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Fenwick Secures Win for LELO Inc. in "Precedential" Federal Circuit Patent Ruling Limiting the ITC's Jurisdiction

May 11, 2015

​Fenwick & West has secured a win in the U.S. Court of Appeals for the Federal Circuit on behalf of LELO, Inc., a Swedish sex toy manufacturer, in what Law360 has called "a precedential decision" in a patent infringement suit over what constitutes a "domestic industry" under Section 337 of the Tariff Act of 1930.

The Federal Circuit's three-judge panel unanimously overturned a 2013 order by the International Trade Commission (ITC). That decision held that a Canadian competitor of LELO's, Standard Innovation Corp., had an industry in the United States and was therefore able to block LELO from importing vibrators that the ITC said infringed on a similar device made by Standard. (Standard Innovation's ITC complaint was filed against 20 other companies as well.)

Instead, the Federal Circuit agreed with Fenwick's contention that the U.S.-made components Standard Innovation used in making its device did not meet the domestic industry requirement. Because Standard Innovation did not, in fact, have a U.S. industry, Standard Innovation did not have standing to file a patent suit under Section 337, the court ruled.  

As The Recorder noted in its article about the Federal Circuit's ruling, Fenwick partner Hector Ribera, a patent litigator, had successfully argued that fewer than 5 percent of the components in Standard Innovation's device were U.S.-made, and that they were "off the shelf" products not developed specifically for the company. 

"Qualitative factors cannot compensate for quantitative data that indicate insignificant investment and employment," the court wrote. "Because the ITC’s assessment of domestic industry contravenes § 337, we hold that the ITC’s Final Determination was not in accordance with law."

The Federal Circuit's ruling reaffirms that patent holders have the burden to connect the purchase cost of so-called "crucial" components from third-party U.S. suppliers to an increase of investment or employment in the United States. According to the court, patent holders cannot skirt the requirement of "significant investment" or "significant employment of labor or capital" by arguing that the U.S. components are qualitatively critical to the patented product in the absence of evidence.   

In tightening the definition of a domestic industry, the Federal Circuit's ruling could affect the jurisdiction of the ITC by preventing primarily foreign manufacturers from using the ITC to keep competitors out of the U.S. market simply by purchasing U.S.-made components. 

'This was Ribera's second successful appeal before the Federal Circuit in recent months. His team included Fenwick associates Marion Miller and Lauren Whittemore.

Fenwick continues to represent LELO in a related matter, a patent infringement suit against Standard Innovation pending in federal court in California. That case includes issues of claim construction and indefiniteness raised by LELO that the Federal Circuit did not address in its ruling. 

The articles published by Law360 and The Recorder about the decision in LELO v. ITC are available on their websites (subscriptions required). 

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