Lashify, Inc. v. Itc
Unpublished/Not yet in Reporter (2025)
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Rule of Law:
Under 19 U.S.C. § 1337(a)(3)(B), domestic expenditures on sales, marketing, warehousing, quality control, and distribution activities must be included when determining if a company has made a 'significant employment of labor or capital' to establish a domestic industry. Such activities can be sufficient on their own to satisfy the economic prong of the domestic industry requirement, even without domestic manufacturing.
Facts:
- Lashify, Inc., an American company, owns patents for artificial eyelash extensions, storage cartridges, and applicators.
- Lashify conducts its research, design, and development activities in the United States, where its headquarters and employees are located.
- Lashify arranges for its products to be manufactured abroad and then imported into the United States.
- In the U.S., Lashify markets and sells its products directly to customers through its website.
- Lashify provides U.S.-based customer support and educational resources, including online videos, chats with customer advisers, and one-on-one video calls to teach product application.
Procedural Posture:
- Lashify, Inc. filed a complaint at the U.S. International Trade Commission (ITC) alleging that several companies violated Section 337 of the Tariff Act by importing products that infringed its patents.
- The ITC instituted an investigation and the case was heard by an Administrative Law Judge (ALJ).
- The ALJ construed the patent term 'heat fused' to mean 'joined by applying heat to form a single entity.'
- In a Final Initial Determination, the ALJ found no violation of Section 337.
- The ALJ determined that Lashify failed to satisfy the economic prong of the domestic industry requirement because its significant expenses were in non-qualifying areas like sales, marketing, warehousing, and distribution.
- The ALJ also determined that Lashify failed to satisfy the technical prong for its '984 utility patent, finding its own products did not practice the patent under the court's claim construction.
- The full Commission reviewed and affirmed the ALJ's determination of no violation, with the majority agreeing that Lashify's sales and marketing activities alone could not satisfy the domestic industry requirement.
- Lashify, Inc. (appellant) appealed the Commission's final determination to the U.S. Court of Appeals for the Federal Circuit, with the ITC serving as the appellee.
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Issue:
Does the 'significant employment of labor or capital' provision of 19 U.S.C. § 1337(a)(3)(B) permit the International Trade Commission to exclude expenditures on sales, marketing, warehousing, quality control, and distribution from its domestic industry analysis on the grounds that such activities, standing alone, are insufficient without accompanying domestic manufacturing or other qualifying activities?
Opinions:
Majority - Taranto, Circuit Judge
No. The International Trade Commission applied a legally incorrect understanding of the statute by excluding Lashify's domestic expenditures on sales, marketing, and logistics from the domestic industry analysis. The plain text of § 1337(a)(3)(B) requires the inclusion of all 'significant employment of labor or capital' with respect to the patented articles, without carving out specific business functions or requiring domestic manufacturing. The statutory language, which lists 'significant investment in plant and equipment,' 'significant employment of labor or capital,' or 'substantial investment in its exploitation' as independently sufficient bases, does not support the Commission's narrow reading. The court reasoned that while clause (C) is function-based (exploitation, R&D), clause (B) is input-based, covering labor and capital regardless of their specific enterprise function. The legislative history of the 1988 amendments confirms that Congress intended to broaden the definition of domestic industry and specifically rejected a domestic manufacturing requirement. The Commission’s reliance on pre-1988 case law, like Schaper, is misplaced as the statute was amended to overcome such narrow interpretations. Therefore, the Commission's decision on the economic prong is vacated and remanded for a redetermination that includes Lashify's expenditures on sales, marketing, warehousing, quality control, and distribution. However, the court affirmed the Commission's finding on the technical prong for the '984 utility patent, agreeing with its construction of 'heat fused' as requiring the formation of a 'single entity,' which Lashify's own products failed to meet.
Analysis:
This decision significantly expands the ability of patent holders who utilize foreign manufacturing to seek relief at the International Trade Commission. It clarifies that the economic prong of the domestic industry test under § 1337(a)(3)(B) is a quantitative, input-based analysis, not a qualitative one that requires 'value-added' activities like manufacturing. By rejecting the ITC's long-standing practice of discounting or excluding sales, marketing, and distribution expenses, the ruling aligns the statute with modern business models where design, marketing, and sales occur in the U.S. while production is outsourced. This will likely lower the barrier for many technology and consumer product companies to file Section 337 complaints, making ITC litigation a more accessible tool for enforcing patent rights against infringing imports.
