Federal Circuit Significantly Broadens Qualifying Expenses for Economic Domestic Industry at the ITC

Introduction

On March 5, the Federal Circuit held that sales, marketing, warehousing, quality control, or distribution expenditures may count as “employment of labor or capital” for purposes of satisfying the economic domestic industry requirement in Section 337 investigations before the International Trade Commission (ITC or Commission).[1] In Lashify, Inc. v. ITC, the Federal Circuit determined the Commission has been applying a “legally incorrect understanding of the statutory test for the economic-prong requirement” by improperly “attribut[ing] limitations” to 19 U.S.C. § 1337(a)(3)(B).[2] The Federal Circuit also explained that there is no “suggestion that such uses, to count, must be accompanied by significant employment for other functions, such as manufacturing.”[3]

Background on the Economic Domestic Industry Requirement

One of the key challenges facing potential complainants at the ITC is establishing a domestic industry in the U.S. To do so, a complainant must show that it makes significant U.S. investments in labor, capital, manufacturing, and/or other qualifying categories relating to an article that practices the asserted patent(s). Traditionally, the ITC has held that expenses typically associated with a “mere importer”—sales, marketing, warehousing, quality control, and distribution—cannot establish a domestic industry in the absence of other qualifying expenses. In Lashify, however, the Federal Circuit found that the Commission erred in excluding these categories and remanded back to the ITC for further consideration. 

The Lashify ITC Decision

Lashify, a U.S. company designing and selling eyelash extensions and accessories, filed a patent infringement complaint at the ITC on September 10, 2020 against nine respondents, including Ulta, Walmart, and CVS. In his initial determination (ID), Chief Administrative Law Judge (CALJ) Charles Bullock found no violation of Section 337, concluding that Lashify had failed to meet the economic domestic industry requirement. The Commission reviewed and, in a split decision, agreed with the CALJ.

At issue in Lashify was the CALJ’s exclusion of Lashify’s expenses related to sales, marketing, warehousing, quality control, and distribution to demonstrate “significant employment of labor or capital” under Section 337(a)(3)(B).[4] 

A majority of Commissioners agreed with the CALJ’s decision to exclude those expenses, reasoning that “it is well settled that sales and marketing activities alone cannot satisfy the domestic industry requirement.” These Commissioners concluded that “expenses related to warehousing, quality control, and distribution (without regard to their magnitude) . . . are akin to those incurred by mere importers” and therefore cannot qualify. The dissenters argued that there is no statutory basis to exclude such expenditures.

The Federal Circuit’s Reversal

The Federal Circuit began by making clear it owes no deference to the ITC’s interpretation of Section 337, citing the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo.[5] The panel noted that it would exercise its “independent judgment” in determining the correct interpretation of Section 337(a)(3)(B). 

The Federal Circuit then rejected the ITC’s interpretation, holding the plain language of Section 337(a)(3)(B) is straightforward and does not carve out sales, marketing, warehousing, quality control, or distribution expenses.[6] The Federal Circuit observed that, like Section 337(a)(3)(A), Section 337(a)(3)(B) broadly “identifies inputs for an enterprise’s functioning (plant, equipment, labor, and capital).” This is in contrast to Section 337(a)(3)(C), which limits the scope of the qualifying investment expenditures to engineering, research and development, or licensing. Section 337(a)(3)(B) lacks similar “functional language” dictating what labor and capital uses qualify.[7] 

The Federal Circuit also explained that “labor” and “capital” carry their ordinary meaning and provide no support for the ITC’s narrow interpretation. In Lelo v. ITC, the Federal Circuit previously interpreted capital as a “stock of accumulated goods,” and labor as “human activity that produces goods or provides the services in demand in an economy.”[8] Both terms are broad and do not exclude sales, marketing, warehousing, quality control, or distribution expenses.[9] The Federal Circuit rejected the Commission’s reliance on legislative history that “insisted on domestic manufacture.” Per the Federal Circuit, the legislative history both pre-dated the current statute and demanded an unnecessary requirement.

The Federal Circuit remanded the case for the Commission to consider all of Lashify’s claimed expenses and “make a factual finding of whether those qualifying expenses are significant or substantial based on ‘a holistic review of all relevant considerations.’”[10] Currently, only three of the five Commissioners from the October 24, 2022 Commission Opinion are still active. Current Chair Amy A. Karpel was one of the two dissenters (along with now-former Commissioner Rhonda K. Schmidtlein) who would have found that Lashify had satisfied the economic domestic industry prong under subsection 337(a)(3)(B).[11]

Key Takeaways

Lashify portends a trend towards a more flexible interpretation of the economic domestic industry requirement. It comes on the heels of the Federal Circuit’s decision in Wuhan Healthgen Biotechnology Corp. v. ITC, No. 2023-1389 (Feb. 7, 2025), which explained that even small investments can be “significant.” Together with Wuhan Healthgen, the Lashify decision may allow more companies access to the powerful relief from ITC proceedings. Smaller companies with no manufacturing or R&D in the U.S. may have an easier time establishing domestic industry based on expenses that the Commission previously would have excluded. 

Critically, Lashify does not dispense with the requirement that the employment of labor and capital be “significant.” On remand, the Commission could decide that Lashify’s expenditures do not amount to a “significant” employment of labor or capital. The decision also leaves open what kinds of sales and marketing expenses may be considered significant in the future. For example, will social media campaigns designed to educate consumers about the practicing product be considered significant? Will simply investing in warehousing and distribution be enough? As the question of significance remains highly context-dependent, potential complainants should focus on defining their expenses, whatever their size, as key to the development and/or distribution of the patent-practicing article.

Finally, the Supreme Court’s 2024 overruling of Chevron deference in Loper Bright Enterprises made a difference here. The Federal Circuit noted that it was exercising its “independent judgment” about the “correctness” of the Commission’s statutory interpretation, to which it owed no deference. The Lashify decision may indicate a willingness by the Federal Circuit to revisit and revise other statutory interpretations by the Commission.[12] Companies should keep this in mind when developing defenses or otherwise relying on the Commission’s interpretation of its governing statute.

[1] Lashify, Inc. v. Int’l Trade Comm’n, No. 2023-1245, 2025 WL 699368 (Fed. Cir. Mar. 5, 2025).

[2] Id. at 3-4, 17.

[3] Id. at 17.

[4] Id. at 11–12.

[5] Loper Bright Enters. v. Raimondo, 603 U.S. 369, 144 S. Ct. 2244, 219 L. Ed. 2d 832 (2024).

[6] Lashify at 17.

[7] Id. at 18.

[8] Lelo Inc. v. Int’l Trade Comm’n, 786 F.3d 879, 883 (Fed. Cir. 2015).

[9] Lashify at 18-20.

[10] Lashify at 26 (citing Wuhan Healthgen Biotech. Corp. v. Int’l Trade Comm’n, 127 F.4th 1334, 1339 (Fed. Cir. 2025)).

[11] See Inv. No. 337-TA-1226, Separate Views of Commissioners Karpel and Schmidtlein in Dissent on the Economic Prong of the Domestic Industry Requirement as to U.S. Design Patent Nos. D877,416 and D867,664 at 2, 30-52.

[12] See 603 U.S. 269, 412 (2024).