperice’s] domestic activities . . . such as supply chain operation and management . . . sales, marketing, and customer service, do not appear to be distinguishable from those of a mere importer,” and should not have been credited. As a result, “Chair Kearns [could not] conclude, based on [the] record, that the [economic DI] requirement [was] satisfied” in this case. Massage Devices again illustrates the Commission’s ideological split when determining the mere importer and DI questions. In this case, however, the as-a- whole-style analysis prevailed.

In March 2022, the Commission decided Certain Vaporizer Cartridges and Components Thereof (“Vaporizer Cartridges”), where it again reviewed and affirmed the ID while focusing solely on economic DI.[32] The ID, affirmed without comment by the Commission, found the economic DI requirement was met.[33] The ID reviewed the three categories of expenses claimed by the complainant, JLI: supply chain management, customer service, and quality assurance, all with respect to the DI products.[34] JLI’s supply chain management activities were closely tied to the company’s manufacturing activities. Moreover, the ALJ reasoned that these activities “are frequently relied upon by the Commission in determining the existence of a domestic industry.” After individually considering each of JLI’s activities, the Judge found that the claimed expenses could be properly credited under 337(a)(3)(A) and (B). This analysis is similar to the line-by-line approach, even though the Judge did not discuss whether the activities were distinguishable from those of a mere importer. The ID in Vaporizer Cartridges was issued prior to the Commission Opinion in In Vitro Fertilization. Nonetheless, the Commission’s affirmance of the ID after it issued the In Vitro Fertilization opinion suggests the acceptance of a more detailed review, like the line- by-line approach. This is more evident considering there was no dissent to the Vaporizer Cartridges opinion.

Finally, in May 2022, the Commission decided Certain Electric Shavers and Components and Accessories Thereof, affirming without comment the ID’s finding that complainant Skull Shaver had established economic DI.[35] Skull Shaver did not claim any domestic manufacturing activities, meaning “it [was] appropriate not to credit certain of Skull Shaver’s employees solely dedicated to such activities as sales and marketing,” or any activities that are more generally disallowed as those of a mere importer. The Judge did credit the complainant’s customer service operations and domestic quality control activities, which “[t]he Commission has routinely recognized.” Ultimately, the ID concluded that “[e]ven with sales and marketing expenses withdrawn”, Skull Shaver would still not qualify as a mere importer. This analysis parallels the line-by-line approach used in the In Vitro Fertilization opinion.

Commissioners Karpel and Schmidtlein, the same two dissenters in In Vitro Fertilization, objected to the ID’s reasoning.[36] In a footnote, the Commissioners disagreed with the ID’s refusal to credit sales and marketing investments, citing heir dissent in In Vitro Fertilization, where they advocated for the inclusion of these expenses as part of an as-a-whole analysis.[37] Ultimately, the Commission’s analysis in Electric Shavers strongly parallels that in In Vitro Fertilization. Because both the ID and the Commission Opinion in Electric Shavers were issued after the Commission Opinion in In Vitro Fertilization, this opinion strongly suggests that parties and Judges are taking note of the majority’s preference for a line-by-line approach and a trend towards this approach is emerging.

III. CONCLUSION

Many questions remain regarding the issues of mere importer and DI. Currently, the line-by-line analysis used by the majority in the In Vitro Fertilization investigation is a good starting point. Although the development of the line-by-line analysis as an explicit doctrine is in its early stages, increased adherence to it is likely to bring answers to an area that is currently unpredictable. Complainants bringing their complaints to the Commission would be prudent to prepare for a line-by-line analysis of their claimed investments. Additionally, respondents would be well advised to scrutinize complainants’ investments on a detailed line-by-line quantitative analysis, and be prepared to discount any activities that resemble what the Commission has determined are those of mere importers.

Edited for length and content from Sofia M. Debbiche’s original publication in ITCTLA’s 337 Reporter: The Paul J. Luckern Summer Associate Edition, 2022

[1] Certain In Vitro Fertilization Products, Components Thereof, and Products Containing the Same, Inv. No. 337-TA-1196, Comm’n Op. (Oct. 28, 2021) (“In Vitro Fertilization”).

[2] Certain In Vitro Fertilization Products, Components Thereof, and Products Containing the Same, Inv. No. 337-TA-1196, Dissenting Op. (Oct. 28, 2021) (“In Vitro Fertilization Dissent”).

[3] 19 U.S.C. § 1337(a)(2).

[4] This article deals with the economic prong. The technical prong requires the complainant “show that there is a domestic industry product that actually practices at least one claim of the asserted patent.” Broadcom Corp. v. ITC, 28 F.4th 240, 250 (Fed. Cir. 2022).

[5] 19 U.S.C. § 1337(a)(3)

[6] Certain Solid State Storage Drives, Stacked Electronics Components, and Products Containing Same, Inv. No. 337-TA-1097, Comm’n Op. at 10 (June 29, 2018).

[7] See Schaper Mfg. Co. v. ITC, 717 F.2d 1368, 1372-73 (Fed. Cir. 1983).

[8] See generally Lelo Inc. v. ITC, 786 F.3d 879 (Fed. Cir. 2015).

[9] Schaper, 717 F.2d at 1372-73.

[10] Certain Bone Cements, Components Thereof and Products Containing the Same, Inv. No. 337-TA-1153, Comm’n Op., at 22 (Jan. 25, 2021) (“Bone Cements”).

[11] In Vitro Fertilization at 24.

[12] In Vitro Fertilization Dissent at 1-2.

[13] Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 102 Stat. 1107.

[14] H. Rep. No. 100-40 at 157 (1987).

[15] 20 See Certain Products with Gremlin Character Descriptions, Inv. No. 337-TA-201, Comm’n Order at 3-4 (Jan. 16, 1986) (holding Warner’s licensing activities related to the “Gremlins copyrights” do not constitute a domestic industry).

[16] H. Rep. No. 100-40 at 157 (1987).

[17] See Certain Electronic Candle Products and Components Thereof, Inv. No. 337-TA-1195, Comm’n Op. at 8 (Sept. 13, 2021); In Vitro Fertilization at 9 (citing Schaper, 717 F.2d at 1372-73).

[18] UNITED STATES INTERNATIONAL TRADE COMMISSION, 337INFO, (last visited Jul. 22, 2022); DOCKET NAVIGATOR, (last visited Jul. 22, 2022) (showing that from July 1, 2021 to July 21, 2022, 83% of complainants in terminated investigations have met the economic domestic industry requirement).

[19] 786 F.3d 879 (2015).

[20] Lelo, 786 F.3d at 885.

[21] See In Vitro Fertilization, at 1.

[22] Certain In Vitro Fertilization Products, Components Thereof, and Products Containing the Same, Inv. No. 337-TA-1196, Initial Determination at 31 (Apr. 16, 2021).

[23] In Vitro Fertilization at 4.

[24] Id. at 25.

[25] Id. at 19-24.

[26] In Vitro Fertilization at 24.

[27] Certain In Vitro Fertilization Products, Components Thereof, and Products Containing the Same, Inv. No. 337-TA-1196, Final Determination (Dec. 15, 2021) at 8.

[28] In Vitro Fertilization Dissent at 1.

[29] Id. at 18 (“[B]ecause we conclude that EMD Serono is not just an importer, and the investments asserted are cognizable under section 337(a)(3)(C), we find that all of the activities EMD Serono asserts should be credited.”)

[30] Certain Percussive Massage Devices, Inv. No. 337-TA-1206, Comm’n Op. at 1 (Jan. 4, 2022) (“Massage Devices”).

[31] Massage Devices, Initial Determination at 35 (Aug. 20, 2021).

[32] Certain Vaporizer Cartridges and Components Thereof, Inv. No. 337-TA-1211, Comm’n Op. at 6, 7 (Mar. 1, 2022) (“Vaporizer Cartridges”).

[33] Vaporizer Cartridges, Initial Determination at 23 (Oct. 14, 2021) (“Vaporizer Cartridges ID”).

[34] Id. at 70.

[35] Certain Electric Shavers and Components and Accessories Thereof, Inv. No. 337-TA-1230, Comm’n Op. at 13 (May 3, 2022) (“Electric Shavers”).

[36] Electric Shavers at 13, n. 4.

[37] In Vitro Fertilization Dissent at 11, n. 10.