April 14, 2025

Wuhan Healthgen Biotechnology Corp. v. Int’l Trade Comm’n, 127 F.4th 1334 (Fed. Cir. Feb. 7, 2025), and Lashify, Inc. v. Int’l Trade Comm’n, 130 F.4th 948 (Fed. Cir. March 5, 2025), illustrate a more flexible approach by the Federal Circuit in evaluating the economic prong of the domestic industry requirement in Section 337 ITC investigations and provide important guidance in this context.

The Court in Healthgen began with a summary of the economic prong and its requirements. 127 F.4th at 1338 (quoting the substance of subsections (A), (B), and (C) of § 337(a)(3)).  It noted that only one of subsections (A), (B), or (C) needs to be satisfied to meet the economic prong. Id.  It further noted that a “quantitative analysis” is required to determine whether investments are “significant.” Id. (quoting Lelo Inc. v. Int’l Trade Comm’n, 786 F.3d 879, 883 (Fed. Cir. 2015)).

The patentee (Ventria Bioscience) relied on its patented Optibumin product to establish a domestic industry. Id.  To satisfy the economic prong Ventria submitted evidence under all three subsections of § 337(a)(3). Id.  Using a sales-based allocation method to calculate the investments under each subsection, the Commission found that Ventria’s Optibumin investments in plant and equipment costs under subsection (A), labor costs under subsection (B), and research and development costs under subsection (C) are significant and substantial because, inter alia, 100% of these investments occur in the United States. Id.  The Commission also found the Optibumin investments significant and substantial based on a comparison of the investments to Optibumin's revenue. Id.

Healthgen argued those investments are too small to be significant or substantial under § 337(a)(3), and that low Optibumin revenue, when coupled with small investments, artificially creates high investment-to-revenue ratios. Id. at 1338-39.  The Court, however, said the Commission’s findings are supported by substantial evidence. Id.  That it may have been relatively inexpensive for Ventria to develop and produce its patented product did not, alone, preclude finding a domestic industry in that product was established. Id.  The Court noted it was undisputed that the investments and activities relating to researching, developing, and commercially producing Optibumin occur within the U.S. Id. at 1339.

The Court went on to explain that “comparing the cost of foreign to domestic manufacturing to determine the percentage of additional value created by domestic Optibumin operations in the final product yields a value added of 100%.” Id.  The Court also explained that “the investment-to-revenue ratio can indicate whether an investment is significant and substantial.” Id.  It concluded that “[a] high ratio signals the company is investing heavily in the industry despite comparatively low revenue, highlighting the industry's importance and value to the company, which can be predictive of a significant market.” Id.

Healthgen was unsuccessful in arguing that the Commission relied on qualitative factors to overcome the quantitatively small Optibumin investments, in violation of the Court’s precedent. Id.  The Court took note of its recognition that the comparison of domestic investments to total (i.e., domestic plus foreign) investments is a valid quantitative analysis for assessing the significance of investments. Id. (citing Lelo, 786 F.3d at 883-884).  The Court also noted its recognition that the value added by domestic operations is a quantitative factor in the assessment. Id.

The Court held that “small market segments can still be significant and substantial enough to satisfy the domestic industry requirement.  A finding of domestic industry cannot hinge on a threshold dollar value or require a rigid formula; rather, the analysis requires a holistic review of all relevant considerations that is very context dependent.” Id.  It explained that while the dollar amounts of Ventria’s Optibumin investments are small, the Commission found all the investments are domestic, all market activities occur within the U.S., and the high investment-to-revenue ratios indicate this is a valuable market. Id.  It concluded that under these circumstances, substantial evidence for the Commission's finding that the domestic industry requirement is satisfied exists. Id.

Lashify’s contribution to the body of law on the economic prong concerns § 337(a)(3)(B), “significant employment of labor or capital.”  Lashify, the patentee, also relied on its patented products to satisfy the domestic industry requirement. 130 F.4th at 951-52.  Relevant here is that Lashify, an American company with headquarters and employees in the U.S., conducts its research, design, and development work in the U.S. Id.  Its patented products, however, are made abroad and then shipped to customers, including U.S. customers, who purchase them through Lashify’s website. Id.  After receiving the lash extensions, customers can use several Lashify-provided resources to learn how to apply them: educational videos on social media, online chats with its customer advisers, and one-on-one video-call sessions. Id.

Lashify submitted evidence solely under § 337(a)(3)(B) to satisfy the economic prong. Id. at 954-55.  That evidence was found insufficient after the Administrative Law Judge (“ALJ”) excluded expenses for warehousing, distribution, quality control, sales and marketing. Id.  The warehousing, quality control, and distribution expenses were excluded because there were “no additional steps required to make the[] products saleable” upon arrival into the U.S. and because the quality control measures were “no more than what a normal importer would perform upon receipt.” Id. (quoting the Final Initial Determination).  Sales and marketing expenses were excluded because “Lashify did not meet its burden to establish significant qualifying expenses in other areas.” Id. (same).

The Commission split on this issue in its review of the ALJ’s determinations.  The majority agreed that the economic prong was not satisfied. Id. at 956-57.  It found it “well settled that sales and marketing activities alone cannot satisfy the domestic industry requirement.” Id. (quoting the Commission decision).  The majority also drew the same conclusion as the ALJ about expenses related to warehousing, quality control, and distribution (without regard to their magnitude). Id.  It explained that such expenses are akin to those incurred by mere importers. Id.  Once these conclusions were drawn, the majority saw no basis for finding the economic prong requirement satisfied. Id.

The Federal Circuit disagreed and found that § 337(a)(3)(B) “covers significant use of ‘labor’ and ‘capital’ without any limitation on the use within an enterprise to which those items are put, i.e., the enterprise function they serve.” Id. at 957-59.  It particularly found “no carveout of employment of labor or capital for sales, marketing, warehousing, quality control, or distribution.” Id.  It further found no “suggestion that such uses, to count, must be accompanied by significant employment for other functions, such as manufacturing.” Id.  It concluded that the Commission's holdings “attribute[d] limitations to clause (B) not found there.” Id.

The Court held that to satisfy the economic prong of the domestic industry requirement under § 337(a)(3)(B), expenses for warehousing, distribution, quality control, sales and marketing can be included to the extent they relate to employment of “labor or capital.” Id. at 960-63.  The Court also held that there is no domestic engineering requirement for purposes of § 337(a)(3)(B). Id.