Federal Circuit Asked to Rethink ITC’s Longstanding Exclusion of Investment Categories for Economic Domestic Industry | DLA Piper

• The Federal Circuit has been asked to evaluate the way the ITC has been analyzing economic domestic industry investments for years
• The Federal Circuit’s decision could affect whether certain types of investments like warehousing, distribution, and sales and marketing are considered part of domestic industry and, in particular, the extent to which companies that manufacture their products entirely abroad can seek relief at the ITC

A US Court of Appeals for the Federal Circuit panel consisting of Judges Sharon Prost, Richard Taranto, and Raymond Chen recently heard oral argument in Lashify, Inc. v. US International Trade Commission, an appeal from a Section 337 investigation into patent infringing imports of artificial eyelash extensions and related accessories.

On January 13, 2025, Lashify – the complainant in the investigation – asked the Federal Circuit to correct what it contends is the International Trade Commission (ITC)’s long-running misinterpretation of Title 19 of the US Code, Section 1337(a)(3).

Economic domestic industry and Section 1337(a)(3)

The ITC has the authority to exclude articles being imported into the US if those articles infringe patents or other intellectual property rights, but “only if an industry in the US, relating to the articles protected by the patent … exists or is in the process of being established.” 19 U.S.C. § 1337(a)(2).

Section 1337(a)(3)(A), (B), and (C) list the three showings that a complainant can make to show that an industry exists: “(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.”

Congress added the language of these specific statutory sections when it amended the statute in 1988 to clarify that a complainant need not manufacture articles domestically for there to be a domestic industry. InterDigital Commc’ns, LLC v. US Int’l Trade Comm’n, 707 F.3d 1295, 1300 (Fed. Cir. 2013) (per curiam).

Nevertheless, the ITC continues to rely on some legislative history of the 1988 amendments and a line of cases stemming from Schaper Manufacturing Company v. US Int’l. Trade Comm’n, 717 F.2d 1368, 1372–73 (Fed. Cir. 1983) that distinguish activity capable of establishing domestic industry, like domestic manufacturing, from activity that a “mere importer” would undertake, like sales and marketing.

The result is a lack of clarity as to (1) when, if ever, sales and marketing investments properly count towards the domestic industry requirement and (2) more broadly, when are nonimportation activities, like quality control, the types of activities of a “mere importer.”

Case background

According to Lashify’s briefs, Lashify was founded in the US in 2016 and “revolutionized the artificial eyelash industry” by developing products allowing individuals to apply high quality artificial eyelashes at home. Lashify v. US Int’l Trade Comm’n, No. 23-1245, D.I. 48 at 2.

Despite its origins in the US, Lashify manufactures its products via contract manufacturers abroad. Id. In late 2020, Lashify filed a complaint with the ITC to request an investigation into several foreign companies importing artificial eyelash kits that Lashify contended infringed its design and utility patents.

At the time the complaint was filed, Lashify employed more than 100 people in the US, leased several commercial facilities, and invested heavily in marketing, but still conducted primary manufacturing overseas. Id. at 7–8.

On October 28, 2021, the ITC administrative law judge (ALJ) issued an initial determination that Lashify failed to demonstrate economic domestic industry. On October 24, 2022, a divided ITC issued a final determination also finding that Lashify had not satisfied the economic domestic industry requirement.

The ITC majority affirmed the ALJ’s conclusion that Lashify had not satisfied the economic domestic industry requirement. The majority repeatedly noted that it found Lashify’s proffered evidence and analysis to be overinclusive of “non-qualifying” activities and, as a result, “the nature and extent of the non-cognizable expenses preclude[s] an accurate assessment of the amount of economic activity properly allocated to activities covered under section 337.” Certain Artificial Eyelash Extension Systems, Products, and Components Thereof, Inv. No. 337-TA-1226, Comm’n Op. at 50–51 (October 24, 2022) (citation and quotation marks omitted).

The majority found Lashify’s expenses related to domestic quality assurance activities were no different than those that would be expected for “any commercial purchaser,” id. at 51, and declined to credit Lashify’s warehousing and distribution expenditures for similar reasons, id. at 51–53.

The majority also held that Lashify’s sales and marketing expenses did not count towards domestic industry because “Lashify did not demonstrate that it has other significant qualifying expenditures.” Id. at 53.

Moreover, the opinion clarified in a footnote that “[i]n Commissioner Kearns’ view, sales and marketing expenses should not be credited toward the satisfaction of the domestic industry requirement under section 337, whether or not there are other valid investments.” Id. at 34 n.29.

The dissent disagreed with the categorical exclusion of any categories of expenditure, instead calling for a holistic evaluation of the “complainant’s activities as a whole to determine if the nature and extent of those collective activities distinguish it from a ‘mere importer.’” Id., Dissent at 39.

Question presented and oral argument

On appeal, Lashify asked the Federal Circuit to find that the ITC erred “in excluding Lashify’s domestic expenditures from counting toward a ‘significant employment of labor or capital’ ‘with respect to the articles protected by the patent’ ‘in the United States’ under § 1337(a)(3)(B) because Lashify does not manufacture its products in the United States.” Lashify v. US Int’l Trade Comm’n, No. 23-1245, D.I. 48 at 5.

At oral argument, the panel wrestled with the ITC’s position – Judge Prost remarked that it “makes no sense” that sales and marketing investments only count if there are sufficient other qualifying expenditures because, under the current test, “you’d never need to look at the sales.”

Judge Taranto similarly noted that the ITC’s longstanding treatment of sales and marketing “doesn’t answer the question whether [the ITC] was right or wrong in doing it.”

Judge Chen asked Lashify, in light of the legislative history of the 1988 amendments where “sales and marketing was put into subsection C” and subsequently “yanked out,” whether sales and marketing expenditures would always fall within the “labor” section of the statute, or if there were some “subtypes of sales and marketing that actually don’t fall within labor or capital.”

The parties and the panel also discussed extensively whether and to what extent it would be necessary to remand the case for further factual development.

Conclusion

The Federal Circuit’s forthcoming opinion has the potential to vacate or even overturn the longstanding ITC practice that a Section 337 complainant must first demonstrate other qualifying economic domestic industry investments before sales and marketing investments can be considered.

The opinion further has the potential to bring clarity to the question of whether the concept of a “mere importer” is useful in deciding to include or exclude certain types of activities. More specifically, the Federal Circuit may offer some guidance on when marketing, sales, warehousing, and distribution activities contribute to a domestic industry as opposed to cementing a complainant’s status as a “mere importer.”

The Federal Circuit’s decision could be particularly impactful given the increasing frequency with which the ITC has turned to the “mere importer” doctrine as a basis to exclude categories of investments from substantive analysis of domestic industry. See, eg, Certain In Vitro Fertilization Prods., Components Thereof, & Prods. Containing the Same, Inv. No. 337-TA-1196, Comm’n Op., at 17–25 (Oct. 28, 2021) (excluding regulatory fees, and expenses for quality assurance, logistics, marketing, promotion, and sales activities for the domestic industry articles as “mere importer” investments); Certain Bone Cements, Components Thereof, and Products Containing the Same, Inv. No. 337-TA-1153, Comm’n Op. at 29 (Jan. 25, 2021) (characterizing expenditures for training and education, trade shows, and conferences as “largely marketing events” and excluding them as “mere importer” expenditures); Certain Foodservice Equipment and Components Thereof, Inv. No. 337-TA-1166, Comm’n Op. at 10 (Oct. 29, 2021) (excluding “expenditures for ‘investments in acquiring inventory’ and ‘warehouse facilities’ as ‘marketing and sales or distribution and shipping’ expenditures” and finding “that such activities are those of a ‘mere importer’”) (citation and footnote omitted).

Should the Federal Circuit offer such clarity, it has the potential to significantly impact the types of companies that can obtain relief at the ITC.

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