High Court Petition Increases Scrutiny on Import Ban Requirement

The US Supreme Court is being urged to take up a rare and highly technical challenge to a key US International Trade Commission requirement that patent owners show sufficient domestic operations to justify blocking imports of infringing products.

Roku Inc. last month petitioned the justices to review whether the ITC exceeded its authority by counting a rival’s investments in unpatented software as satisfying the “domestic industry” requirement under the Tariff Act—despite the asserted patent claiming a physical device. The dispute is an “ideal opportunity to clarify” the domestic industry requirement, Roku’s petition said, asking the court to “restrain the ITC’s overreach.”

Attorneys disagree over whether the ITC has properly set the bar for meeting the requirement, which says a patent owner must show that a domestic industry has been or is being built up through significant investments in facilities, labor, or research and development.

Narrowing what can be used to establish a domestic industry would make it more challenging to get an exclusion order blocking imports under Section 337 of the Tariff Act, according to attorneys with ITC experience. It would increase legal costs by forcing litigants to spend more on the economic analysts whose testimony underpins their arguments, they said.

The high court “hasn’t addressed a case involving Section 337, so that would be a first,” said Matthew Rizzolo, a lawyer on the Ropes & Gray team that wrote Roku’s petition. “It would be very valuable and long sought-after guidance to litigants.”

The ITC is a popular venue for patent owners of all stripes, from non-practicing entities looking to squeeze value out of patents they’ve acquired to companies seeking to halt at the border tech heavyweights’ often lucrative products. That’s because, upon a finding of infringement, its issuance of exclusion orders is “near automatic,” Jorge Contreras, a law professor at the University of Utah, wrote in a paper soon to be published in the Harvard Journal of Law & Technology.

Google LLC avoided an import ban only after adjusting the software of its smart speakers that had been found by the ITC to infringe Sonos Inc. patents. Apple Inc. avoided the agency’s ban on imports of certain Apple Watches that infringe Masimo Corp.'s patented blood-oxygen feature by disabling the feature.

Apple failed to convince the Federal Circuit to expedite its appeal of the ITC’s finding that Masimo satisfied the agency’s domestic industry requirement by attaching to its complaint computer-assisted drawings of a product that hadn’t entered production.

“The domestic industry requirement was much easier to meet” in the 1990s, said Christine Lehman, a managing partner at Reichman Jorgensen Lehman & Feldberg LLP, who worked as an investigative attorney at the ITC during that time. Parties then didn’t use economic experts to prove domestic industry, she said, but “now everybody does.” Cases at the quasi-judicial agency have gotten more expensive, she added.

“People used to stipulate to domestic industry more often,” she said. “But there is enough uncertainty on the issue that it’s now typically very hotly litigated.”

Roku’s petition accused the ITC of overreaching its legal mandate, and said the Federal Circuit’s affirmance “substantially erodes” Congress’ strict limits on the agency. The streaming giant pointed to the high court’s recent decision in Loper Bright Enterprises v. Raimondo, in which the justices unwound the Chevron doctrine, which directed courts to defer to reasonable agency interpretations of vague statutes. The ITC isn’t entitled to any deference, Roku said.

Contreras said in an email that he was skeptical the justices would agree to take up Roku’s petition.

“It’s a little early” for the Supreme Court to take a case interpreting Loper Bright, he said, calling the Roku case “highly technical.”

‘Sink a Case’

Section 337 empowers the ITC to provide relief for patent infringement only if a US industry “relating to the articles protected by the patent” either “exists or is in the process of being established.” The statute has two requirements: a technical prong requiring proof that the patented technology is being practiced within the US, and an economic prong necessitating proof of “substantial” or “significant” investments in US-based R&D, production, licensing, or employment related to the technology.

Kecia Reynolds, who leads Paul Hastings’ ITC Section 337 investigations practice, said she doesn’t expect major changes to the requirement under Loper Bright, including through Roku’s petition.

“The prior opinions are founded in the statute and the case law, and so I just don’t know that this is that big of an issue,” said Reynolds, who worked as a senior investigative staff attorney at the ITC from 2007 to 2012.

Reynolds, who represents both complainants and respondents, acknowledged calls for clarity from litigators who practice before the agency.

Domestic industry “is the one aspect of the ITC that can sink a case by not having right counsel” and expert witnesses, she said. “Because there’s a lot of case law around it, and if you don’t know all the nuances, you can screw up.”

Post-Loper pushes to rein in the ITC are “muddier” than challenges of agencies that either take more expansive views of their jurisdiction or take positions that invite more significant pushback, Lehman said.

“When you look at even the cases that are pending right now, there are lots of different domestic industry nuances, and I don’t think the ITC has consistently tried to read the domestic industry standard in a really broad way,” Lehman said. “Sometimes they take a very narrow view.”

‘Up for Grabs’

The Federal Circuit in January upheld the ITC’s decision to issue an exclusion order barring Roku from importing TVs that infringe Universal Electronics Inc.'s US Patent No. 10,593,196, which covers technology to help smart TVs connect to both wired and wireless-connected devices. The precedential opinion found Universal’s investment in the software product QuickSet satisfied the domestic-industry requirement, rejecting Roku’s argument that the company hadn’t established such investment.

Roku told the Supreme Court in its August petition the Federal Circuit contradicted the “plain language” of federal law by affirming the ITC. The ITC declined to comment for this story; its response to Roku’s petition is due Sept. 19.

The commission has faced other recent challenges, including Google’s request for the full US Court of Appeals for the Federal Circuit to review its case against Sonos and reconsider a 2015 ruling expanding the ITC’s mandate.

Intellectual property professionals in July also urged a US House subcommittee to rein in the ITC’s authority in patent disputes.

“A patent owner can fabricate domestic industry by sitting on its patent for decades, suing a manufacturer that independently developed its products, cheaply licensing its patent to the manufacturer it just sued, and then racing to the ITC to file a 337 complaint against the rest of the established industry,” Sam Korte, senior principal counsel at Garmin Ltd., told lawmakers.

“The interpretation of the statute is clearly up for grabs, and the ITC has indeed given a broad reading to ‘domestic industry,’” Contreras said. The Federal Circuit upheld the agency interpretation, with or without Chevron deference, he added, so it’s not a position the agency is going to change absent the involvement of the high court.

“That’s for SCOTUS to do,” Contreras said. “There’s certainly a chance that SCOTUS will consider doing that at some point.”

The case is: Roku, Inc. vs. International Trade Commission, U.S., Docket No. 24-180, Petition filed 8/16/24