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  • Writer's pictureYork Faulkner

An Aggregation of Errors: How Zircon Failed to Prove Domestic Industry

“. . . Zircon stumbled, however, in demonstrating the scope of its investments in that specific subset of protected products, thereby failing to meet the domestic industry’s economic prong. . . .”

 


Introduction

 

In Zircon Corp. v. International Trade Commission, No. 2022-1649 (Fed. Cir. May 8, 2024) (“Decision”), the United States Court of Appeals for the Federal Circuit affirmed the final determination by the International Trade Commission (“ITC”) that Zircon failed to make the required threshold showing of a domestic industry protected by its asserted patents.

 

In its ITC Complaint, Zircon alleged that certain electronic hand-held “stud finders” imported into and sold in the United States by Stanley Black & Decker, Inc. and Black & Decker (U.S.), Inc. infringed three Zircon patents. As a prerequisite to the relief sought in its Complaint—an import exclusion order—Zircon was required to show that “an industry in

the United States, relating to the articles protected by the patent . . . exists or is in the process of being established.” 19 U.S.C. § 1337(a)(2).

 

This requirement has two prongs: (1) the technical prong, which requires proof that the complainant’s products are protected by the asserted patents, and (2) the economic prong, which necessitates detailed proof of significant or substantial investment directed to the patented products themselves. The ITC determined that Zircon’s evidence satisfied the technical prong but fell short of meeting the economic prong in demonstrating a domestic industry. The Federal Circuit affirmed on that ground alone, declining to reach Zircon’s additional challenges to the ITC’s rulings on patent infringement and invalidity.

 

Background and Procedural History

 

Zircon competes with Black & Decker by manufacturing and selling stud-finding equipment in the United States. In its Complaint, Zircon alleged that Black & Decker’s products infringed three patents: U.S. Patent Nos. 6,989,662 (“the ’662 patent”); 8,604,771 (“the ’771 patent”); and 9,475,185 (“the ’185 patent”). The ’662 patent claims are directed to methods of calibrating a stud-finder, and the ’771 and ’185 patent claims are directed to certain finger-grip designs that “provide an axis of rotation.”

 

Significantly, Zircon owns numerous additional patents with claims to other aspects of stud-finding products that were not asserted in its Complaint. Commensurate with its extensive patent portfolio, Zircon sells a broad range of 53 distinct stud-finding products. However, the evidentiary breakdown of these products showed a disparate connection to the patents in suit—only 14 of the 53 products practiced all three asserted patents, 21 products practiced both the ’771 and ’185 patents, 16 products utilized only the ’662 patent, and two products related solely to the ’771 patent. See Decision at 8.

 

Based on this evidence, the ITC determined that Zircon satisfied the technical prong of the domestic industry requirement because at least a subset of its products was protected by the three asserted patents. Zircon stumbled, however, in demonstrating the scope of its investments in that specific subset of protected products, thereby failing to meet the domestic industry’s economic prong.

 

Zircon had attempted to meet the economic prong by aggregating its investments across all 53 of its stud-finding products, including its research and development expense for a computer chip used in those products. The administrative law judge (“ALJ”) presiding over the matter determined that Zircon’s evidence missed the mark because it failed to identify the investments allocable to the subset of products protected by the three patents in suit. The ALJ reasoned that this lack of specificity prevented a clear assessment of Zircon’s investment in the relevant subset of products representing the specific domestic industry at issue in the case.

 

The ALJ also found that while certain of the Black & Decker products infringed claims 1, 9, and 16 of the ’662 patent, claim 17 of the ’662 patent was invalid as obvious. The ALJ concluded further that none of the accused Black & Decker products infringed any of the asserted claims of the ’771 and ’185 patents. The Commission affirmed the ALJ’s determinations, specifically concurring in the determination that Zircon failed to demonstrate the requisite domestic industry.

 

Zircon’s Appeal to the Federal Circuit

 

The Federal Circuit framed the question presented on appeal as “whether section 337 permits Zircon to rely on investment data aggregated across different products protected by different patents.” Decision at 9. Zircon argued that the ITC erred in determining that Zircon was obliged “to establish the existence of a separate domestic industry for articles related to each patent.” Id. According to Zircon, “section 337 requires only that it tie its expenditures to articles protected by some or all of the three asserted patents and that it need not segregate its investments on a patent-by-patent basis.” Id.

 

In support of its position, Zircon relied on several prior cases to show that the ITC’s required protected product investment allocation was a novel requirement and that the ITC “‘should proceed on the basis that there is a single industry which exploits the patents.’” Id. at 13 (quoting Zircon opening brief); citing Certain Dynamic Random Access Memories, Components Thereof & Prod. Containing Same, Inv. No. 337-TA-242, USITC Pub. No.

2034, Comm’n Op., 1987 WL 450856, at *28 (Sept. 21, 1987) (“Certain DRAMs”); Certain Laser Bar Code Scanners & Scan Engines, Components Thereof & Prods. Containing Same, Inv. No. 337-TA-551, Ord. No. 25, 2006 WL 2222926, (July 17, 2006); Certain Elec. Imaging Devices, Inv. No. 337-TA-850, Initial Determination, 2013 WL 5956227 (Sept. 30, 2013); Certain Integrated Circuit Chips, Inv. No. 337-TA-859, Comm’n Op., 2014 WL 12796437

(Aug. 22, 2014); and Certain Ground Fault Circuit Interrupters, Inv. No. 337-TA-739, Comm’n Op., 2012 WL 2394435 (June 8, 2012). The Federal Circuit readily distinguished most of those cases, noting that they merely permit grouping products by their corresponding patents and that in each case, all products were covered by at least one claim of one asserted patent.

 

The Federal Circuit took greater care in distinguishing the ITC’s domestic industry determination in the Certain DRAMs case. There, all the DRAM memory products were manufactured using the same processes and had essentially the same product design, except for their differing memory densities. The ALJ initially determined that although each product variant “practiced one or more of the [five] asserted patents,” a separate domestic industry must be shown for each memory density. Decision at 15. The Commission reversed the ALJ, explaining that “there was ‘substantial overlap among the different generations of DRAMS produced in accordance with one or another of the patents in controversy.’” Id. at 15 (quoting Certain DRAMs, 1987 WL 450856 at *28).

 

Zircon argued that its evidence showed the same “substantial overlap,” where “35 of the 53 domestic industry products practice two or more of the asserted patents.” Decision at 15. The Federal Circuit noted in passing that the ITC had rejected that argument, “finding that ‘the reasoning of DRAMs is inapplicable here where there is no record to show ‘substantial overlap’ of the articles that practice each of Zircon’s asserted patents’ because less than a quarter of the domestic industry products practice all the asserted patents.” Id. at 16 (quoting Certain Elec. Stud Finders, Metal Detectors and Elec. Scanners, Inv. No. 337-TA-1221, Comm’n Op., 2022 WL 834280, at *31 (Mar. 14, 2022)).

 

Ultimately, the Federal Circuit concluded that “Certain DRAMs has little bearing on the present case” because it was decided under a different legislative framework. Decision at 16. Approximately one year after Certain DRAMs, the 1988 amendments to Section 337(a) refined the requirements for demonstrating a domestic industry, expressly tying the complainant’s economic investments to “the articles protected by the patent.” Id. (quoting amended Section 337(a)(1)(B)-(D)). The Federal Circuit distinguished Certain DRAMs further on grounds that the patented products at issue there “differed only in their storage capacity,” whereas Zircon’s “patents relate to disparate technologies (e.g., hand grips and recalibration capability).” Decision at 17.

 

The Federal Circuit therefore held that the ITC did not err in requiring Zircon to prove the domestic industry’s economic prong by showing substantial investment directly allocable to the subset of products protected by the patents in suit. “To meet that burden, Zircon needed to show that its investments in plant and equipment, labor or capital, and/or research and development, with respect to articles protected by each patent, were significant or substantial.” Id. The Federal Circuit further explained that “Zircon was required to identify, in some manner, how much of its investment in each statutory category was attributable to each group of products.” Id. (citing John Mezzalingua Assocs., Inc. v. Int’l Trade Comm’n, 660 F.3d 1322, 1331 (Fed. Cir. 2011)).

 

Having lost its legal battle over the proper standard for proving the domestic industry’s economic prong, Zircon attempted to show that it had in fact presented evidence satisfying the ITC’s required allocation of investment to the patent protected products. In doing so, Zircon pointed to the declaration of its president, COO, and CFO, Ronald Bourque, which purported to identify Zircon’s investments by patent subject matter. The ITC, however, argued that Zircon improperly raised the Bourque declaration on appeal because the ALJ had excluded the declaration in limine prior to trial, and Zircon failed to appeal the exclusion during the Commission’s review. Decision at 18-19.

 

Zircon responded that the declaration was properly admitted because it was an attachment to Zircon’s Complaint and therefore pursuant to the ITC’s Order No. 41, “‘the pleadings . . . are already part of the record and do not need to be separately admitted as hearing exhibits.’”  Decision at 18 (quoting Rule 210.38). Moreover, Zircon argued that the declaration was cited in Mr. Bourque’s witness statement that was itself admitted at trial. The Federal Circuit rejected both contentions, adopting the ITC’s position that Order No. 41 and referenced Rule 210.38 relate exclusively to the “administrative record” maintained by the ITC—not the evidentiary record governed by Rule 210.37. Decision at 19. Moreover, the Federal Circuit concluded that because the declaration had only been cited, without elaboration, in Mr. Bourque’s trial witness statement as a demonstrative exhibit, it had no independent evidentiary significance. Id.

 

Finally, the Federal Circuit found that the ITC properly excluded Mr. Bourque’s testimony about Zircon’s investments in developing the computer chips used in its products to perform the calibration functions claimed in the ’662 patent. The ITC rejected both Mr. Bourque’s testimony and the opinions of Zircon’s economic expert relying on that testimony, because Zircon failed to present any documentary corroboration for the investment values asserted in the testimony. The Federal Circuit deferred to the ITC’s determination that the testimony was unreliable, noting that “[t]he ALJ’s credibility determinations and weighing of the evidence are entitled to great weight, and there is no reason on this record to override those determinations.” Decision at 22 (citing Bio-Rad Lab’ys, Inc. v. Int’l Trade Comm’n, 998 F.3d 1320, 1336 (Fed. Cir. 2021)).

 

Conclusion

 

The Zircon case is a sober reminder of how easily one can stray from the well-worn but exacting path of establishing the relevant “domestic industry” in ITC investigations. Proving domestic industry is usually a straightforward task for most complainants since they control the pertinent facts regarding their investments, products, and patents. Moreover, the rigorous investment allocations required in Zircon are mostly unnecessary for those complainants with limited domestic product lines and narrow patent focus—a presentation of aggregate investment data will invariably capture the relevant subject matter. The complexity and need for extra attention arise when a complainant, such as Zircon, has a broad and diverse portfolio of products and patents. In such cases, the complainant must meticulously align its investments with the specific patents in suit to avoid Zircon’s fate.

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